China Brands: Consumer Giant Coming?
Media are buzzing about the latest survey on China’s most valuable brands, with each providing its own interpretation of the latest list from global advertising giant WPP (London: WPP) and its Millward Brown affiliate. Many companies that I regularly write about are at the top of the list, but an equally interesting is who isn’t there. I’m referring to consumer brands that are common elements of daily life for most people, printed on everything from shampoos to instant noodles. This category is currently dominated by foreign names, but the new list hints that 1 or 2 Chinese firms could be positioned to become the country’s first equivalent of Procter & Gamble (NYSE: PG) or Unilever (London: ULVR).
Before I look at who some of these rising consumer giants might be, let’s step back and quickly review the list itself, which was led by wireless giant China Mobile (HKEx: 941; NYSE: CHL) with a brand value of $61.4 billion. (English article) Among the top 10 names on the list, only Internet giants Tencent (HKEx: 700) and Baidu (Nasdaq: BIDU) are privately owned. State-run firms that make up most of the top 10 include all of China’s Big 4 state-owned banks, as well as oil giants PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR)and Sinopec (HKEx: 386; Shanghai: 600028).
Some media are focusing on the continued dominance of state-run firms, while others are pointing out the rapid rise of Tencent represents a trend of the future that will see innovative private firms eventually overtake their big state-run cousins. But what caught my attention was one report that pointed out that some of the fastest risers were consumer brands that are quickly boosting awareness of their names among China’s 1.3 billion consumers.
Some of those are names that I’ve heard of and even write about from time to time, including fast-rising dairy leader Mengniu (HKEx: 2319) and food products maker Bright Dairy & Food (Shanghai: 600597). The former is in the process of consolidating its position as China’s leading dairy company, drawing on a series of partnerships with global giants like Danone (Paris: DANO). The latter is trying to build itself into the nation’s first diversified food products giant through a series of major global acquisitions, including last year’s purchase of British breakfast cereal giant Weetabix.
Another group I’m far less familiar with on the list is companies from the personal health care products sector, where names including Sanjiu Medical (Shenzhen: 000999) and Yunnan Baiyao Group (Shenzhen: 000538) were 2 of the fastest rising giants. As a China resident, I can testify that P&G and Unilever currently dominate the personal care market in big cities like Shanghai through slickly packaged products and aggressive marketing campaigns. The food products sector is a bit more fragmented, but even here names like Hong Kong-listed instant noodle maker Tingyi (HKEx: 322) and global beverage giant Coca Cola (NYSE: KU) are among the more dominant names.
So what’s the bottom line in all this? Frankly speaking, I think that Chinese products could have a big advantage over their foreign rivals if some of the big local brands improve their national distribution and packaging, and mount aggressive marketing campaigns like the ones we see from P&G and Unilever. After all, if the very foreign-sounding Head & Shoulders can become one of China’s best-selling shampoos, there’s no reason a brand more targeted at local preferences can’t do even better.
All that brings me back to the question of who are some of the companies to watch that could become China’s future consumer brand giants. I’ve previously said that Bright and Mengniu could be good candidates, as both are showing an appetite for acquisitions and partnerships with marketing-savvy foreign firms. Based on this latest brand report, Sanjiu and Baiyao could also be names to watch, as both already have strong brand recognition and could become consolidators in the fragmented personal care market.
Bottom line: A group of future consumer product brands is starting to take shape in China, with 1 or 2 names like Bright Dairy or Sanjiu Medical likely to emerge as a sector leader in the next 5-10 years.
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