360 Degree View of China's Consumer

360 Degree View of China’s Consumer 2010

360 Degree View of China’s Consumer Vital Information and Insights into China 2010 Preface Preface

Preface

users and the equivalent of the population ey economic indicators in China all K of Australia is added in terms of new point to continued strong recovery in mobile phone users around every 10 weeks 2010. Industrial production, investment, in China. The numbers remain impressive consumption, exports, and employment wherever you look. are all positive. During April, China’s National Bureau of statistics announced 11.9% GDP growth for the first quarter. As a result of this new media boom, marketers are increasingly exploring digital and out of home advertising alongside “the n the global media there are numerous I big screen” campaigns. Increased access debates about the risk of bubbles in to digital services is changing consumer some sectors, inflationary pressures and purchase behavior so quickly that some likelihood of un-pegging the Yuan. Current sectors or categories “time warp” from forecasts on CPI (around 3%) would emerging to developed almost overnight. suggest that maintained GDP growth Others develop in a completely different would easily offset at least the inflationary way to expected. impact unless something changes significantly. The landscape of innovation demonstrates such a wide range of success and failure. onsumers have gradually become more C Multinationals still tend to have the edge and more confident over the last 3 quarters on building a rigorous innovation pipeline and lately East and Central China and lower but the best local brands are very quickly city tiers are showing the biggest uplift. improving their ability to invent and After some declines in FMCG categories often use their distribution advantages to last year, the average value growth is now compete effectively. We predict this to up at around 10% nationally. Positivity be one of the most pivotal elements of a about jobs and income are tempered by brands success in China and a completely house price increases and a maintained unique combination of modern, traditional, savings focus. The net impact of all forces local, multinational that does not exist on spending shows a loosening of purse anywhere else today. strings and freer consumer spending, but with an eye on saving for a rainy day. Chinese consumers will be hard pressed to find something to be glum about in ar ownership has increased rapidly and C 2010. Albeit much less prolific than the ownership now stands at 26 millions cars Olympics, the World Expo in Shanghai and and the forecast is for ownership to rise the Asian Games in Guangzhou will gain from 3% to 14% by 2020. China’s internet some attention overseas and will be viewed population is nearing 400 million regular Preface

by the Chinese population as giving China the opportunity to shine again on the world stage.

We hope that having 360 ° View of China’s Consumers will provide you with a useful reference as you carry out your business day. To help our clients grow by helping them understand more about what consumers watch and buy, and why, is our mission. Enjoy

Chris Morley Managing Director, China The Nielsen Company

Chris Morley was appointed as Managing Director of Nielsen China in January 2008. Before coming China, Chris was the Managing Director of Nielsen in Vietnam for 3 years. Chris brings to China a wealth of experience gained during his time in Vietnam and Australia, following eight years in the market research industry within the UK. Chris Morley Managing Director, China The Nielsen Company Contents Contents

Introduction – China Today and Tomorrow 1

1.0>> What Marketers Look Forward to in 2010? 11

2.0>> China’s New Wealth 19

3.0>> Fast Moving Consumer Goods Trends in China 29

4.0>> Traditional and New Media Trends 47

5.0>> Latest Nielsen China Insights 69 5.1. Private Label in China: Should Manufacturer Brands be Worried? 70 5.2. ‘Petrol Head‘ to ‘Electric Heads‘ Insights into China’s Electric Vehicle Market 76 5.3. Is Your Marketing Investment Delivering Expected Returns? 79 5.4. What’s Happening at Mum and Baby Stores? 84

6.0>> Strategic Insights for the China Marketer 89 6.1. Healthy Appetite For Health Claims 90 6.2. Innovation In A Downturn 92 6.3. A Social Media ‘How To’ For Retailers 101

Appendix 106 1. China Market Beat 107 2. Key China Econcmic Data 108 3. List of Tables 121

Nielsen Key Contacts 123 8 Introduction: CHINA TODAY AND TOMORROW

9 HOW CAN NIELSEN HELP YOU GROW?

10 China Today and Tomorrow

China Today and Tomorrow

Here today bigger tomorrow ten years. Urban incomes are currently around three times greater than rural incomes, growing an estimated 193 hina is an emerging market with C percent over this period compared to 133 staggering potential. Potential that is percent for rural workers. As experienced held in a 1.3 billion population and a in all developing and developed nations, government with an impressive track the Chinese government will increasingly record in nurturing economic growth. grapple with income inequality and its Unlike other BRIC nations that have associated social malaise. Nevertheless faltered at various stages due to economic, even China’s lowest urban earners are political or social instability, China has seeing increases in income of around 13 weathered its storms barely skipping percent per year. an economic heartbeat in its upward trajectory. China has produced an average GDP growth of 9.6 percent over the past Despite urban populations and wealth ten years compared to Brazil’s 3.2 percent, swelling, birth rates haven’t - due to Russia’s 5.6 percent and India’s 6.9 percent. China’s one child policy, which has Over the next four years China is expected effectively curbed the birth rate over the to maintain this growth, retaining its lead past thirty years. In spite of the fact that over other nations. the policy only applies to ethnic Chinese living in urban China, this is affecting less than 50 percent of the population. rowth has changed China’s demographic G The children born under this policy, the and economic landscape. Fuelling China’s only child of doting parents, are now boom has been, and continues to be coming of age in an almost unrecognizable massive rural urban migration. Urban China, compared to the one their parents areas have increased by an estimated 153 grew up in. Weaned on consumerism million in population over the past ten the Little Emperors as they have come years, almost eight times the population to be known, are voracious shoppers of Australia. This tide of rural workers embracing both western and Chinese flooding into urban areas looks set to trends. This integration of both cultures continue, providing marketers with an will increasingly dictate new product increasingly accessible and wealthy target development. market. By 2025 it is expected that urban areas will swell to 822 million people from 607 million as it currently stands today. Though China is very much a youth led economy, the One Child Policy has the potential to dampen growing discretionary ncreased work opportunities have seen I spend as tomorrows workers will incomes rise steeply in china over the past

1 China Today and Tomorrow

increasingly have to support China’s aging local and foreign brands opportunities to population. By 2025 China will have more get creative and tap into one of the most than 284 million people older than 60, voracious consumer markets in the world. with 100 million over 80. Though overall spending remains China’s new consumers conservative compared to developed countries, this may be due to pressure China’s new consumers are young and from parents and grandparents who the first glimpse of how consumerism will have grown up in economic uncertainty. develop here. They have enjoyed a level of It will be interesting to see whether this education unseen by previous generations cautious approach to spending and saving and have been raised on a diet of both will be passed onto the next generation or foreign and local brands. They are travelling whether tomorrow’s new shoppers will feel more, have higher incomes and have access as confident in debt as their western peers. to more information than ever before. Despite having a reputation for being This new generation are also more self-centred and superficial, China’s and more adventurous and confident new consumers appear socially aware in their consumer identity, interpreting and increasingly willing to voice their trends to reflect a more Chinese flavour. opinion online. This will present growing Growing consumer sophistication has opportunities and challenges for brands led to innovations in both food flavours, looking to track, protect and increase their fashion and music as Chinese put their own brand health. Also with Chinese consumers personal stamp on world trends. Despite now able to access unprecedented levels consumers being evermore exposed to of information, even though they are at western norms, growing national pride has ensured that the Chinese are not ready to become ‘westernized’ anytime soon… which isn’t to say that they are ready to give up foreign brands. Ever pragmatic, foreign brands are generally perceived as better quality, better design and more innovative while local brands deliver lower prices. Chinese brands are moving up the value chain though, and with China’s working age population set to top over 800 million by 2025, ‘Brand China’ offers both

2 China Today and Tomorrow

a relatively early stage of consumerism Trends that have emerged out of - their transition to new trends such as China’s economic and social evolution; organic or eco-friendly products may be swift. China’s environmental woes may - Growth in modern retail including luxury shopping and brands as status also speed up consumers’ awareness of the symbols environmental impact of their purchases. - Growth in sport and health consciousness Media penetration accelerates - Demand for domestic and changes in consumer purchase international travel behaviour - Explosion in online word-of-mouth and peer review Growing media and Internet penetration - Western diets infused with Chinese is playing a significant role in changing influence how China’s new consumer generation - Obesity shop and see the world. Whereas earlier it was only consumers in the East that had the opportunity to gain exposure to new brands, now people in China’s remotest regions can become educated and engaged in brands - even before they hit supermarket shelves. This increase in accessibility to information is influencing consumer and purchase behaviour far quicker than what has been previously observed. China is now at the point where China’s online community, regardless of geography, share similar tastes and preferences.

3 China Today and Tomorrow

90% of China’s population live in the East

Key Facts

• Population: 1.3 billion (22% of world total population) • Capital: Beijing • Provinces: 23 • Autonomous Regions: 5 • Centrally Administrative Municipalities: 41 • Special Administrative Regions: 22 Note: (1) Municipalities are directly under the administration of central government. A municipality has the same political, economical and jurisdictional rights as a province (2) SAR is in a pattern within which two completely different social systems (socialist system and capitalist system) and ideologies can coexist, SAR has more autonomous power regulated clearly by laws, including executive, legislative and independent judicial power

China has an aging population. The number of people over 65 years old will increase by 75% by 2025

0-14 15-64 65+

1600

1400 194 111 131 166 1200 330 1000

800 973 998 996 996 870 600 400 200 269 265 268 262 216 0 2010 2015 2020 2025 2050 Ratio of workers to retirees 9:1 3:1

Source: World Population Prospects. The 2008 revision population database. Nielsen Analysis

4 China Today and Tomorrow

By 2025 urban areas will have swelled by 826 million people

Urban population share Rural population

1600 1.45 billion 1.35 billion 1.38 billion 1.42 billion 1400 1200 Rural population 1000 (millions)

800 600 Urban population 400 (millions) 200 45% 49% 53% 57% 0 2010 2015 2020 2025

Source: World Urbanization Prospects. The 2008 Revision Population Database

Despite being an emerging market, China’s median age is similar to developed nations

0-14 yrs 15-64 yrs 65 yrs + Median

China 1338 20 72 8 31.4

India 1130 31 64 5 25.3

Indonesia 240 28 66 6 27.6

Brazil 198 27 67 6 28.6

Russia 140 15 72 14 38.4

Japan 49 14 64 22 44.2

Vietnam 88 26 68 6 27.4

South Korea 49 17 72 11 37.3

Malaysia 25 31 64 5 24.9

Source: CIA World Fact Book

5 China Today and Tomorrow

China forecast to achieve above 9% GDP growth for the next five years USD (Trillions )

9,000

8,000 Hosts World Expo and Asian 7,000 Games Hosts Olympic Games 6,000 Accepted full 5,000 China opens convertibility for Special current account 4,000 Economic zones transactions to attract foreign Eliminated its Admitted to WTO 3,000 3x investment dual exchange Signs GATT Multi- rate 2,000 fibre Agreement 2x 1,000 2x IMF Forecast 0 1981 1991 2011 1985 1987 1995 1997 1980 1982 1983 1984 1986 1988 1989 1990 1992 1993 1994 1996 1998 1999 2001 2010 2012 2013 2014 2005 2007 2000 2002 2003 2004 2006 2008 2009

Source: IMF. World Economic Outlook Database 2009

China forecast to be the second largest economy by the end of 2010

GDP PPP 2009 (International dollar) GDP 2009 (USD) (Trillions) (Trillions)

Nominal GDP 2009

US 14.3 US 14

China 8.7 Japan 4.9

Japan 4.2 China 4.8

India 3.5 India 1.2

EU-27 14.8 EU-27 15.3

0 5 10 15 0 5 10 15

Source: IMF. World Economic Outlook Database 2009

6 China Today and Tomorrow

Urban incomes over 3x higher than rural incomes

urban income rural income engel coefficient urban engel coefficient rural

20000 60 18000 50 16000

14000 40 12000 10000 30 8000 20 6000

4000 10 2000 0 0 1999 2001 2003 2005 2007 2009 1999 2001 2003 2005 2007

Engle coefficient • Given a set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. • A low Engel coefficient indicates a higher standard of Source: China Statistical Yearbook 2008, 2009 living.

Strong growth across urban income tiers

RMB Trend in urban incomes by SEC Average income growth 04-07

40,000

35,000 Lowest income 13.8%

30,000 Low income 13.7% 25,000 Low middle income 13.9% 20,000 Middle income 13.9% 15,000 Upper middle 14.0% 10,000 income High income 14.0% 5,000 Highest income 13.0% 0 2004 2005 2006 2007

Source: China Statistical Yearbook 2008, Nielsen analysis

7 8 Section 1: WHAT MARKETERS LOOK FORWARD TO IN 2010

9 Marketers can look forward to increased

consumer confidence in 2010

SOLD SOLD SOLD SOLD SOLD SOLD

10 1. What Marketers Look Forward To In 2010?

What Marketers Look Forward To In 2010?

Consumer confidence set to immediate future. strengthen in 2010 Nevertheless, despite the majority of consumers across the country indicating hinese consumers will be hard pressed C they are satisfied with China’s economic to find something to be glum about in outlook, confidence has declined slightly in 2010. On the world stage, the World some areas. Expo in Shanghai and the Asian Games in Guangzhou will again give China the opportunity to shine. On the home Regions are happier but front, foreign investment is up and the optimism varies by city tier government is cautious to ensure the economy won’t slide backwards, by Consumers in the East remain the announcing that they will be continuing most confident, followed by those in the fiscal policies focused on expanding Northeast. Marketers looking to expand domestic demand. The media certainly their brands into other regions will also be won’t be responsible for making consumers heartened by strengthening confidence in feel nervous - with the unanimous message the West (+8 points) and stable confidence being that for China at least, the financial in the middle area of China. crisis can now be talked about in past tense. When looking at which consumers within those regions are most likely to be feeling Echoing the media’s good mood, the the most optimistic about 2010, confidence latest findings from the Nielsen Consumer appears to be waning slightly in Tier Confidence survey in partnership with 2 and Tier 3 cities whilst strengthening the National Bureau of Statistics, show considerably in Tier 1, 4 and 5 cities. that consumer confidence across China is at its highest point since 2008. Up 15 Being host to world visitors in 2010 points since the beginning of 2009 and could be behind Tier 1 consumers’ jump in three points since the third quarter of confidence on Job Prospects (+9 points) 2009, marketers can be rest assured that and Personal Finances (+ 6 points). In Chinese consumers are ready to face 2010 Tier 4 and 5 cities - ongoing investment with renewed vigour. The survey, which in infrastructure could be what is behind asks over 3,500 Chinese consumers how shoppers’ increasingly high spirits. If this is confident they feel in regards to job and in fact the case, then confidence in these financial prospects and their willingness areas should continue its upward climb to spend, highlights that consumers throughout the year. are increasingly optimistic about their 11 1. What marketers look forward to in 2010?

have affected their willingness to spend hoppers’ growing confidence in their S which has remained fairly constant. ability to earn a living is echoed by an increase in their willingness to spend. Though still showing some nervousness Willing to spend on children’s with over half of consumers surveyed education and new clothing indicating that they still don’t think it’s a good time to buy, buyer optimism over A large share of spare cash that Chinese the past year showed no sign of slowing, consumers have after paying living and marketers shouldn’t be worried about expenses will be placed into short/long- spend not picking up in 2010. term bank accounts rather than more sophisticated investment options. Tier 1 Tier 2 and 3 shoppers seem less convinced consumers generally enjoy higher incomes that things are going to get better for them than consumers in other city tiers, and in 2010. Nevertheless it doesn’t seem to subsequently are more likely to invest in an array of investment options including stocks and bonds, property and life insurance.

Any money that isn’t put in the bank will be spent on children’s education or new clothes and then a slew of activities such as dining out, and spending money on books and new technology.

Low income in Tier 5 cities means that there is less money to spend after living expenses are paid. If shoppers in these cities do have some spare money, rather than spending it across a range of goods and services as seen in more developed city tiers, spend is focused on necessities such as education, new clothes and home improvement.

12 1. What marketers look forward to in 2010?

China confidence set to strengthen in 2010

Source: Nielsen Consumer Confidence Report

Eastern region most confident however tier 2 and 3 consumers less optimistic China Consumer Confidence Index 120 108.2 103.9 106.7 101.4 102.9 100.0 103.6 107.1 103.0 101.5 100 106.3 105.9 99.7 104.3 101.9 103.8 96.1 100.8 93.5 101.6

0 National East Middle West Northeast Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 2009 Q3 2009 Q4

Source: Nielsen Consumer Confidence Report

13 1. What marketers look forward to in 2010?

Confidence driven by optimism in job market

Local job prospects over the next 12 months (excellent + good)

2009 Q3 2009 Q4

65 69 63 62 62 62 56 59 57 57 59 57 57 59 56 55 55 54 58 48 East West Tier 1 Tier Tier 2 Tier 5 Tier Tier 3 Tier 4 Middle National Northeast

Source: Nielsen Consumer Confidence Report

With growing confidence in job market, personal finances are expected to pick up

State of Personal Finances in the next 12 months (excellent + good)

2009 Q3 2009 Q4

69 69 67 66 67 67 67 63 63 63 60 63 60 63 62 62 56 53 51 51 East West Tier 1 Tier 2 Tier 3 Tier 5 Tier 4 Middle National Northeast

Source: Nielsen Consumer Confidence Report

14 1. What marketers look forward to in 2010?

Consumers still voicing reluctance to spend

Willingness to Spend

2009 Q3 2009 Q4 55 54 51 47 48 48 47 46 45 46 47 44 43 43 45 45 40 38 36

29 East West Tier 1 Tier 5 Tier 2 Tier 3 Tier 4 Middle National Northeast

Source: Nielsen Consumer Confidence Report

15 16 Section 2: CHINA’S NEW WEALTH

17 China’s New Wealth

18 2. China’s New Wealth

China’s New Wealth

More is always more Monitor the number of people wanting stocks, bonds and investment products has increased over the past three years. The number of millionaires in China is expected to grow from 450 to 800 thousand by 2013. Though these Everyone enjoying increased households only account for around 0.1 wealth percent of total households, they hold 1 almost half its wealth . The number Though wealth is highly concentrated in of China’s high net worth individuals China, overall income growth is moving (HNWI’s, those individuals with one million rural and low urban earners towards USD or more in investable assets) has also full participation in China’s consumer surpassed that of the United Kingdom - economy. What this means for brands is despite their numbers declining in 2008 that the myth of China’s 1.3 billion person due to the financial crisis. With China’s consumer market will soon finally be a economy increasingly autonomous, it is reality, as China emerges as the largest predicted that Asia Pacific will hold the consumer market in the world. To take greatest number of wealthy individuals by a quick peek at what waits around the 2 2013 . corner, McKinsey estimates3 that by 2025, 59 percent of China’s urban households Despite this growth in wealth, wealth (est. 485 million people) will be upper management in China remains at an middle class and earning between 40,000 infancy representing a huge opportunity and 100,000 RMB per year - resulting and challenges for local and foreign banks. in a combined total disposable income Though a number of large banks have a of around 13.3 trillion RMB. Electronics, private banking offering, with a large share luxury goods, cars and travel are all on of wealth being held by first generation their shopping lists. wealth creators, the level of awareness and interest in investment products is low. An In 2009 car ownership in China jumped added challenge is that with many HNWI’s 34 percent to 26 million units4. The surge being entrepreneurs - banks need to make was attributed to strong growth in third an effort to understand the diversity in tier cities and the sale of low-end cars. backgrounds represented by this group. The stimulus package is also said to have increased car demand by halving purchase Nevertheless the signs are there that tax on vehicles to five percent. By 2020, if more and more Chinese are becoming demand continues its upward trajectory, interested in more sophisticated banking it has been predicted that incidence of services. According to the Nielsen Financial car ownership will increase from three 19 2. China’s New Wealth

percent to fourteen percent. However, if spend on luxury goods. China is now the only looking at China’s key urban centers, second largest market for luxury goods car ownership already sits at around 20 and the forth largest for HNWI’s ensuring percent. Local brands are already seen as the future of luxury brands in China looks viable alternatives to known foreign brands positive. Aged between 20-40 years old, with BYD, Geely and Chery increasing Chinese luxury good buyers are young their sales by 160, 48 and 40 percent compared to other markets. respectively in 2009. And how is all this being paid for? Riding in aeroplanes is also increasingly Increasingly by credit card. Though rarely popular - with overseas travel high on spending beyond their means, Chinese are Chinese consumers’ to-do list. In 2008 evermore ‘putting it on plastic’. Nielsen around 45 million Chinese traveled Financial research shows that credit card overseas, and The World Tourism ownership has increased by 11 percent Organisation predicts that this number will over the past three years, and looks set increase to 100 million travellers per year for continued growth. According to the by 2020. This surge in travel will mean that Peoples Bank of China, 142 million credit other countries will benefit from China’s cards were issued in 2008 with total boom, as Chinese (tend to) shop up a transaction volumes hitting 3.5 trillion storm on holiday. Nielsen Outbound Travel Yuan. Monitor highlighted that Chinese travellers spend an average of almost 3,000USD per person on holiday, with a third of that earmarked for shopping. Due to their proximity to China, other Asian countries will be the first to benefit from China’s wanderlust with Japan topping Nielsen’s Destination Satisfaction Index, closely followed by Korea in second place. References & Sources: 1. Boston Consulting Group -Wealth Markets in China: Delivering the Right Value Proposition for China’s Wealthy, Nov. 2009 Travel has also spurred awareness and 2. Cap Gemini and Merrill Lynch -Wealth Report, 2009 subsequent spending on luxury brands by 3. McKinsey Quarterly: The value of China’s emerging middle class, 2006 China’s top earners. China’s 364 thousand 4. National Bureau of Statistics (NBS) 5 high net worth individuals (HNWI) racked 5. Cap Gemini and Merril Lynch - World Wealth Report.,2009. up a total spending on luxury goods of US$8.6 billion by the end of January 2009, accounting for 25% of the total world

20 2. China’s New Wealth

Driven by growth in China, Asia Pacific to overtake North America in the number of HNWI’s by 2013 Geographic Distribution of High Net Worth Individuals (HNWI)

Source: World Wealth Report 2009. Cap Gemini and Merrill Lynch

USD Millionaire households only represent 0.1% of the HH’s but hold nearly half of total wealth

Source: Boston Consulting Group. Wealth Markets in China: Delivering the Right Value Proposition for China's Wealthy. Nov. 09

21 2. China’s New Wealth

The number of HNWI’s in China has overtaken that of the United Kingdom High Net Worth Individuals (HNWI’s) population by country, 2008

Source: World Wealth Report 2009. Capgemini and Merrill Lynch • HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

488 million Chinese will be considered upper middle class by 2025 Share of Chinese urban households %

Segment by annual income

100% 0.5 0.1 0.4 5.6 3.3 9.4 7.7 90% Global affluent (>200,000 12.6 21.2 80% rmb)

70% Mass affluent (100,001- 200,000 rmb) 60% 59.4

50% 49.7 Upper middle class (40,001- 100,000 rmb) 40% 77.3

30% Lower middle class (25,001- 40,000 rmb) 20% 19.8

10% 23.2 Poor (<25,000 rmb) 9.7 0% 2005 2015 2025

Source: MGI. The value of China’s emerging middle class 2006. 1 Base case forecast Q1 2006

22 2. China’s New Wealth

Growing wealth spurs growth in travel with Japan making an impression on new travelers Nielsen Destination Satisfaction Index 2008

Japan 81

South Korea 78

Germany 77

Australia 77

France 77

U.S.A 77 HK 76 Singapore 76 Macau 75 Taiwan 75

Source: Nielsen Travel Monitor

‘Leisure and relaxation’ less important than ‘Price’ and ‘Safety’ for Chinese leisure travelers Key factors in choosing destination for leisure trips (Top 10)

2008 % 2007

Travel costs and expenses 64 Travel costs and expenses 61

Safety 63 Good food 58

Good food 57 Safety 57

Hygienic environment 53 Eco and nature 52

Eco and nature 52 Hygienic environment 50 Visa difficulty Visa difficulty 49 43 Leisure and wellness Leisure and relaxation 43 43 Quality accommodation Convenient transport 43 facilities/service provided 39

Quality accommodation 42 History and culture 38

Historic relics 41 Sea and beach 38

Source: Nielsen Travel Monitor

23 2. China’s New Wealth

Returning home unharmed key factor for choosing business destination Key factors in choosing destinations for business trips

2008 % 2007

Safety of destination 69 Business climate 60

Business climate 66 Safety of destination 59

Business facilities 52 Business facilities 50

Quality accommodation Quality accommodation 50 48 facilities/service provided facilities/service provided

Destination image 47 Destination image 45

Where my business located 46 Where my business located 43

Convenience of and budget on Convenience of and budget local transport 46 on local transport 30

Leisure facilities and activities at 26 Leisure facilities and 26 the destination activities at the destination

Source: Nielsen Travel Monitor

142 million credit cards were issued in 2008 with total transaction volumes hitting 3.5 trillion Yuan Growth in credit card ownership

% 40 38

35 32

30 28 28 25 25 23 2006

20 2007

15 2008

0 Tier 1 Tier 2

Source: Nielsen Financial Monitor

24 2. China’s New Wealth

Investment market still relatively immature in China. Banks need to better understand the diverse needs of China’s newly rich Trend in investment products

% Tier 1 % Tier 2 30 30

25 25 25 23 22

20 20 19 18 2006 15 15 15 15 2007 15 2008 11

10 10 9 8 7 6 6 5 5 4 5 4 3

0 0 Stocks Insurance Bonds Stocks Insurance Bonds

Source: Nielsen Financial Monitor

Growing confidence in market represents opportunities for banking services

• Confi dence Index for b ond Total BJ SH GZ SZ CD Q4 2009 137 131 116 134 133 132 Q3 2009 127 129 120 134 122 126 Q2 2009 131 126 124 128 114 118 Q1 2009 126 130 111 129 121 123 Q4 2008 99 98 79 112 106 104

• Confi den ce Index for stock Total BJ SH GZ SZ CD Q4 2009 138 130 142 145 146 138 Q3 2009 98 88 92 103 127 91 Q2 2009 130 119 128 127 133 114 Q1 2009 117 103 116 115 114 123 Q4 2008 59 60 49 58 62 62

• C onfi dence Index for fund Total BJ SH GZ SZ CD Q4 2009 134 129 136 144 142 132 Q3 2009 110 96 98 116 127 105 Q2 2009 125 115 118 130 123 111 Q1 2009 111 97 103 113 108 115 Q4 2008 73 72 74 71 83 69

Source: Nielsen Investment Report 2009

25 26 Section 3: FMCG TRENDS IN CHINA

27 FMCG trends in China

28 3. FMCG Trends in China

FMCG Trends in China

Fresh and convenient shoppers now indicating a preference for purchasing more on promotion, a third important to Chinese of consumers indicate they would rather shoppers put their money into groceries and cook at home rather than dine out. More than Shoppers in China tend to frequent four out of ten shoppers also indicate that hypermarkets, supermarkets and wet the past economic crisis has done little, markets more than other channels, and if anything, to change their purchase subsequently spend the most there. Wet behaviour. markets are most frequented as a result of the high importance Chinese shoppers Shoppers unwilling to switch place on purchasing fresh food almost daily. Regardless of income level, two thirds down of shoppers’ food expenditure is allocated towards fresh food. According to insights from Nielsen Pulse, a quarter of consumers aren’t willing to switch to a cheaper brand. Shoppers Shoppers tend to visit more than one store indicate that they are more prone to simply in a month, with ‘Convenient to get to’, reduce purchases altogether to keep their ‘Staff provided good service’ and ‘Clean and grocery bill in check, rather than receiving hygienic store’ being key drivers for where less value for money in smaller pack sizes, consumers choose to frequent. or paying more in the short term for larger packets. A reluctance to save costs by FMCG spend isn’t the first switching to cheaper brands is exhibited expense to be reduced across food and non-food categories.

With on-going high saving, and Confidence drives a return to consumers still cautious to spend - strong retail demand shoppers continue to look for ways to make their RMB go further. However this doesn’t egardless of a preference for promotional necessarily mean leaner times for brands. R spending, according to Nielsen Retail, FMCG sales have increased steadily in line n a Nielsen study asking where shoppers I with growing confidence. FMCG sales have reduce spend in uncertain economic times; recovered so strongly that in November seven out of ten shoppers indicated they 2009 sales value growth had increased reduce spend on luxury items. Though the 10.4 percent, compared to the same period financial crisis has resulted in a quarter of last year, the largest increase witnessed

29 3. FMCG Trends in China

since January 2009. If this rebound is anything to go by, FMCG sales performance in 2010 should be strong. Continued low inflation should also encourage shoppers to purchase. Category trends 2010 Beverage categories dominate Food FMCG sales

Claiming six of the top ten places in the list of leading categories in 2009, beverage offerings have clearly caught the imagination of consumers. Driven by sales in lower tier cities, Yoghurt / Yoghurt drinks had the greatest sales in 2009 followed by Liquid milk. Despite value growth declining by 21 percent since 2008, consumers bought enough edible oil to have it rank third. Formula (IMF) category, closely followed by Yili. The biscuit category is the most fragmented, with the top three brands he top three brands in each of the T only accounting for 17 percent of total leading categories tend to dominate accumulated value share. value sales.They are also increasingly local brands. Wahaha, Ming Nui and Yili Shampoo on everyone’s shopping account for 68 percent of total Yoghurt list / Yoghurt Drink value sales. Wang Wang joins Meng Nui and Yili as being the top 3 Liquid Milk brands, and account for a total Nationally - Shampoo, Laundry Detergent accumulative value share of 70 percent. and Sanitary Protection lead non-food categories growing an average of seven percent in 2009. Skin Moisturizer sales are rawana is the clear leader in the Edible A stronger than Laundry Detergent in Key Oil segment achieving value sales three and Tier 2 cities, however strong Laundry times greater than its closest rival LuHua. Detergent purchase in lower tier cities is International brands Dumex and Mead what has propelled it into number two Johnson continue to lead the Instant Mild position. Once consumers in lower tier

30 3. FMCG Trends in China

cities start trading up their skin care, Skin Innovation drives high growth Moisturizer should move up the national categories ranks of top non-food categories. Though a large number of innovations fail, Unlike what is observed in leading food the effort is worth it with new products segments, leading non-food brands tend driving growth in top FMCG categories. to be skewed towards foreign brands. Leading brands that have introduced new Head & Shoulders, Pantene and Rejoice EC products have helped, not just to grow attract, in total, four out of every ten RMB sales, but also in growing the category as spent on Shampoo. Laundry Detergent a whole. New product offering in the juice is less fragmented with the top three category contributed over 40 percent to brands achieving almost two thirds of total category growth at a time when FMCG category value sales. spending as a whole was declining due to weakening consumer confidence. Though accumulated share of the top three brands in Skin moisturizer account for 40 percent of total segment value sales, Olay is the clear category leader - achieving sales three times greater than its closest rival Nivea. Competition is stiffer in Facial Cleanser with the top three brands only accounting for a third of total value sales. Toner achieves strongest growth in 2009

Juice, Ready-to-drink tea and Asian traditional drinks were the fastest growing non-food categories in 2009 with total national sales value increasing by 15 percent. Toner achieved over twice that growth, posting 37 percent national sales value growth in 2009 compared to 2008. Fabric Softener was the next fastest growing category (+22%) followed by Dishwashing Liquid (+13%).

31 3. FMCG Trends in China

Deflationary pricing pressure after 2008 food price shocks

National Price Trends CPI RPI 105.9 105.9 104.8 103.9 103.8 102.5 101.8 101.5 101.0 101.2 101.0

99.7 99.2 99.3 98.7 98.8

2002 2003 2004 2005 2006 2007 2008 2009

Y2009 CPI Y2009 RPI 105 101 99.7 99.4 99.2 99.1 98.9 98.9 98.9 99.1 99.3 100 98.8 98.8 100.7 99.5 99.2 98.9 98.8 98.6 98.4 98.4 98.4 98.4 98.6 98.8 95 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Source: National Bureau Of Statistics

National Price Trends

Category (Year On Year Price Growth) 2005 2006 2007 2008 2009 CPI 1.8 1.5 4.8 5.9 -0.7 Food 2.9 2.3 12.3 14.3 0.7 Grain 1.4 2.7 6.3 7 5.6 Meat, Poultry, Related Products - - 31.7 21.7 -8.7 Oil - - 26.7 25.4 -18.3 Fresh Eggs - - 22.9 3.7 1.5 Fresh Vegetables - - 7.3 10.7 15.4 Fresh Fruit - - 0.1 9 9.1 Tobacco And Alcohol 0.4 0.6 1.7 2.9 1.5 Clothing -1.7 -0.6 -0.6 -1.5 -2 Household Appliances / Services -0.1 1.2 1.9 2.8 0.2 Medical, Health, Personal Articles -0.1 1.1 2.1 2.9 1.2 Transportation / Telecommunications -1 -0.1 -0.9 -0.9 -2.4 Recreational, Educational, Cultural Articles / Services 2.2 -0.5 -1 -0.7 -0.7 Housing 5.4 4.6 4.5 5.5 -3.6

Source: National Bureau Of Statistics

32 3. FMCG Trends in China

FMCG sales strengthen in line with growing consumer confidence Value Growth Rate (%) compared with same month in prior year

19.1%

10.4% 9.7% 8.5%

1.1% 1.4% 1.5% 1.2% 0.5%

-0.9%

-5.1% -6.9%

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09

Source: Nielsen Retail Measurement Services (categories tracked)

A pick up in volume sales behind growth in Q4, which pushes nominal growth in 2009 just slightly ahead of 2008 performance

10% 9.2%

8.2% 8%

6% Volume change

4% 3.0% Unit value change

1.0% 1.7% 2% Nominal growth 0.6% 0.2% 1.1% 2.0% 2.9% 1.3% 1.0% 0% 0.9% -1.2% -0.7%

-2% 2009 Q1'09 Q2'09 Q3'09 Q4'09

Source: Nielsen Retail Measurement Growth Reporter

33 3. FMCG Trends in China

Channel Trends: Traditional trade weakens in importance as China embraces new shopping formats

2009 Sales Growth Market Channel 2008 Importance 2009 Importance Difference (Value)

Total 2.44% 100.00% 100.00% -

National MT 2.34% 60.84% 60.78% -0.06%

TT 0.47% 34.59% 33.90% -0.69%

Total 0.05% 100.00% 100.00% -

Shanghai MT -0.04% 93.47% 93.39% -0.08%

TT -0.88% 5.25% 5.20% -0.05%

Total -0.58% 100.00% 100.00% -

Beijing MT 1.66% 84.91% 86.84% 1.94%

TT -23.10% 11.30% 9.23% -2.07%

Total 1.77% 100.00% 100.00% -

Guangzhou MT 1.57% 86.32% 86.14% -0.18%

TT 0.71% 11.76% 11.63% -0.13%

Total -1.37% 100.00% 100.00% -

Chengdu MT 0.61% 83.23% 84.89% 1.66%

TT -13.37% 12.61% 11.27% -1.33%

Source: Nielsen Retail Measurement Services (categories tracked)

Location, location, location. ‘Convenience’ key driver for choosing where to shop Store equity drivers % Stated Importance Derived Importance Convenient to get to 98 0.45 0.17 Staff provide good service 93 Clean and hygienic store 91 0.17 Good value for money 90 0.24 Pleasant store environment 89 0.22 Has high quality brands 89 0.20 Everything I need in the one shop 89 0.22 High quality fresh food 89 0.20 A place where it's easy to quickly find what I need 89 0.28 Wide range of fruit & vegetables 86 0.24 Well presented display of products 85 0.18 Wide range of fresh fish & meat 85 0.26 Spacious 85 0.18 Efficient checkout counters 84 0.19 High quality prepared meals 83 0.21 Attractive and interesting promotions 82 0.20 Has wide range of well known brands 81 0.19 Low prices for most items 79 0.29 Has programs that reward regular purchase 78 0.20 Always have what I want in stock 76 0.22 Provides their own brands 59 0.21 Ease of parking 55 0.16

Source. Nielsen Shopper trends

34 3. FMCG Trends in China

Grocery shopping in department stores is a convenient way for high SEC shoppers to get everything under one roof

Channel Spend Most Money: By SEC

9 9 10 6 21 Wet Markets 1 1 13 11 6 6 9 Traditional Grocery 32 27 Personal Care 28 28 Convenience Stores

Supermarkets in Department Stores Supermarket 51 54 51 Hypermarket 52

Total Low SEC Medium SEC High SEC

Source. Nielsen Shopper trends 2009 Page 7

High earners spending almost 2/3 of expenditure on fresh food may indicate they are purchasing premium produce rather than large volumes.

Average Monthly Spending: By SEC

Total Expenditure (CNY) Fresh Food (CNY)

1702

1337 1257 58% 57% 57% 989 865 765 55% 716 478

Total Low SEC Medium SEC High SEC (N=4427) (N=346) (N=2983) (N=1098)

Source. Nielsen Shopper trends

35 3. FMCG Trends in China

Modern trade not convenient or fresh enough to satisfy Chinese preference for almost daily fresh food

Average Frequency of Visits per month

22.0 2007 2008

20.5

7.6 6.8 7.1 6.5

3.3 3.3 3.1 3.2 2.3 1.1 0.9 1.3 1.4 1.1 0.8 1.0 0.7 0.9

ng rkets tores Kiosk arket ocery oppi Gr nt Stores onal Care perma ermarkets e s Wet Markets Hy Sup esale m Per venience S Online Sh Whol Traditional Con Departm

Source. Nielsen Shopper trends.

The hypermarket format clear winner for the purchase of non-fresh food

% Channel Most Often Purchase by Category

1 7 1 1 10 1 4 4 Wet Markets 6 7 8 38 Traditional Grocery 23 57 38 20 63 37 65 37 Kiosk

Department Stores 17 55 55 56 15 49 Personal Care Store 14 44 47

23 16 19 Convenience Stores

s d m a s ts Supermarket e o Te Gu uc afo d se ro r RTD ) P oisturiser l Cleanser o k ( ry M ia sh eat or poultry n ia c Hypermarket fi D Fa m Dri h h o T fres fres y rbonated Soft Drink ad a fresh fruit & vegetabl e C R

Source. Nielsen Shopper Trends

36 3. FMCG Trends in China

FMCG spend not high on list of where to reduce spend If needed, in which of the following areas would you begin cutting expenses? % Luxury 40 18 12

Entertainment 10 11 11

Dining out 9 11 11

Imported goods 5 11 12

Private Car 7 12 9

Investment 8 7 8

Travel 4 7 10 1st Choice 2nd Choice 3rd Choice Snacks 5 4 6

Digital products 2 5 6

Health Care Products 3 4 5

Social Activities 2 4 5

House Living 4 3 3

Personal care products 1 2 2

Household cleanser 011 Weighted Base (China Online Population) = 125.48 million

Source: Nielsen China Pulse

Promotional spending important but four out of ten shoppers unaffected by downturn How did the downturn affect your purchase or consumption of the following categories?

No impact 41 41 42 Reduce purchase

Buy larger package 10 5 15 6 5 4 Switch to smaller size 4 4 7 3 8 6 Switch to cheaper option

25 27 22 Buy more when promotion

Buy more even without promotion 9 9 9

Total Food Non-food

Weighted Base (China Online Population) = 125.48 million

Source: Nielsen China Pulse

37 3. FMCG Trends in China

Majority of new launches fail New initiatives Tracked Over 3 Years In absolute number

350

New launches left with same 320 or increased distribution. 220

190 120 1st Year

90 2nd Year 3rd Year

0 Yogurt Liquid Milk RTDT * Juice Hot Beverage Bottled Water

Source: Nielsen Retail Index. *Ready To Drink Tea

Despite high fail rate, strong returns for new products

L’Oreal opens a new market of Male Eye Serum Male FC is clearly segmented by innovation

Tjoy Male Eyes Serum Value Sales Energize • Value Importance to Facial Cleanser 1,200

1,000

800 22.2 L’Oreal 600 Anti Wrinkle 8.6 5.2 6.2 400 Nivea L’Oreal Revitalization Energize Y03 Y02 Y04 200 Y05 Y06 Y07 Y08 2HY01 YTD09 0 FEB07 FEB08 FEB09 AUG06 NOV06 MAY07 AUG07 NOV07 MAY08 AUG08 NOV08 MAY09 AUG09 Others L'Oreal Energize NIVEA Q10 Sooth L'Oreal Anti Wrinkle Tjoy Energize

Source: Nielsen Retail Index

38 3. FMCG Trends in China

Companies who continued to invest in innovation throughout the economic downturn have gained market share. Biscuit • NPD SKU YTD Volume % Share: 4.2% • NPD average price: 114% of existing product

Biscuit Vol. Sales Trend (‘000 kg) Leading Brand New-launch Performance 10 (vol. share) 50,000

45,000 8 40,000

35,000

30,000 6

25,000 20,000 4

15,000

10,000 2

5,000

0 0 MAR08 JUL08 NOV08 MAR09 JUL09 NOV09 MAR08 JUL08 NOV08 MAR09 JUL09 NOV09 Existing Products New Launch Brand M old SKUs Brand M new SKUs

Source: Nielsen Retail Measurement

High growth categories defined by high innovation

Juice Drinks • NPD SKU YTD Volume % Share: 4.8% • Contribution To Category Growth: 40.6% • average price: 150% of existing product

Juice Drink Vol. Sales Trend (‘000 cases) Leading Brand New-launch Performance 40 (vol. share) 50,000

45,000

40,000 30 35,000

30,000

25,000 20

20,000

15,000 10 10,000

5,000

0 0 MAR08 JUL08 NOV08 MAR09 JUL09 NOV09 MAR08 JUL08 NOV08 MAR09 JUL09 NOV09 Existing Products New Launch Brand M old SKUs Brand M new SKUs

Source: Nielsen Retail Measurement

39 3. FMCG Trends in China

Top ten food categories: sales value

Top 3 brands accumulative National Total - MAT Dec09 Sales Value ('000Rmb) Value Growth vs. Year Ago % value share % Yogurt / Yogurt Drink 30,943,840 8 68 Liquid Milk 28,406,200 3 70 Edible Oil (Consumer Pack) 28,003,107 -21 53 Carbonated Soft Drinks 23,279,557 3 71 Instant Noodles 17,616,483 -2 57 Juice 17,508,101 16 44 Ready to Drink Tea 15,795,795 15 76 Infant Milk Formula 15,140,371 5 35 Packaged Water 12,101,598 6 53 Biscuit 11,140,930 3 17

Source: Nielsen Retail Audit

Top ten non-food categories: sales value

Top 3 brands accumulative National Total - MAT Dec09 Sales Value ('000Rmb) Value Growth vs. Year Ago % value share % Shampoo 17,414,266 6 38 Laundry Detergent 15,188,448 7 59 Sanitary Protection 12,582,005 7 41 Skin Moisturizer 10,642,170 11 33 Toothpaste 10,168,071 7 55 Personal Wash 8,991,005 5 48 Diaper 4,813,840 5 76 Insecticide 4,324,827 -4 38 Facial Cleanser 4,091,940 11 30 Dish Washing Liquid 3,969,832 13 68

Source: Nielsen Retail Audit

40 3. FMCG Trends in China

Top ten fastest growth food categories: sales value

Value Growth vs. Sales Value Nat CityTgTs Total - MAT Dec09 Year Ago % ('000Rmb) Juice 16 17,508,101 Ready to Drink Tea 15 15,795,795 Asia Traditional Drink 15 7,284,761 Functional Drinks 13 4,389,379 Cordials 12 643,244 Lollipop 10 1,210,484 Yogurt / Yogurt Drink 8 30,943,840 Packaged Water 6 12,101,598 Chocolate - Total 6 4,580,246 Instant Coffee 5 1,870,061

Source: Nielsen Retail Audit

Top ten fastest growth non-food categories: sales value

Value Growth vs. Year Nat CityTgTs Total- MAT Dec09 Sales Value ('000Rmb) Ago

Toner 37 1,660,391 Fabric Softner 22 648,679 Dish Washing Liquid 13 3,969,832 Facial Cleanser 11 4,091,940 Skin Moisturizer 11 10,642,170 Household Cleaning Product 10 1,855,694 Electric Moisquito Repeller 9 236,689 Hair Conditioner 9 2,543,852 Toothbrush 8 3,292,558 Sanitary Protection 7 12,582,005

Source: Nielsen Retail Audit

41 3. FMCG Trends in China

Not all foreign brands are perceived as foreign “Are the following brands local or foreign”

Local Foreign

100%

90% 21% 20%

37% 80% 42%

70% 66% 66% 71% 76% 74% 75% 60% 80% 85% 84% 90% 94% 93% 50%

40% 79% 80%

63% 30% 58%

20% 34% 34% 29% 24% 26% 25% 10% 20% 15% 16% 11% 6% 7% 0% tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier

Coke Sprite Pepsi Mirinda Lays Copico Oishi Pringles

Source. Nielsen Customized resaerch 2008

Tier 2 consumers more likely to claim foreign brands as Chinese “Are the following brands local or foreign”

Local Foreign

100% 2% 2% 15% 90% 18%

80%

70% 61% 62% 61% 60% 69% 68% 69% 72% 74% 72% 60% 77% 77% 80% 80%

50% 98% 99% 85% 40% 82%

30%

20% 39% 38% 39% 40% 31% 32% 31% 28% 26% 29% 10% 23% 24% 20% 20%

0% tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier 1 tier tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier 2 tier Head & Crest Colgate Olay Ponds Nivea President Wahaha Rejoice Shoulders

Source. Nielsen Customized research 2008

42 3. FMCG Trends in China

Foreign brands competitive edge over local brands

High quality Better design More innovative Aspirational Better advertising Better packaging Safe Have a better range Foreign Brand Trustworthy Local Brand Higher quality Durable Foreign brands makes me feel more international Aspirational My friends recommend them Value for money Low prices

0% 10% 20% 30% 40% 50% 60% 70% 80%

Source. Nielsen Customized research 2008

Local brands competitive edge over foreign brands

Low price Chinese style Buying Chinese brands is supporting China Value for money Have a better range High quality Durable Trustworthy High word-of-mouth Foreign Brand Safe Local Brand Higher quality Aspirational More innovative Better packaging Better advertising Better design Premium More modern

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % Source. Nielsen Customized research 2008

43 44 Section 4: TRADITIONAL AND NEW MEDIA TRENDS

45 Trends in Traditional and New Media

46 4. Traditional and New Media Trends

Traditional and New Media Trends

Marketers tap into new trends At a company level, both local and foreign in media consumption companies are well represented in the list of top advertisers across TV, Newspaper Over 597 billion RMB (USD 87 billion) and Magazine. Accounting for four was spent on advertising across TV, percent of total 2009 ad spend in China, magazine, newspaper and the Internet in P&G invested the heaviest in advertising 2009, an increase of 14 percent compared followed by Harbin Pharmaceuticals. to the previous year. Though already an Despite still spending over RMB 113 million impressive figure, advertising spend was more than closest rival Unilever, P&G was dampened slightly by marketer’s wait-and- the only company in the list of top ten see attitude to the financial crisis. Now advertisers not to increase their ad spend with the downturn relegated to the history budget by double digits in 2009. books, advertising spend should start to pick up as marketers look to invigorate Although FMCG companies dominate sales with new products. overall media spend, it is cosmetic companies Olay and L’Oreal that are TV continues to attract the largest taking the greatest advantage of TV’s proportion of total advertising spend. high penetration capabilities and broad However strong growth in online targeted audiences. L’Oreal increased their advertising (38%) would indicate increasing TV ad spend by 68 percent compared to confidence in using this medium. Despite 2008, but still spent around a million RMB seeing a decline regionally, Magazine spend less than Olay - who actually cut their in China continued to show growth. media budget in 2009 by eight percent. Luxury cosmetic and Automotive brands dominated Magazine spend leaving telecom Share-of-voice and electronic companies to achieve a high Newspaper share-of-voice. The top three industries for advertising spend in 2009 were Pharmaceutical, espite achieving massive profits, banks Cosmetics and Beverage. In line with D are not featured in the top advertisers broad health trends, Beverage showed ranking. ICBC’s RMB 4.9 million advertising the strongest growth driven by ad spend budget did see them at the top of the increase in Juice (+157%) and Health / Diet financial industry ad spent list, however drinks (+127%). This investment appears to this was still 53 times smaller than P&G’s have paid off with Nielsen Retail showing a ad spend, and 16 times less than Olay. corresponding increase in sales.

47 4. Traditional and New Media Trends

China enters 3G boards, blogs and social networks. They turn to the Internet to share opinions, advice, grievances and recommendations. ith an estimated 233 million Chinese W By listening, connecting and engaging your accessing the Internet via mobile, it is no target market online you’ll be sure to keep wonder China’s leading Telecom companies a finger on the pulse of your brand health, are investing heavily in 3G related services. and react quickly to any perceived product This will pave the way for brands to really failings. start exploring mobile advertising.

3G technology was officially Is your target group online? commercialised in China in 2009 with China’s ‘Big Three’, China Telecom, China % share of total China’s netizens by Unicom and China Mobile being the first age group: (and currently only) recipients of 3G • 32% are 10 - 19 year olds, approx. licenses issued through the Ministry of 122 million users Information and IT. Wasting no time to • 29% are 20 - 29 year olds, approx. advertise their newly created 3G brands; 111 million users G3 from China Mobile, Wo from China • 22% are 30 - 39 year olds, approx. Unicom and E-Surfing from China Telecom 84 million users have collectively poured around 4 billion • 11% are 40 - 49 year olds, approx. 42 RMB into advertising. By the end of 2009, million users this investment saw them reap 42 percent, 34 percent and 24 percent respectively of In China’s changing media the 3G user market. landscape Nielsen predicts the following top Advertising Trends With marketing dollars increasingly for 2010 spread across TV, Internet and Mobile, Nielsen China recently launched ‘Three 1. Optimizing media convergence is a top priority. Screen’ research to help brands effectively target their market across each medium. A better understanding of media convergence will manifest in order to deliver a better return on investment. Tuning into online buzz supports building The ability to accurately measure and protecting brand health. activity and link online ads to offline purchasing behavior will be critical. Every day, millions of Chinese consumers 2. New models emerge to take converse in online communities, discussion advantage of smartphones.

48 4. Traditional and New Media Trends

Accurate mobile measurement will be required to stay ahead of the snowballing growth of this media platform. 3. More cross-media ad campaigns surface. The massive growth of online video games played and shared online leads the way for more successful interactive and cross-media advertising campaigns to appear. Growth in the adoption of this innovative advertising across screens and activities will increase. 4. Commercialization of social networking hubs increase. Social media will provide a new sales channel for establishing product awareness and commercializing brands to better support traditional advertising or text-based ads. 5. More interesting and interactive online ads appear. Increased use of more creative advertising and content models online such as video, attention- seeking page takeover ads and mechanisms for greater interactivity will drive the next era of Web development.

Note: TV and print advertising expenditure is based on standard rate card ‘No.X’ of spots aired or published, any discounts and special packages are not included. ‘Internet advertising estimated spending’ is based on an average cost-per-thousand figure ‘X’, estimated advertising impressions.

49 4. Traditional and New Media Trends

Growth in ad spend

Currency: RMB 000 Advertising Spend Trends by quarter in TV, Newspaper, Magazine Growth YA 180,000,000 +20% +14% +17% +17% +3% +18% +19% +18% 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Online Advertising Spend Growth YA +32% +38% +43% +50% +22% +49% +49% +30% 5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Source: Nielsen Media and Nielsen Online AdRelevance

2008-2009 Comparison in ad spend trends (TV/Newspaper/ Magazine)

Currency million RMB

600,000 2008 2009 YOY 2009 % 50%

500,000 40% 38%

400,000 30%

300,000 18% 20% 200,000 15% 14% 10% 100,000

0 0% TV Newspaper Magazine Internet

Source: Nielsen Media

50 4. Traditional and New Media Trends

2008-2009 China ad spend performance by industry (TV/Newspaper/ Magazine)

2008 2009 YoY %

120.0 80%

58% 100.0 40% 27% 25% 26% 9% 9% 6% 80.0 6% -1% 2% 21% -1% 3% 14% 0% 8% -2% 1% 60.0 0% -20%

-40% 40.0

-75% -80% 20.0

0.0 -120%

s s s s ia s s e s s ct ral ff e m ns d ct ies ic r i e e u e o e u r li d ltu tu vic d ist isu or p s r It perty o g ss p ro smetics d e d o essories isations Le e P o ricu o S l ProductsPr c P r n Lo Su h C Beveragesg Fo & ho l nt/Banking cc lt A l e Ac ua & e A t & a ai s s e l/ t u mmunicati vel & H ia o o inment &Vi M a tr Re H - ical Orga men s ta Tr i p & u r Investm acco u al d & Related Telec te udio / b q ic In rs n A To E t a Clothing & E s/ u l/ C c & Polit Computers & Accesso ce ce tia ni y ffi a o m Financial O r mer ctr ociet a m le S Ph o E C

overnment, G

Source: Nielsen Media

2009 Top 10 ad spenders (TV/Newspaper/ Magazine)

In Hundred Top 10 Advertisers YOY% Ratio% million RMB

1 P&G Co., Ltd 259.7 -11% 4%

2 Harbin Pharmaceutical Group 197.1 13% 3%

3 Unilever Co., Ltd 146.7 10% 2%

4 L’Oréal (China) Co., Ltd 139.8 56% 2%

5 Yum! Brands Inc 91.3 18% 2%

6 Coca-Cola Co. 64.2 37% 1%

7 Hangzhou Wahaha Group Co., Ltd 60.3 58% 1%

8 Tinghsin International Group 58.1 99% 1%

9 China Mobile Telecom Co., Ltd 48.0 7% 1%

10 Pepsi Co Inc 45.1 61% 1%

Source: Nielsen Media

51 4. Traditional and New Media Trends

2009 Top 10 ad spenders (TV)

In Hundred Million Ads Top 10 Advertising Brands TV YOY% RMB

1 Olay 77.9 -8%

2 L’Oreal 76.9 68%

3 KFC 72.6 21%

4 SanChine Pharmaceutical 69.4 30%

5 Wahaha 59.1 57%

6 Master Kong 52.9 105%

7 Dali Foodstuff 42.6 65%

8 Bishengyuan 42.3 106%

9 Jiangzhong Pharmaceutical 41.4 24%

10 HAYAO 6 41.3 1551%

Source: Nielsen Media

2009 Top 10 ad spenders (Newspaper)

In Hundred million Newspaper Ads Top 10 Brands YOY% RMB

1 China Mobile 14.8 -2%

2 Suning 13.6 16%

3 Guomei 11.7 -14%

4 Evergrande Real Estate 11.5 402%

5 China Telecom 5.9 28%

6 Dongfeng-Nissan 4.1 46%

7 China Red Star 4.1 122%

8 China Unicom 4.0 43%

9 BYD Auto 3.6 71%

10 Midea Electronics 3.0 600%

Source: Nielsen Media

52 4. Traditional and New Media Trends

2009 Top 10 ad spenders (Magazine)

In Hundred million Magazine Ads Top 10 Brands YOY% RMB

1 Chanel 2.9 36%

2 L’Oréal 2.8 4%

3 Estée Lauder 2.8 57%

4 Christian Dior 2.6 2%

5 Lancôme 2.0 6%

6 Mercedes-Benz 1.8 52%

7 Olay 1.8 33%

8 Shiseido 1.6 21%

9 Audi 1.4 109%

10 Volkswagen 1.4 66%

Source: Nielsen Media

3G ad and user share 2009

3G Ads Share 3G Users Share

25%

China 37% Telecom 41% China China 42% Telecom China Mobile Mobile

China Unicom China Unicom

34% 21%

Source: Nielsen Media Source: Ministry of Information & IT, China

53 4. Traditional and New Media Trends

Trend in internet penetration

Millions

450 60% 384 400 53% 298 50% 350 106.7 42% Rural internet users 300 40%

250 84.6 Urban internet users 210 29% 30% 200 58.4 Growth in users 150 20% 277.3 100 213.4 151.6 10% 50

0 0% 2007 2008 2009

Mobile Internet users (millions) 117.6 233.4

Source: CNNIC Statistical Survey Report on Internet Development. January 2009

Average Internet penetration in China is 25%

Internet penetration % 70 65 62 60

51 50 48 48 45

40 37 36 31 29 29 28 28 28 27 30 27 26 26 24 24 23 22 21 21 20 20 19 19 20 18 17 15

0 Jilin Tibet Hebei Fujian Hubei Anhui Gansu Henan Tianjin Shanxi Beijing Hunan Jiangxi Hainan Jiangsu Shaanxi Ningxia Yunnan Qinghai Sichuan Xinjiang Guizhou Guangxi Liaoning Chejiang Shanghai Shandong Chongqing Guangdong Heilongjiang Inner Mongolia

Source: CNNIC Statistical Survey Report on Internet Development. January 2010

54 4. Traditional and New Media Trends

Growth in 30+ age group using the Internet

Incidence of Internet usage by age

1.9 100% 1.5 4.2 4.5 60+ 9.6 10.7 80% 50-59 17.6 21.5

40-49 60%

31.5 28.6 30-39 40%

20-29

20% 35.2 31.8 10-19.

0.4 1.1 0% >10 2009 2008

Source: CNNIC Statistical Survey Report on Internet Development. January 2010

Tracking Online Buzz Case 1: Assess brand perception

Situation: Customers think Beer company ‘s advertisements are sexist. Brand not connecting with some consumers. Company launches multi-media marketing program to promote brand in a new way – focused on how to be a “man of character,” and the associated “laws” of being a man. Company eager to understand consumer reaction to program and brand. Solution: NOL analyzes consumer reaction towards campaign, sentiment toward brand, and strength of organic pass-around of campaign’s ads, videos, etc. Action: Research concludes that advertisements resonating even with individuals who dislike the beer brand. Individuals are also contributing homemade “Man Laws” and creating YouTube.com parodies of the advertisements. Brand is also perceived more positively than competitors. Result: Company confident in success of new campaign, continues with program.

Source: Nielsen Buzzmetrics

55 4. Traditional and New Media Trends

Tracking Online Buzz Case 2: Uncover emerging/declining trends

• Situation: FMCG companies (including ConAgra Foods) want to uncover the next big trend.

• Solution: NOL provides quarterly nutrition report tracking buzz among nutrition enthusiasts; one report uncovers early warning decline in buzz about Atkins Diet.

• Action: Due to early warning, ConAgra Foods promotes an alternative menu – its Healthy Choice soups, entrée and lunch meats.

• Result: When Atkins Diet trend dies, ConAgra does not suffer from poor sales of low-carb food items.

Source: Nielsen Buzzmetrics

Tracking Online Buzz Case 3: Uncover need for action

Pre-Lawsuit Parenting, 0% • Situation: Major food manufacturer hit by lawsuit Mainstream, Health, 26% over its use of ‘trans fats’ in manufacture of cookies. 11%

Food, 8% • Solution: NOL analyzes online conversation to assess whether buzz contained within an insular community of experts.

Nutrition/Fitne ss, 20% • Action: Research concludes that lawsuit not only acted as a tipping point to lead the issue into Dieting, 35% mainstream discussion, but other brands also Parenting, 1% Post-Lawsuit implicated. Health, 15% • Result: Company removes transfats from product ,Mainstream in accordance with consumers’ desires. Today, level 32% of transfats must be listed in all edible products.

Nutrition/ Fitness, 26%

Food, 13% Dieting, 13%

Source: Nielsen Buzzmetrics

56 4. Traditional and New Media Trends

Top 10 Search Engines & Classified Directories Sites

Rank URL Name 1 http://www.baidu.com baidu.com 2 http://www.soso.com soso.com 3 http://www.google.cn google.cn 4 http://www.hao123.com hao123.com 5 http://www.gougou.com gougou.com 6 http://www.sogou.com sogou.com 7 http://iask.sina.com.cn iask.sina.com.cn 8 http://www.baixing.com baixing.com 9 http://114.vnet.cn 114.vnet.cn 10 http://www.58.com 58.com