麦肯锡中国快速消费品市场进入策略

CONFIDENTIAL January 10, 2008 China Market Entry 1 TODAYS OBJECTIVES Overview of China macro economy Understanding Chinese consumers China personal hygiene market development and trends What it takes to win in China Questions and answers 2 KEY MESSAGES Chinese economy has been the fastest growing economy (9.6% CAGR ) in the world for the past 15 years and is now the 4th largest GDP is projected at continued growth with a medium term “soft-landing” and urbanization is one of the driving forces for continued economic development China consumer market is the 7th largest in the world and is expected to be the 4th by 2015 China is not a homogeneous market, but rather multiple markets by tiers and regions 3 CHINAS GDP HAS BEEN GROWING RAPIDLY DURING THE LAST 26 YEARS AND CHINA IS NOW THE 4th LARGEST ECONOMY IN THE WORLD 01 , 0 0 02 , 0 0 03 , 0 0 04 , 0 0 05 , 0 0 06 , 0 0 07 , 0 0 08 , 0 0 01980 1985 1990 1995 2000 2005Real GDP growth PPP adjusted* USD billions China CAGR = 9.8% (1990-2006) Inflection in China GDP US Japan Germany France China UK Italy Canada Spain 1 2 3 4 6 5 7 8 9 10 * Base year: 2002 Source: China Statistical year books； Global Insight； Bloomberg and World bank 2006 nominal GDP USD billions 13,194 4,366 2,915 2,644 2,399 2,252 1,853 1,275 1,231 874 India 4 OLD SHANGHAI PUDONG 5 NEW SHANGHAI - PUDONG 6 OLD SHENZHEN 7 NEW SHENZHEN 8 Note: All figures are rounded to the nearest first decimal Source: Global Insight； MGI CAU model v 2.5 GDP IS PROJECTED AT CONTINUED GROWTH WITH A MEDIUM TERM “SOFT-LANDING” Growth of real GDP Percent History Forecast 0246810121416181985 1990 1995 2000 2005 2010 2015 2020 2025CAGR 1985-2006 10.2% CAGR 2006-25 7.2% 9 Share of real GDP RMB 2000, trillions, percent CONSUMPTION SHARE OF GDP WILL RISE OVER THE LONG TERM Source: National Bureau of Statistics of China； MGI CAU Model v. 2.5 42464114 14 15Consumption 38 6 11.9 2005 37 3 29.8 2015F 43 2 60.7 2025F Investment Net Trade 100% = Government consumption 10 Real GDP by sector THE INDUSTRIAL SECTOR WILL REMAIN A KEY GROWTH DRIVER, BUT SERVICES WILL BECOME MORE IMPORTANT 5149466 43 11,928 2005 4 47 29,802 2015 3 51 60,685 2025 Agriculture Industry Service 100% = Source: National Bureau of Statistics of China； MGI CAU Model v. 2.5 CAGR Percent 2005-15 2015-25 10.5 9.6 4.1 5.1 6.6 9.2 8.3 10.5 11 URBANIZATION IS ONE OF THE DRIVING FORCES FOR CONTINUED ECONOMIC DEVELOPMENT Source: Demographia； China-All-City model output, McKinsey Global Institute analysis In the last 10 years almost 50% of Chinas GDP growth came from urban fixed investments with an annual expenditure of up to $900 billion Over the next 20 years, Chinese cities will add more than 300 million people the population of the entire United States There will be more than 200 Chinese cities with more than a million inhabitants in Europe today there are only 35 cities of that size By 2025, two-thirds of Chinas citizens will live in cities thats nearly 1 billion people 12 1 billion 1 and 0.5 billion 0.5 and 0.1 billion 1 billion 1 and 0.5 billion 0.5 and 0.1 billion USD 1000 HH consumption per capita USD 800-1000 HH consumption per capita 70%) and is expected to continue to grow at 9% annually in the next 5 years, driven by increased penetration in lower- tier cities/ rural areas and consumers trading up to higher quality products Baby diapers current penetration is low at 12% but the market is expected to take off in the next 5-10 years with increased spending power and changing consumer habits Incontinence product market is very small but may have attractive growth potential in longer term There are emerging leaders both in the feminine hygiene and baby diaper markets, who have adopted different strategies in China Unicharm built its initial success in the feminine hygiene market with innovative product offering (e.g. extra long pad) and competitive pricing Hengan is the only local leader in the feminine hygiene market who successfully competes in the mid/low end segments enabled by its strong and deep RTM P&G achieved early success in baby diaper market by systematically educating consumers and shaping demand 30 ANALYSTS EXPECT THAT THE PERSONAL HYGIENE MARKET IN CHINA WILL CONTINUE TO GROW AT 15% ANNUALLY TO REACH USD10 BILLION IN 2011 Source: Euromonitor； interviews； team analysis 2,834 226 14 3,074 2001 4364 854 35 5,253 2006 6810 3642 78 10,530 2011E Feminine hygiene products Baby diapers Incontinence products CAGR 2001-06 Percent CAGR 2006-11 Percent 9 11 30 20 9 15 34 17 Retail sales USD millions Growth drivers Rapid adoption of basic personal hygiene products by consumers with rising disposable income and desire for better hygiene and convenience Changing consumer preference and behavior Women continue to trade up to higher quality products, driven by enhanced hygiene awareness Greater acceptance of the caring functions and convenience of baby diapers, especially due to one-child policy Increase of awareness of incontinence products ESTIMATE 31 PENETRATION LEVEL OF PERSONAL HYGIENE PRODUCTS IN CHINA IS MUCH LOWER COMPARED TO MATURE MARKETS Source: China National Household Paper Industry Association； expert interviews； team analysis 64 100 100 12 95 96 Feminine Hygiene products 01020304050607095 98 00 01 02 03 04 05 Feminine hygiene Baby diapers Incontinence Baby diapers Product China personal hygiene products penetration level, 1995-2006 Percent Penetration level by product category, 2006 Percent 06 32 THERE IS ATTRACTIVE GROWTH POTENTIAL IN FEMININE HYGIENE MARKET, ESPECIALLY FOR SANITARY PAD AND PANTY LINER PRODUCTS Source: Interviews； literature research Product category Category share Percent Growth drivers Sanitary pad 85 15 Continued penetration in lower-tier cities and rural areas Penetration in Tier 1 cities are close to 100%, while 60% in lower tier cities and rural areas Demand for higher quality product (e.g. wings, extra thin), driven by enhanced hygiene awareness and stronger desire for comfort Panty liner Wider adoption driven by education/push from suppliers China currently has much lower penetration compared to other Asian markets 14 86 Tampon 1 99 Special occasion adoption, e.g. after 20 years in Japan market tampon is used mainly for special occasions such as sports events 24% China 60-70% Taiwan 80% Japan Sanitary pad market will continue to grow, especially in lower-tier cities and rural area Panty liner market has a lot more growth potential Future growth for tampon is uncertain 33 TOP 20% SANITARY PROTECTION USERS CONSTITUTE MORE THAN 50% OF THE TOTAL MARKET DUE TO THEIR LARGER BASKET SIZE * Multiply purchase frequency with average basket size of each purchase Source: McKinsey China Consumer 2006 survey (Dec 2006) Top 20% sanitary protection users take up more than 50% of the total market consumption Given a purchase frequency similar to that of mass consumers, a bigger market size of top 20% users comes from a larger basket size Estimated consumption value* Percent How much do you usually spend on sanitary protection on an average shopping trip? RMB Percent of respondents How often do you buy sanitary protection? Average number of times per month 208049 510 . 30 . 32010Top 20% users Overall female consumers Top 20% sanitary protection users Significantly higher at 80% of confidence 34 TOP 20% USERS ARE LESS PRICE SENSITIVE AND SHOW STRONGER INTERESTS IN PREMIUM PRODUCTS Attitudes towards premium products or lower prices Expensive products are better 3226Top 20% users Overall female consumers 3631Top 20% users Overall female consumers Within a range of prices I can afford, I always pay a premium price for the most expensive and best products Significantly higher/lower at 80% confidence Percent of strongly agree or agree Source: McKinsey China Consumer 2006 survey (Dec 2006) 35 PREMIUM SANITARY PROTECTION USERS TEND TO BE YOUNGER, WEALTHIER OR BETTER-EDUCATED CONSUMERS IN HIGHER CITY TIERS, OR IN EAST AND CENTRAL SOUTH REGIONS * The top 20% sanitary protection users Source: McKinsey China Consumer 2006 survey (Dec 2006) Significantly higher at 80% confidence By education 26353543231514Sr. high University 8 Below Jr. high College and above 261825392717178 9 Premium sanitary protection users* 8K 5 3 Overall female consumers 4 25 3024424151418East Southeast Northwest Central South 11 6 7 Premium sanitary protection users* North 4 Overall female Norteast By monthly household income (RMB) By region 41 32404119158 Tier 1 Tier 2 Tier 3 County seats 5 By tier By age 2427303517 231855-65 45-54 35-44 3 18-24 25-34 12 12 Percent of respondents Demographic distribution 36 90122005 2005 Penetration of baby diaper market 2006 Percent Taiwan BABY DIAPER MARKET IS EXPECTED TO TAKE OFF IN THE NEXT 5 YEARS Source: Interviews； McKinsey analysis Baby diapers are not quite widely accepted in China yet “I take care of the baby while their parents workwe old people prefer cloth diaper rather than paper products.” Ms. Ma, grandmother in Shanghai but likely to take off as evidenced in similar markets Mainland China Key drivers for China Increased affordability with continued rise in consumer disposable income High willingness to spend on children with “one-child policy” Changing consumer habit and stronger desire for convenience “I dont want to use the new diapers because it is not breathable I like the cotton ones we make at home” Ms. Zhang, young mother in Nanjing “Diaper costs about 1 RMB per piece, but a baby consumes at least 5-8 units a day. From new-born to about 2 years old, we will need to spend RMB 20K!. More expensive than drinking milk” Ms. Liu, a grandmother in Hefei “Diapers are too expensive for common households, we use cloth diaper during day time, and diaper during nights only.” Mr. Wang, a new father in Suzhou 37 INCONTINENCE PRODUCT IS AN IMMATURE MARKET FOR NOW, BUT MAY HAVE LONGER TERM POTENTIAL Source: Interview； team analysis Both markets have long- term potential China is aging quickly, e.g., age 65 currently account 7.6% of population and expected to reach 13.6% in 2025 Living standards will continue to improve and consumer will be looking for comfort and convenience with higher disposable income Product awareness are much broader in new generations, which are the potential consumers of incontinence products in the future Low awareness is the major reason of low penetration of urine leakage pad “Whats urine leakage pad? ” Ms. Zheng, resident in Shanghai “Do you need a pad for urine leakage? ” Ms. Wang, resident in Shanghai Affordability is the key obstacle for adult diaper adoption “We are not used to such modern and luxury diapers, cloths are much cheaper and also quite convenient.” Mr. Cai, retired worker, Beijing “Adult diapers are too expensive for us who live on limited well-fare benefits after retirement.” Mrs. Wen, retired teacher, Chongqing 38 MNCs ARE LEADERS OF FEMININE HYGIENE MARKET * Established as a local private owned company Source: Euromonitor； ISI； literature search 2005 feminine hygiene market share Percent Local players MNCs 473 69101213Unicharm P&G Hengan J&J Kimberly-Clark C-bons Others Year entered China 1995 1988 1985* 1994 1985 Brands Sofy Center-in Charm Whisper ANLE ANERLE Comfort& Beauty Kotex Carefree Stayfree O.B. Products Sanitary pads Tampons Panty liners Sanitary under wares Feminine napkins Tampons Panty liners Sanitary pads Sanitary pads Panty liners Panty liners Sanitary pads Tampons Players 39 UNICHARM LEVERAGED ITS JAPANESE TECHNOLOGY AND BUILT ITS SUCCESS IN CHINA WITH INNOVATIVE PRODUCT OFFERINGS Unicharm Founded in Japan 1961 No.1 personal hygiene player in Japan Has subsidiaries in Taiwan, Korea, Thailand and some other Asian countries Entered China market in 1993 Sofy is the No.1 sanitary pad brand in China by market share Achieved initial success with innovative product offering Launched market survey identified market “white-spot” no existing products offered enough protection against leakage First to introduce extra long (29 cm) product for night use in China Leveraged in-house available technology to further launch new products for night use, e.g. Sofy with “wall” against leakage and Sofy flexible fit Key success factors Source: Interviews； literature search； McKinsey analysis Maintain its leadership with competitive pricing in premium market Considered “best value for money” in the premium segment Consistently priced slightly lower than other leading premium brands 40 HENGAN HAS BUILT ITS SUCCESS BASED ON STRONG AND DEEP RTM AND LOW COST ADVANTAGE First mover into this category by “copying” popular product from other markets Observed the acceptance of sanitary pad and pad with wings in South East Asia market and first to launched sanitary pad in China in 1985 (P&G launched 3 years later) Launched pad with wings in 1993 after seeing it in other Asian markets (P&G launched pad with wings in the same year) Strong RTM with deep coverage in lower-tier cities Started in big cities such as Shanghai in 1985 Gradually expanded nationally, with deep coverage in lower-tier cities Has large sales force (6000 field sales) who manages distributors and cover POS at key outlets Low cost advantage Offers products at 20-30% cheaper than leading competitors Focus on optimizing cost structure, e.g. consolidated procurement across all departments； reduced packaging cost by 10% through cost optimizing initiatives Founded in 1985 in Fujian province Largest local player in the personal hygiene market 2005 revenue - USD 389 million Major brands Anle Anerle Elderjoy Hearttex Hengan Key success factors Source: Interviews； literature search； McKinsey analysis 41 P&G DOMINATES BABY DIAPER CATEGORY 2006 baby diaper market share Percent Baby diaper brands Pampers ANERLE Fitti Drypers Baby Love Pet Pet Babyjoy Sealer Prokids EQ Huggies Year entered China 1993 1993 1988 1985* 1994 Player 1457991844Others P&G Hengan Uni-charm DSG Everbeauty Kimberly Clark * Established as a local producer Source: Euromonitor； ISI； literature search 42 Segmented market into 4 entry points (super-premium, premium, mid-tier, low-end) Identified triggers for consumer behavior changes Point of adoption Category barriers Decided point of entry (premium) based on P&G capability and market attractiveness Designed messages to address category barriers as misconceptions through “authority endorsement” Understand market and consumers Decide point of entry and message to deliver Educate consumers and trigger trial Heavily leveraged HCP* to educate consumers Physicians education Hospital sampling Aggressive trade promotion to build trial TVC and PR initially focused on relieving adoption concerns rather than brand building Mid-tier SKUs launched to reduce price hurdle Key activities Early mover advantage Strong marketing research capabilities Global systematic approach Learning from other markets Pilot in test markets and adjustments to strategy based on learning Innovative communication channels High and phased investment Patience with financial returns Key success factors Category grew to 500 million USD over the past 7 years P&G has grown with the category to maintain 30+% market share Pampers became profitable 4 years after launch despite heavy initial investment Outcomes P&G SYSTEMATICALLY EDUCATES CONSUMERS TO INCREASE BABY DIAPER ADOPTION P&Gs approach * Healthcare personnel Source: Interviews； literature search； team analysis 43 INCONTINENCE MARKET IS VERY SMALL AND IS NOT THE FOCUS OF EXISTING PLAYERS 2006 incontinence products market share Percent 4066939Everbeauty Welfare Hengan Cheerful Others Source: Euromonitor； ISI； lit search 93 93997 200 45 Incontinence products 7 528 Other products 100% = 1 2006 incontinence products players revenue breakdown USD millions, percent 44 TODAYS OBJECTIVES Overview of China macro economy Understanding Chinese consumers China personal hygiene market development and trends What it takes to win in China Questions and answers 45 Outcome Rejoice is the best selling shampoo in China market CHINA WINNING IMPERATIVE TAILOR PRODUCT OFFERING TO LOCAL TASTE Source: Interview； literature search EXAMPLE P&G launched “Rejoice” tailored to local taste Target market Brand posi-tioning “Pert Plus” in US Mass market Male “Smooth and untangling” All green line Premium market: “essence care” (2004) Mid-tier market: “daily care” (1990) “Rejoice” in China Female “Soft and smooth” “Confidence” “Rainbow” Packaging design Difference in consumer preference Clean and natural hair is beautiful Smooth hair is beautiful Winning imperative Tailored product portfolio 46 Outcome Volume share of Crest doubled from 2001 to 2004 CREST SUCCESSFULLY EXPANDED TO MID/LOW END MARKET BY TAILORING ITS PRODUCT OFFERINGS Source: Interview； literature search EXAMPLE Least important Most important Purcha-sing decision factors Price Impor-tance Flavor Ingredients Packaging Mid-tier to low-end market consumer preference P&G launched Crest “power SKU” in 2001 Crest original premium SKUs Target market High-end market (30% of the oral care market Mid-tier to low-end market (70% of the oral care market Price Priced above RMB5.5/100 g Priced almost 30% lower than the premium SKUs, on par with Colgates value SKU Crest “power SKUs” lauched in 2001 Concept Positioned to own unique and more advanced benefits such as whitening to fit premium needs Focus on two generic benefits: herbal and anti-cavity Packaging Shining metallic material Blue color dominant Low-key regular material Yellow color dominant Channel Leveraged modern retailers for upper-tier cities Focus on leveraging the distributor channel for low tier Original brand/ product strategy similar to US market P&G China decided to launch low-end version to meet local needs and beat competition Winning imperative Tailored product portfolio 47 MODERN TRADE WILL CONTINUE TO OUTPACE TRADITIONAL TRADE IN GROWTH Source: Euromonitor； Planet Retail； CCFA； trade interviews； literature search Retail sales by channel USD billions, percent 4538251417181313172324297 105 1 572 2010 Hyper Super CVS Department stores Specialty stores Traditional formats 100% 1 295 2003 1 426 2006 CAGR 2003-06 Percent Modern trade ROUGH ESTIMATES 13 33 15 21 13 21 7 8 16 13 13 16 9 -3 CAGR 2006-10 Percent Winning imperative Channel management 48 BUT TRADITIONAL TRADE WILL REMAIN IMPORTANT IN LOWER TIER AND RURAL MARKETS Source : Euromonitor； Planet Retail； CCFA； trade interviews； literature search Traditional trade leading in low tier and rural markets in 2006 1323201914910131435322015425Tier 1 Specialty stores Traditional formats 100% = 7 Department stores 55 1 111 Tier 2 0 31 0 158 Tier 3 0 0 0 102 77 Rural Hyper Super CVS Modern trade USD billions, percent and it will remain dominant in rural markets in 2010 USD billions, percent 8183370212017118111536333123176Tier 1 3 149 Tier 2 7 1 212 Tier 3 0 3 7 74 137 Rural Hyper Super 0 Department stores Specialty stores Traditional formats 100% CVS ROUGH ESTIMATES Winning imperative Channel management 49 WINNING APPROACH TO KEY ACCOUNT MANAGEMENT LEVERAGES THE DIFFERENCES BETWEEN “WESTERN” AND “TRADITIONAL CHINESE” PLAYERS Source: Expert interviews KAM best practices Desired impact Modern trade players Leverage global relationships to ensure favorable treatment Manage relationship through “multi-functions” teams able to bring deep expertise to the table Introduce world class management techniques Build multi-layer relationships at China HQ, region center, and store