Shift to e-commerce hits firms in China

Last month, Fonterra sold its third 'dim sum bond', raising 1 billion yuan, or $230 million, with the proceeds helping fund the stake in Beingmate. Photo / NZME.

One fact is often overlooked amid all the hype about business opportunities in China. The Asian mega-market can be a brutal place to operate, as the recent experience of two Western consumer goods giants shows.

Unilever, whose brands include Dove soap and Magnum icecream, watched its Chinese sales go into freefall last year, while Nestle has reportedly been burning instant coffee it can't sell.

And the cause of all this pain? Analysts say foreign multinationals have been slow to address a huge shift towards online shopping in the world's second-biggest economy.

China's e-commerce market grew by almost 50 per cent last year.

And close to half of Chinese consumers are now purchasing their groceries online, compared with only a quarter globally, research by Nielsen shows.

These figures raise the question of how Fonterra, which wants to boost branded product sales in China, intends to tackle the online challenge, although e-commerce didn't appear to get a mention when the company announced its distribution partnership with Chinese baby milk maker Beingmate Baby & Child last year.

A fact sheet released by Fonterra only talked up Beingmate's bricks-and-mortar capabilities, including a network of 80,000 retail terminals.

Fonterra hopes the tie-up will significantly expand Chinese sales of its Anmum infant formula brand.

"Previously in China, physical reach was a key driver of success but that is rapidly changing with the growth in e-commerce and innovative marketing platforms," said Achyut Kasireddy, the company's vice president of greater China brands. He said Fonterra brands, including Anmum and Anchor, have a strong presence across several Chinese e-commerce platforms, including Alibaba's Tmall.com.

"In the case of Anmum, we saw positive results with online sales during its pilot phase and our partnership with Beingmate will take it to the next level."

Some industry players are sceptical about Fonterra's chances of cracking the Chinese infant formula market, which is expected to grow to more than US$30 billion by 2017.

Units in the Fonterra Shareholders' Fund closed unchanged at $4.91 on Friday.