Background and Challenge

With snack food & beverage companies facing flat sales in mature markets such as the U.S. and Europe, the race is on to gain a strong foothold in emerging countries that have growing appetites – and pocketbooks – for these products. One of the most enticing prospects is China, a market known perhaps as much for its complexity and diversity as for its potential.

A leading global brand was targeting exponential growth in what was fast becoming a fierce battleground for brand dominance, retailer “real estate” and customer loyalty. While the company had established a strong presence in large Chinese cities during the last two decades, new levels of prosperity were creating enormous growth opportunities in smaller urban and rural areas. The company enlisted L.E.K. Consulting to help it gain market share quickly in these hotly contested markets.

A key challenge was making sense of China’s diverse and rapidly changing retail landscape – which ranges from makeshift storefronts in remote villages to exclusive clubs catering to high-flying urban professionals. And how should the company develop and refine a distribution system that will give it the competitive edge to win? We developed a structured city assessment framework and deployed multiple teams in eight targeted regions across China to gain fresh intelligence into tertiary areas via in-depth interviews with wholesalers, distributors and retailers.

Approach and Recommendations

We took a highly complex and diverse environment and mapped how specific markets perform today, and how they are projected to evolve – which is pivotal to a successful consumer products strategy for China’s dynamic economy. Teams from our China offices segmented China’s city markets into four primary socio-economic “tiers,” with multiple variations based on geography. We also created distinct profiles for each geography based on market potential, demographic characteristics, retailing infrastructure and delivery network sophistication. Then we benchmarked best practices based on how the client and its primary competitors operate and perform in each market tier.

We articulated a detailed strategy to optimize distribution and sales opportunities for each market profile category, including:

  • A new perspective on go-to-market strategies for a given territory (e.g., distributor channels, promotional programs, etc.)
  • How programs are likely to change during the next few years based on the city’s growth trajectory
  • The corporate investment and infrastructure required to gain market share in these regions
  • A framework to reach aggressive growth goals

Looking beyond its immediate findings, we created an easy-to-use “market channel optimization” application that the company’s field employees use to help evaluate and prioritize new markets. Users simply enter information about the target region as well as sales and channel distribution data to identify the region profile type. The multilingual tool can address 2,500 cities in China and also weighs regional differences in its market recommendations.

Results

Today, the food & beverage company is seeing increased sales in China, especially in the tertiary markets that we analyzed. The company also continues to use our “market channel optimization” application to gain insight into the appropriate distribution model for specific new markets, and help maintain its leadership position throughout China.