This report provides a detailed picture on how some of China’s most successful CPG companies are navigating today’s market. Nielsen & McKinsey collaborated to highlight what differentiates them through a proprietary Customer and Channel Management (CCM) survey that was conducted for the first time in China. It covered five modules: Channel Strategy, Online Strategy, Route-to-Market, Pricing, as well as Trade and Promotions. Using Nielsen’s retail measurement of in-market performance the report also contrasts the practices of winners and non-winners (or “others”). Winners are companies that achieved higher sales growth than their categories, and outperformed others on one or more customer- or channel-management metrics.

1. December 2015
Felix Poh, Max Magni, Rohit Razdan
Seizing the CPG
Opportunity in
China: Online
and Out Ahead

2. Seizing the CPG Opportunity in China: Online and Out Ahead2

3. 3Seizing the CPG Opportunity in China: Online and Out Ahead
INTRODUCTION
China’s CPG companies must deal with a situation that will undergo dramatic shifts over the
next few years. First, as the economy has re-balanced overall growth has slowed, dropping
to just below 7% after multiple years of double-digit expansion. Physical channels are also
projected to lose share despite continued increases; online, by contrast, is positioned for
explosive gains (with a projected CAGR of 21% from 2014 to 2019). CPG organizations need
to adjust to this ‘new normal’ as well as shifting channel dynamics.
e-Commerce will demand agility and new capabilities from China’s CPG companies. They
must partner with retailers who are expanding their footprints and targeting new segments
and occasions. CPG winners will also develop new, multi-channel strategies that encompass
both online and offline platforms and integrate an omni-channel approach (including, in some
cases, CPG companies that are going direct to consumers).
This report provides a detailed picture on how some of China’s most successful CPG
companies are navigating today’s market. We highlight what differentiates them through a
proprietary Customer and Channel Management (CCM) survey developed in collaboration
with Nielsen that was conducted for the first time in China. It covered five modules: Channel
Strategy, Online Strategy, Route-to-Market, Pricing, as well as Trade and Promotions.
Using Nielsen’s retail measurement of in-market performance the report also contrasts the
practices of winners and non-winners (or “others”). Winners are companies that achieved
higher sales growth than their categories, and outperformed others on one or more
customer- or channel-management metrics.
Excelling in CCM is difficult. While 14 of the 23 companies surveyed ‘won’ in at least one
module, only six ‘won’ in more than one, and only one company ‘won’ in all five.

4. Seizing the CPG Opportunity in China: Online and Out Ahead4
WHAT DIFFERENTIATES WINNERS FROM THE OTHERS?
They treat e-Commerce as a top priority and a source of explosive growth by
ƒ Creating and managing a clear strategy for e-Commerce, including its role in an overall
omni-channel approach
ƒ Investing in marketing and consumer insights and using them to drive growth
ƒ Setting up dedicated e-Commerce teams to build long-term partnerships with online
retailers
ƒ Measuring and proactively managing
potential channel conflicts
They pragmatically analyze relevant,
available data, and do not let the fact
that China is ‘data-poor’ stop them, by
ƒ Using what they have – despite a
potential lack of sophistication in
analyses and tools – while they learn and
develop better techniques
ƒ Creatively gathering data from as many
sources as they can (e.g., partner
retailers, shopper research, social
media), and expanding on these in ways
that make good business sense (e.g.,
generating shopper insights, improving processes, and engaging consumers)
ƒ Employing more forward-looking analytical tools
ƒ Regularly monitoring and using more pragmatic, granular measures as well as both basic
and advanced metrics
They invest heavily in distributor management and closely manage in-store
execution by
ƒ Managing distributors much more effectively
— Select them strategically, balancing both financial and operational criteria
— Consolidate them intelligently
— Build collaborative, long-term relationships with them and hold them accountable
ƒ Winning at in-store execution
— Carry out store segmentation based both on current size of the business and potential
— Leave little to chance in the store with regular, highly granular management
— Ensure more effective trade promotions through more frequent trade promotion
performance reviews
Shopper insights inform companies on
ƒ How consumers shop in the store
ƒ What influences them in-store
ƒ How they purchase, e.g.,
— Do they purchase snacks at
checkout or at the main shelf?
— Which categories are bought in
combination?
These insights can lead to decisions
about where best to place a product,
which products to group together, etc.

5. 5Seizing the CPG Opportunity in China: Online and Out Ahead
They are not satisfied with what they have already achieved and invest to
continuously improve customer interactions by
ƒ Investing in the capabilities and resources needed to improve interactions with key
accounts (e.g., account manager hiring, dedicated customer teams, performance
measures) and build collaborative, long-term partnerships with these accounts
ƒ Investing in the resources needed (for example, creating a Center of Excellence for Pricing
and/or Trade) ‘ahead of the curve’
SURVEY OVERVIEW AND METHODOLOGY
This report covers the China CCM survey findings in detail, supported by market retail
performance from Nielsen, dividing them according to the modules in the survey itself.
Channel Strategy covers Modern and Fragmented Trade. Online and e-Commerce is next as
a separate section, followed by Route-to-Market, Pricing, as well as Trade and Promotions.
The CCM survey has a long history. It began measuring data and performance benchmarks
on the sales organizations of leading CPG companies in 1978 in the U.S., before moving both
to Latin America and Europe, and finally Asia and the Middle East. Nielsen’s in-market data
and analytics augmented the original survey; these are also crucial in determining the winning
practices in the current survey, which covers a broader range of topics. Globally, our 2014
CCM survey included nearly 200 companies, representing >$150Bn of net sales and $40Bn
of trade spend.
Twenty-three companies participated in the China CCM survey (Exhibit 1). These players—
in the food, beverage, home, and personal-care categories—represent a broad cross-
section of the CPG industry in China. To ensure that we received relevant data, the person
accountable for each performance area (i.e., Heads of Sales and their colleagues) completed
an appropriate part of the questionnaire (e.g., the Head of Sales answered the questions
about channel strategy). Approximately 70 CPG executives completed the survey.
Exhibit 1
23 companies
participated in the China
CCM Survey in 2014
MNC
Local
SOURCE: 2014 China CCM Survey
1 Yili Group – consisting of 4 BUs counted separately.
1

6. Seizing the CPG Opportunity in China: Online and Out Ahead6
THE VALUE OF WINNING
Winning practices in any of the modules offer enormous potential to CPG organizations in
China. They experienced better pricing, earnings, and overall growth as they captured the
value from their practices – unlike others, who are fighting to maintain their position in the
current environment (Exhibit 2).
CPG winners in Channel Strategy and Route-to-Market (collectively termed Sales Strategy)
grew sales by 16.4% and reduced their sales expense by 0.4% of net sales. Seven companies
were winners in these groups (except for Online and e-Commerce, which had six winners).
Winners in Pricing grew sales by 9.2% (vs. -0.4 for others) and increased average unit prices
by 0.6%. It had seven winners.
Winners in Trade and Promotions grew sales by 25.5% and reduced trade investment by 6%
of net sales. This group had five winners.
As Exhibit 2 reveals, not only do winning companies perform well but a significant
performance gap exists between them and others across all modules. This theme runs
through the rest of the report, although it is not always this dramatic. We will now explore the
practices that drive these differences.
Exhibit 2
Winning companies
outperformed their
categories across
modules
Winners
Others
SOURCE: 2014 China CCM Survey
NOTE: Certain numbers have been adjusted for outliers
Sales growth ahead of category
Percentage points, Median
Reduction in sales expense
Percent of net sales; self-reported
Unit price increase
Ppt ahead of category
Reduction in trade investment
Percent of net sales; self-reported
16.4
-0.6
0.4
-0.8
9.2
-0.4
0.6
-4.5
25.5
-0.4
6.0
-1.3
Pricing
Trade
Sales
strategy

7. 7Seizing the CPG Opportunity in China: Online and Out Ahead
DETAILED FINDINGS FOR EACH SURVEY MODULE
Modern Trade
Build collaborative, long-term partnerships with key accounts (such as hyper / super
chains). Over 1.5 times as many winners as others use “willingness to collaborate” as a core
metric when segmenting and prioritizing their key accounts, in addition to current sales value
and future growth potential. Once segmented and prioritized, joint setting of the account
strategy and plan with the most important key accounts is a top priority for winners, as is the
alignment of account targets.
Use cost-to-serve to optimize
performance at key accounts. Around
two-thirds of all participants measure
the cost-to-serve of their key accounts,
but more winners actually act on these
results, making meaningful changes in their
strategy (e.g., product mix, delivery size, or
distribution model).
Invest in the capabilities and resources
needed to improve the customer-
facing functions for key accounts (e.g., customer marketing, shopper insights). All
winners believe that a few critical capabilities – key account management, shopper insights,
better access to retailer data, and rapid innovation – will drive key account growth. Most
are investing heavily in building these capabilities. Over 85% of winners increased account
managers at both the national and regional levels, assigned dedicated customer teams to
their key accounts, and conducted rigorous performance evaluations. Almost 60% increased
revenue management resources.
Fragmented Trade
Use a basic product portfolio to reduce overlap with other channels. Eighty-six percent
of winners minimize the overlap between modern and fragmented trade by offering traditional
retailers 25% or less of their total product portfolio, thereby reducing channel conflict and
driving cost efficiencies. No winners provided their entire portfolio.
Use granular, growth-oriented data to segment and manage fragmented trade.
Over half of winners segment their traditional retailers based on the store’s overall growth
potential and type, in addition to its size. Growth potential measures include the store owners’
willingness to collaborate, the socioeconomic level of the store’s neighborhood, as well as the
traffic levels directly next to the store. Over twice as many winners (43%) as others (17%) also
manage execution at a granular level (i.e., channel and sub-channel) based on detailed data
and shopper insights, in order to realize the development priorities of each outlet segment.
Actively measure channel conflict and implement containment strategies (e.g.,
coordinated promotional calendars, different packaging for different channels).
Almost half of winners (43%) accomplish this with good results, versus 25% of others.
Different types of focus for smaller
vs. larger players
Smaller players (net sales revenue
< 1Bn RMB) are more likely to focus
on regional hyper / super accounts
because they do not have the scale
and negotiating power needed to deal
effectively with national key accounts.

8. Seizing the CPG Opportunity in China: Online and Out Ahead8
Online/e-Commerce
Six companies were winners in
e-Commerce, with sales growth at an
incredible 241% ahead of their categories.
While online could be seen as “just another
channel,” 63% of the participants in China
believe its continued growth will create
the biggest opportunities for them in the
next five years. It is their absolute priority
for growth. Most winners also believe that
e-Commerce is and will be more profitable
than brick-and-mortar stores (Exhibit 3).
Invest in marketing and consumer
insights to drive growth. All winners invest
more in online marketing and advertising
spend (and also tend to have a better idea
as to who they are actually reaching through
these efforts), as well as online trade
promotions and shopper marketing that
gathers consumer insights. Over 2.5 times
as many winners as others also invest in mobile initiatives (e.g., mobile coupons, and apps
that drive consumer engagement).
1 Winners are defined as those in the top 25% of e-Commerce sales growth, with minimum sales of 25 million RMB
e-Commerce: a tremendous growth
engine
~70% of participants see e-Commerce
as their greatest growth opportunity,
although the growth priorities will differ
for relatively mature and emerging online
categories. For instance, online players
will increasingly focus on food (including
home delivery) which may well be the
next wave of growth.
At the same time participants will be
concerned about increased pricing
pressure from key online retailers, which
may hinder their profitability. Almost 70%
see increased pricing pressure within
categories and online retailers’ stronger
push for greater trade spend as issues.
Exhibit 3
Winners1
believe that
online sales tend to be
more profitable than
brick-and-mortar
Winners
Others
SOURCE: 2014 China CCM Survey
How profitable are your online sales compared to off-line/traditional sales? [1.21]
Profitability of online sales versus brick-and-mortar
Percent of respondents who say online is more profitable
Two years ago
Achieved even though winners already invest more in marketing,
trade promotion and mobile initiatives to drive online growth
Current
Tmall
JD
Yihaodian
Other online
retailers
(e.g., Amazon,
Jumei, Lefeng)
18
50
36
50
27
67
36
83
27
67
36
83
18
67
27
67

9. 9Seizing the CPG Opportunity in China: Online and Out Ahead
Have a clear strategy for flagship stores on Tmall as well as their own Chinese ‘brand.
com’. Winning companies rely more heavily on retailers such as Tmall rather than on their
own brand.com. They typically perform only basic tasks on their own websites (e.g., general
information about the company and its offerings) because Tmall has built up so much trust
with consumers in China and has a leading position in the country’s B2C market. This
poses a marked contrast to other markets. As a result, 80% of winners plan to increase
their investments in their flagship stores on Tmall. All winners plan to collect better data on
shopper insights and behaviors through their Tmall stores, and to enhance brand strength
and potentially test new products and promotions.
Proactively manage any potential conflicts or pressure. Most winners view channel
conflicts as a major barrier to online growth, but have already designed strategies to resolve
them. They employ different SKUs, bundles, and unique online promotions. Taobao is a
notorious pain point, but winners report increased success in collaborating with Taobao to
better manage re-seller issues such as under-cutting prices and providing poor customer
service. Taobao is now tracking consumer complaints more effectively, and most winners use
this data to act against offending re-sellers. A smaller number of winners also use rewards and
accountability to strengthen their relationships with the best-performing third-party re-sellers.
Build long-term partnerships with online retailers. Winners provide retailers with
additional support across multiple dimensions. Online retailers receive more non-price
support from winners, and winners have dedicated e-Commerce teams that create and
sustain long-term partnerships with these retailers. A significant majority of winners also plan
to invest heavily in their e-Commerce priorities over the next few years (Exhibit 4).
Exhibit 4
Winners invest much
more in dedicated
e-Commerce capabilities
Winners
Others
Key Account /
HQ Selling
Sales Planning
Trade / Customer
Marketing
Shopper
Marketing
Shopper Insights
Marketing
73 73
45 27
45 27
18 27
45 9
18 9
100 67
100 67
83 50
83 83
67 67
50 67
SOURCE: 2014 China CCM Survey
1 Additional response options not shown.
Do you have dedicated resources for different types of roles within your e-Commerce team? [2.3]
Where are you planning on increasing headcount over the next two years? (All that apply) [2.5]
Share of dedicated resources
within e-Commerce team by roles1
Percent of respondents who have
dedicated resources
Where headcounts will be
increasing over the next two years1
Percent of respondents who are
expanding resources

10. Seizing the CPG Opportunity in China: Online and Out Ahead10
Use data and technology to generate insights, engage consumers, and improve
processes. All winners collect a wider, deeper pool of data on promotional depth, frequency,
and sales. They thoroughly analyze shopper attributes, going beyond demographics and
geographies to examine source/origin websites, occasions, and spending levels. This
analytic rigor provides in-depth insights into consumer behaviors. Winners also use social
media and mobile technology to engage and interact with consumers, send mobile coupons,
and provide mobile apps as well as a mobile website. For instance, two-thirds of winners
use their Weibo/Wechat page, a loyalty program, and/or a satisfaction survey to contact
consumers immediately after a purchase. The most forward-looking companies also make
better use of the real-time nature of online / e-Commerce data, for instance, by augmenting
traditional product testing with the use of online as a ‘live test market’ for new products.
CUSTOMER MANAGEMENT
Route-to-Market (RTM)
Route-to-Market (RTM) had seven winners who optimize their reach, execution at point-
of-sale (POS), and cost-to-serve through
a mix of direct store delivery (DSD) and
warehouse delivery.
Manage their distributors strategically
and consolidate them intelligently.
Despite the fact that CPG companies in
China continue to use substantially more
distributors than the rest of the world,
winners have made a great deal of progress
in reducing their distributor numbers
(see sidebar). This has been a huge
undertaking for them due to the complexity
of distribution in China and the challenges
underlying consolidation. Winners carefully
consider multiple factors when selecting their distributors, including operating models,
geographic range, outlets covered, channel coverage, and product categories. They often
select distributors more for their quality and attitude, not just cost and margin. Nearly 90%
also emphasize distributors’ willingness to collaborate and their quality assurance processes.
Winners also drive performance at POS by committing more resources to and using
strategic partnerships with high priority distributors. More winners have dedicated distributor
management teams, and over 80% link distributors’ discount policies to their performance.
Almost 60% employ discount levels that depend completely on the distributor’s performance,
efficiency, and adherence to planned in-store execution.
Leave little to chance in the store. Winners use much more granular standards for in-store
execution and track them much more frequently than others do. They set clear standards for
shelf execution at the channel level, and almost 30% of winners set them at the sub-channel
level as well. The metrics are based on economic data, shopper insights, and development
priorities. Between 70 to 90% of winners also set proactive, highly granular guidelines for
Even though China uses more
distributors than almost anywhere
else globally, CPG winners use them
more efficiently and strategically
Winners have less than half as many
vs. others (150 versus 360 average
distributors per 1Bn RMB of sales)
Their number of distributors also varies
less (winners’ numbers range from 20 to
400; others’ varies from 15 to 1,550)

11. 11Seizing the CPG Opportunity in China: Online and Out Ahead
field teams, including ones for specific store activities, promotions, and SKUs that should
be listed and in stock. They also track performance more frequently, including sales
representatives’ in-store performance and order/delivery efficiency. For instance, all winners
tracked the number of outlet visits per day and speed to shelf on a weekly basis. Over 80%
also monitored total sales to customers, promotion compliance, and store visit compliance/
call completion rates every week.
Use systems and data more effectively to optimize customer management. Winners
invest in mobile technologies and systems that will enhance in-store execution and help
them act on consumer and shopper insights. For instance, low-cost smartphones equipped
with the right apps can help winners’ field teams capture relevant data and carry out route
planning as well. In addition,
most winners employ a
customer relationship
management system of
some type, whether to
track the sales pipeline and
conversion, or for account
planning.
Pricing
CPG companies in China
must set their suggested
prices thoughtfully in
various categories,
as different degrees
of freedom may exist
across different product
categories. After carefully
considering each category,
organizations should select
the strategic and tactical
levers that would help them
set the most appropriate
suggested price for that
category. Many of the
winning practices below
can help them as they go
through this process.
Focus employees on
driving revenue, not just volume. The majority of winners (83%) maintained price increases
on their Tier 1 and Tier 2 brands over the past two years, while all winners grew sales during
this period. Winners did so by tending to focus more on revenue than volume or any other
variable when evaluating key employees, in order to better cultivate a value-driven mindset
versus a purely volume-driven mindset.

12. Seizing the CPG Opportunity in China: Online and Out Ahead12
Regularly monitor and use granular measures. More granular metrics help winners
take more precise, targeted actions (Exhibit 5). These companies consider consumer price
elasticity more than 1.5 times as often as others do when setting suggested list prices. They
also measure price elasticity and price gaps at a much more granular level (e.g., SKU, pack
size, customer, and brand).
Improve suggested price compliance by frequently tracking and adjusting prices for
Tier 1 and Tier 2 products. Around 70% of winners track pricing metrics at least monthly
(including net revenue per unit, price gap to competition, net profit per unit, and velocity). They
also review and adjust suggested list prices for Tier 1 and Tier 2 products more frequently. For
instance, all winners review Tier 1 suggested list prices semi-annually or more often, while ~
70% do so for Tier 2 suggested list prices as well. This process helps winners achieve better
compliance at POS, where 70% achieve 80% compliance with suggested prices while others
only capture 50% to 80% compliance.
Establish a Center of Excellence for Pricing, possibly combined with Trade. Almost
90% of winners establish a Center of Excellence (COE) for Pricing, and a little over 80% create
a single COE for Pricing and Trade. This ensures that institutional muscle is built up over time
as a focused set of resources becomes increasingly comfortable and adept at carrying out
pricing and trade analyses.
Winners
Others
Exhibit 5
Winners also monitor
price at a much more
granular level
SKU
Customer
Pack Size
Category
Channel
Brand
27
18
18
36
45
55
71
57
57
57
43
43
55
27
36
64
55
73
71
71
43
71
43
71
SOURCE: 2014 China CCM Survey
1 Additional response options not shown.
At what levels do you regularly (i.e., at least every 12 months) measure and track price elasticity? (All that apply) [2.5]
At what levels do you regularly (i.e., at least every 12 months) measure and track price gaps? (All that apply) [2.6]
Level at which price
elasticity is measured1
Percent of respondents
Level of
granularity
Level at which price gaps
are measured1
Percent of respondents
High
Low

13. 13Seizing the CPG Opportunity in China: Online and Out Ahead
Trade and promotions
Employ more forward-looking analytical approaches when setting trade rates. The
majority of winners combine an integrated ATL/BTL media mix model with other methods
when they set trade levels between Trade and Marketing. While over half (60%) employ basic
metrics, even more (80%) use more forward-looking measures such as trade ROI and retailer/
distributor category growth.
Ensure more effective trade promotions
by reviewing trade promotion
performance more frequently. All
winners conduct important analyses
monthly or even more frequently, including
event-level post promotion analyses and
trade performance reviews. Most (80%
to 100%) use both basic and advanced
metrics (such as cannibalization impact
and incremental customer ROI). In addition,
80% of winners conduct formal reviews
of price-related trade spend (e.g., TPRs or
EDLP), while 60% conduct formal reviews
of non-price trade spend (e.g., merchandising). All winners also take immediate action based
on these reviews, re-planning the remaining events in the year to improve performance
without changing the level of funding.
Invest in the resources needed to achieve trade promotion excellence. Winners
dedicate resources to build the integrated revenue management capabilities they need
to increase net selling price over time (through a combination of price and mix effects).
Although ~80% of participants have a Trade or Trade and Pricing COE, more winners created
dedicated trade teams and invested in trade tools to carry out increasingly more advanced
analytics over time.
* * *
CPG companies in China have an incredible opportunity if they are willing to commit
themselves and develop a truly seamless, omni-channel approach. By developing the
capabilities and systems they need to capitalize on e-Commerce’s explosive growth, while
continuing to manage their physical channels effectively, they can significantly strengthen
their competitive advantage both now and in the future. However, they will need to adopt
forward-looking practices, integrate different market views, and hone their underlying
analytical skills. This road will be long and challenging, but those who succeed will not only
achieve their individual targets but position themselves as true leaders in one of the world’s
largest markets.
Trade: Building the tools winners
need to capture and analyze the data
for decision-making
Over 1.5 times as many winners are
creating and using Trade Promotion
Optimization (TPO) tools
80% to 100% of winners capture data
through multiple sources, including
syndicated scans, their partner retailers,
and proprietary shopper research

14. Seizing the CPG Opportunity in China: Online and Out Ahead14
AUTHORS
Felix Poh is a principal in McKinsey’s Shanghai office, Max Magni is a director in the New
Jersey office and Rohit Razdan is a principal in the Singapore office.
CONTACTS
McKinsey & Company
Felix_Poh@mckinsey.com
Max_Magni@mckinsey.com
Rohit_Razdan@mckinsey.com
Nielsen
Yi Jin Kiki Fan, Managing Director – Nielsen China; Kiki.Fan@nielsen.com
Christopher Kong, Senior Director; Christopher.Kong@nielsen.com
About McKinsey & Company
McKinsey & Company is a global management consulting firm, deeply committed to helping
institutions in the private, public, and social sectors achieve lasting success. For over eight
decades, our primary objective has been to serve as our clients’ most trusted external
advisor. With consultants in more than 100 offices in 60 countries, we bring unparalleled
expertise to clients across all industries and functions, anywhere in the world. We work
closely with teams at all levels of an organization to shape winning strategies, mobilize for
change, build capabilities, and drive successful execution.
About Nielsen
Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with
leading market positions in marketing and consumer information, television and other media
measurement, online intelligence, mobile measurement, trade shows, and related properties.
Nielsen has a presence in approximately 100 countries, with headquarters in New York,
United States, and Diemen, the Netherlands. For more information, visit nielsen.com.
Acknowledgements
The authors are grateful to the executives who offered valuable insights for this publication.
The authors would like to thank the following McKinsey colleagues for their contribution and
support: Alex Sawaya, Amrita Dhar Sen, Tina Shen and Xiaodong Zhang.

15. 15Seizing the CPG Opportunity in China: Online and Out Ahead

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