CORRECT (8/14): Consumer Cos Push High-End Products In China
26 Août 2009 - 6:50PM
Dow Jones News
After years of peddling higher-end offerings in the U.S.,
consumer-product companies have begun to tout their most affordable
offerings. In China, they are headed in the opposite direction.
Cosmetics giant L'Oreal SA (LRLCY) said Friday in Beijing it is
officially launching its Elseve hair-care product line in high-end
drug stores in China in its first attempt to squeeze into the
premium hair-care market there.
Other multinationals are doing the same. Procter & Gamble
Co. (PG), which recently said it will sell more lower-priced
products in the U.S., has been touting the success of a
more-expensive version of its Pantene brand in China.
P&G launched the new product line for its popular Pantene
hair-care brand, Clinicare, in Asia at the end of 2007, and sold it
at a 30% premium to the brand's other products. Sales of Clinicare
in China have doubled in one year. The product became so successful
that P&G's new chief executive, Robert McDonald, singled it out
during a recent conference call.
By contrast, P&G recently launched Tide Basic, a
lower-priced version of its well-known detergent in the U.S.
"We've got Chinese consumers buying Pantene [Clinicare] and
liking that form of Pantene a lot," McDonald told investors.
P&G's profit declined 18% in the quarter, hit by the economic
recession as consumers shied away from its higher-priced products
in the U.S.
"You've got more millionaires in China buying premium products
than you do in the United States," McDonald said. "So in China
we've got to have higher-priced products that meet the needs of
those consumers looking for that kind of value."
In China, around 1.6 million families now earn more than
CNY200,000, or $29,412, a year in urban areas. McKinsey & Co.,
which uses that income threshold to define wealthy households,
estimates the number is going to reach four million in 2015. This
economic class has become the target of international companies
seeking new revenue sources outside slower growing developed
countries.
The demand for high-end products is rising fast. For example,
the premium hair-care market in China is expected to reach $166.6
million this year and grow up to $238.2 million in 2013, according
to marketing-research firm Euromonitor International.
Many international brands are relying on celebrities to promote
their brands as representatives of a lavish lifestyle. Pantene
Clinicare uses international supermodel Du Juan, whose appearance
in the Milan fashion week with shimmering hair further helped boost
Pantene Clinicare's brand awareness and credibility. To maintain
the brand's premium image, P&G limits the distribution of the
product to Watson Pharmaceuticals Inc. (WPI) drug stores, Carrefour
SA (CRERY) markets and a few other high-end retailers.
P&G competitor Unilever PLC (UN) recently reformulated its
Lux shampoo and launched a new product line called Lux Super Rich.
The company filmed a seven-minute video for the product, featuring
actress Catherine Zeta-Jones, that aired only in the Asia
market.
Shiseido Co. (SSDOY) and Kao Corp. (KCRPY), two Japanese
personal-care and cosmetics companies, both launched similar
premium product lines last year using supermodels and actresses
from the region in advertising.
P&G's Clinicare is likely to perform well in the short term
in China, as the product is in line with the latest consumer
trends, according to a report by Euromonitor International.
Clinicare is also offering a smaller-sized package for
convenience-driven consumers looking for just one wash, Euromonitor
analyst Michelle Huang said.
Consumer-product multinationals are expected to continue to
focus on the middle market in China and also to push into poorer
rural areas, home to a big chunk of the population. Still, Huang
says only a limited number of Chinese consumers will choose to buy
premium hair-care products, especially during the economic
downturn.
-By Kate Zhao, Dow Jones Newswire; 212-416-2665;
ying.zhao@dowjones.com