Close Menu
News

China’s potential lies in ‘urban clusters’

Brand owners should look to China’s biggest urban clusters for potential customers, according to Aaron Lau, president of the Cheil China Group, a marketing communications network with roots in South Korea.

guangzhou-megacity
Just a snapshot of China’s Guangzhou urban cluster

Speaking at Hong Kong’s Wine in China conference on 5 November, he stressed that the rapid implementation of China’s high-speed rail network has connected 60-70% of the country and helped turn China’s cities into “urban clusters”, before referring conference attendees to a McKinsey study which showed that there are “22 clusters that reflect around 95% of the market in China” (see image below).

While Lau said that Shanghai and Beijing clusters were “the two big ones”, he said that smaller cluster cities are often “advanced”, pointing out, for example, that Porsche sell the most cars in the Hangzhou cluster.

As for the system of classifying China’s cities into tiers according to population and income value, Lau said this failed to accurately reflect the true level of development in the country’s urban environments.

China cluster cities
China’s cluster cities. Source: McKinsey

“The development of Tier 2 cities is uneven at best,” he stated.

Consequently, he added, “Brands like Nike or Adidas used to look at China as a made up of tier 1-4 cities, but now they are looking at the market differently, and might have a flagship store in Shanghai, because it is a cluster city with lots of visiting consumers.”

Another speaker at the event, Kiki Yang, a partner at Bain management consulting, agreed with Lau, but warned that such major urban clusters are expensive places to establish brands.

“The more developed clusters are the most competitive, and you might find for example that the brands are not making money in Shanghai,” she said.

Indeed, Lau said that China had become a particularly challenging place to build a brand, using beer as an example.

“12-13 years ago Budweiser launched into China, and at that time premium beer didn’t exist, but today there are 1,700 beer brands in China, and the top 10 brands take 60% of the market share – so the rest have to share just 40%,” he said.

Continuing he stated, “The competitiveness of China is more than I’ve seen anywhere else in the world.”

Compounding this he said are “local beer brands”, which have packaging and quality that is “just as good” as their international competitors.

China high-speed rail
China’s high-speed rail network has connected 60-70% of the country and helped turn China’s cities into “urban clusters”

 

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No