Apple to Starbucks, how China is virtually destroying US firms market share

As Beijing and Washington veer towards a full-blown trade war, American brands in China face what may be an even bigger threat: local rivals armed with innovative products and the Chinese government’s blessing. American household names like Apple, Starbucks and Procter & Gamble’s Pampers are seeing their dominance challenged, a potential threat to the hundreds of billions of dollars US firms make in China.

According to an analysis of data from Bain and Kantar, local brands snatched almost three-quarters of China’s $97 billion market for fast-moving consumer goods - a category that includes items like soft drinks and shampoo - last year.

The data shows that US products like Pampers, Colgate toothpaste and Mead Johnson infant formula saw their market share drop around 10 percentage points in the past five years. The data was based on a survey of 40,000 urban households.

“Local competition is now extremely high on the agenda of foreign firms in China,” said Bruno Lannes, Shanghai-based partner with Bain & Co.

“In order to win in China now they need to beat not just traditional competitors,” he said. “But they need to win against local companies that are faster and more innovative than they had realised.”

American brands have long enjoyed a vaunted status in China. US fast food, beverages, coffee chains are ubiquitous in China’s cities, while consumers lap up US-branded infant formula, designer jeans, cars and smartphones.

That dominance, however, is threatened by China’s push to bolster domestic brands by creating champions in certain categories and weeding out weaker players to improve quality.

Brewing trade tensions could exacerbate this slippage, threatening more than $180 billion in sales by US firms in China last year, says an analysis of 121 US-listed American firms that broke out data for China sales in the most recent fiscal year.

The total is likely far higher as many US firms with a major China presence - including Starbucks, McDonald’s and Walmart - don’t break out China sales.

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Apple made $44.8 billion in China in the last fiscal year, P&G around $5.2 billion and the sports apparel maker Nike $4.2 billion.

A trade war now looks more likely after talks in Beijing and Washington failed to defuse grating issues between the two countries over a trade imbalance, technology transfers and barriers that firms face doing business in China.

But the bigger threat might be the advances made by Chinese rivals.

Apple’s iconic iPhone has seen its share of the country’s smartphone market stall at around 10% since 2012, according to data from the analytics firm Canalys, and has been overtaken by upstart domestic phone makers like Oppo, Vivo and the more established Huawei.