Chinese consumers increasingly favour local brands over foreign brands

Australian brands such as A2 Milk, Bubs and Blackmores could find Chinese consumer tastes are shifting.

Citi has maintained its Sell rating on A2 given concerns that the resurgence of domestic brands may be increasingly impacting A2 demand. Picture: AAP

Chinese consumers are shifting their loyalties from popular high-profile foreign retail fashion brands, such as Nike and Adidas, to local Chinese brands with that trend also emerging in the purchase of vitamins and infant milk formula that could pose a risk to Australia’s A2 Milk, Bubs and Blackmores.

A recent note on Chinese consumer preferences by Citi analyst Sam Teeger said a survey of 1000 Chinese consumers by Citi’s US Retail Team revealed consumers are more likely to buy domestic athletic brands (Li Ning and Anta) as compared to foreign athletic brands (Nike and Adidas).

This trend is consistent with what we are seeing in other consumer-related categories, including infant formula and vitamins, Mr Teeger said.

“We see this as a risk for A2, Bubs and Blackmores which have significant exposure to China.

“Chinese consumers prefer domestic athletic brands over foreign brands. The survey indicated that Chinese consumers prefer Chinese athletic brands. When asked which athletic brands they considered purchasing next, 70 per cent said they plan to buy Li Ning, followed by Anta at 54 per cent. Both Nike and Adidas follow Anta at 47 per cent. The results may be influenced by recent events relating to cotton production.”

Mr Teeger said foreign brands were losing popularity among Chinese shoppers.

“Of the 11 brands included the survey, Chinese brands, Li Ning and Anta, were the only brands with a positive net promoter score (NPS), while Nike and Adidas both have a negative NPS at -21 per cent. And while 31 per cent of respondents said that Nike was gaining in popularity, 41 per cent said Nike was losing popularity. Similarly, 31 per cent said Adidas was gaining popularity, while 40 per cent said Adidas was losing popularity.”

A major shift by Chinese consumers away from foreign brands and towards homegrown brands could be particularly damaging for Australia’s legion of health, wellness and beauty companies that have in recent years struck a sales bonanza in China.

Chinese shoppers had highly favoured Australian brands because of their reputation for being ‘clean and green’, brand hallmarks that are crucial in sectors such as infant milk formula and vitamins where food security and safety is paramount.

ASX-listed companies such as A2 Milk and Blackmores have become hugely popular among Chinese shoppers and have drawn a significant amount of sales and profits from the region, either selling directly, online or through Chinese personal shoppers known as ‘daigou’.

Citi has maintained its Sell rating on A2 given concerns that the resurgence of domestic brands may be increasingly impacting A2 demand, pricing may come under further pressure as A2 resellers could start to discount as inventory moves closer to expiry, putting further pressure on reseller margins and ongoing pressures on birth rates which make growth challenging. Mr Teeger also has a Sell on Bubs and a Sell on Blackmores.