Over the years, China's economy has continued to develop at a high speed, and people's consumption spending has continued to grow. However, the recent macroeconomic pressure has affected the confidence of Chinese consumers.
The downturn in the stock market and housing market, as well as the measures taken to curb the spread of the epidemic, have added uncertainty to the consumption prospects. As the closely watched macroeconomic data, China's consumer confidence index released by the National Bureau of Statistics fell below 90 in April, reaching a historical low (Figure 1).
China's savings rate has always been high. In 2022, people will be more interested in saving than spending. McKinsey has recently conducted a survey on Chinese consumers, which shows that 58% of urban households surveyed hope to "save some money for emergencies" , the highest level since 2014, 9 percentage points higher than the survey results in 2019 。
Consumers have become more cautious in spending money, which is also reflected in the rising savings rate. In the first nine months of 2022, the amount of Chinese residents' deposits increased by 14 trillion yuan.
Despite the slowdown in economic development and the impact on consumer confidence, China's economy still shows strong resilience, which may help people in the consumer industry to establish a cautious and optimistic mood.
According to the data of the National Bureau of Statistics, in the first three quarters of 2022, the per capita disposable income of Chinese residents increased by 5.3% in nominal terms over the same period last year; In September, the unemployment rate in the national urban survey stabilized at 5.5%, which was basically the same as before the epidemic; The consumer price index (CPI) in the first nine months of 2022 will increase by 2.0% on average.
Although some media reported that some multinationals had reduced their business in China or even quit, data from the Ministry of Commerce showed that China's foreign direct investment (FDI) has been at a historical high, hitting a record of 181 billion dollars in 2021, up 21% year on year. Despite the downward pressure on economic growth, FDI in the first six months of 2022 again achieved rapid growth, with a year-on-year growth rate of 24% (Figure 2).
Therefore, Chinese consumer goods companies have reviewed their own strategies. Will the economy and consumer confidence continue to decline, or will they rebound from the bottom? If consumer confidence picks up, they must have a lot of money to spend 。
In order to help enterprises clarify these key issues, we recently conducted a comprehensive analysis of the current situation of Chinese consumers. This report will focus on five new trends in current consumer behavior.
This analysis is based on a systematic survey on consumption attitudes and behaviors of more than 6700 consumers from 44 cities and nearby towns in July 2022 , pulsating research on public opinion and confidence of market consumers in China and other countries/regions, online data of more than 1000 categories on large e-commerce platforms in China, and economic modeling by McKinsey Global Institute (MGI).
Remodeling China's consumer market
Five trends of
1. The middle class continues to grow Middle - and high-income families grew at double-digit rates, powerfully boosting consumption growth. No country/region in the world can Like China, so many middle-class families are added every year. More and more families have an annual income of more than 160000 yuan, ranking among the upper middle class. In the next three years, China is expected to add another 71 million upper middle class families. 2. Continuation of high-end trend Rich consumers prefer high-end brands. Even in the face of economic challenges, high-end brands still outperform mass brands. Although consumers are worried about the economic environment and personal income, in order to reward themselves, high-income groups will still favor high-end brands in actual consumption. The rise of local brands following the trend of innovation has put pressure on many foreign brands that used to take the lead in the mass market or mainstream market, and their sales have declined significantly. 3. More sensible choice, consumption not degraded Consumers turn to channels with more competitive prices and actively seek discounts and promotions. The consumption downgrade did not happen, and consumers were just more sensible when buying goods and choosing channels. They open their minds to find more competitive channels to buy the desired brand, some through WeChat groups, some with the help of Taobao purchasing shops, and some seek to bring goods live. They did not make compromises when choosing brands and products, but made more careful trade-offs and actively sought discounts and promotions. Consumers will also try to spend less money and buy more products. Consumers are smart and know how to study the technical specifications of their favorite products on social media. For example, they are familiar with the ingredients of daily skin care products, and will also compare the warmth retention effect and down content of down jackets. 5. Local enterprises are winning the market Chinese consumers choose local brands mainly because of their recognition of their quality and innovation, not just because of low prices and national pride. Once upon a time, Chinese consumers were willing to pay high prices to buy foreign brands; But this is becoming the past. Now Chinese brands can also provide quality products that are comparable or even better than their foreign counterparts. Although this is not a new phenomenon, the preference of Chinese consumers for local brands has accelerated in recent years. Surprisingly, national pride is not the only driver. Today's domestic enterprises respond faster to the trend, are closer to consumers, and invest more boldly. The above five trends have a profound impact on consumer goods companies. We also summarized four steps that senior managers can take to help their consumer brands survive and develop. Trend 1: The middle class continues to grow
#54% of respondents still believe that their family income will increase significantly in the next five years One of the key reasons for holding an optimistic attitude towards the consumer market is that last year China's high-income and high-income consumer groups accounted for 55% of urban household consumption, and will continue to grow rapidly in the future (Figure 3). MGI data shows that from 2019 to 2021, the annual compound growth rate (GAGR) of the number of urban households in China with an annual income of more than 160000 yuan ($21800) reached 18%, from 99 million to 138 million. By 2025, another 71 million families will enter this higher income range, highlighting the huge potential of China's consumer market. Our recent research on Chinese consumers also supports this macroeconomic statement. 54% of respondents still believe that their family income will increase significantly in the next five years , slightly lower than the proportion of respondents who made this prediction in 2019 (59%). McKinsey's recent global consumer survey also confirms the overall optimism of Chinese consumers. In the survey in August 2022, 49% of Chinese respondents believe that "the economy will rebound in two or three months, reaching or even exceeding the growth rate before the epidemic", while only 11% - 26% of consumers in developed countries hold this view (Figure 4). Trend 2: Continuation of high-end trend Strong growth of high-income and high-income families And the following Consumption strength has brought good news for high-quality high-end brands. For example, from 2019 to 2021, Tmall will go to the high-end （ High end skincare brands refer to the top 400 brands of Tmall, whose average selling price exceeds 500 yuan ） The compound annual growth rate of skin care brands has reached 52%, more than twice that of popular brands, which is only 16% （ Source: Baiguan Technology ）。 In fact, high-income consumers are also more willing to spend money: 26% of these respondents told us that their consumption in 2022 will exceed that of last year, but the proportion is still lower than 36% three years ago; Only 14% of respondents cut back on consumption, compared with 18% in 2019. In 2019, there will be little difference between the two groups in spending, but with lower income consumers reducing spending, the situation will begin to diverge in 2022 (Figure 5). High income consumers' spending on almost all FMCG categories has increased rather than decreased. For example, 37% of the respondents plan to increase their spending on foreign wine, 35% plan to increase their spending on sports drinks, and 32% plan to increase their spending on fruit juice. High income respondents said that they were experiencing consumption upgrading, and would prefer brands and products with higher prices in such categories as improving face value (such as skin care products) and improving experience (such as low-grade flavor liquor). Trend 3: more sensible choice, consumption not degraded
#Consumers turn to channels with more competitive prices and actively seek discounts and promotions Our research shows that although consumers' overall spending tends to be conservative, they also maintain their quality of life through some adjustments (Figure 6). In 2022, the proportion of respondents who claim that their expenditures will increase by 5% or more than the same period last year will be 16%, half of that in 2019; 22% of respondents claimed to have reduced their spending. The fluctuation of the market encourages consumers to maintain their quality of life through more strict choices; Some even try to spend less money and buy more products. High income groups are reducing their shopping frequency or changing their preferences in specific categories, but they are not turning to cheaper brands or products. This is due to the fact that major brands (especially Chinese brands) continue to improve their competitiveness and provide more differentiated products. The way for lower income consumers to deal with it is to turn to more price competitive channels , such as purchasing food and daily necessities through the community or group purchase e-commerce platform, or choosing a product line with a lower price of the same brand. From the perspective of search and shopping methods, consumers will now conduct omni channel shopping except for a few categories. Other consumers said that they would postpone their purchase plans and wait for promotions 。 Discounted goods are more common and cheaper than ever before. Take skin care products as an example. When some high-end brands sell entry-level products in the broadcast room, they can offer nearly 50% discount through price reduction and buy one get one free promotions. #Chinese consumers spend nearly two hours a day on short video platforms on average McKinsey's global consumer pulse survey in August showed that, 60% of Chinese consumers will interact on the head audio/video streaming platform at least once a day, and spend nearly two hours on the short video platform on average every day 。 With a large number of monthly active users (671 million in 2021) (source: QuestMobile Guishi Information Technology), platforms such as Tiaoyin have not only become rapidly advancing social media platforms, but also important shopping channels. In 2021, the total trading volume (GMV) of Tiao Yin will increase by 80% compared with 2020, reaching 830 billion yuan. Skin care products, clothing and many other categories increased by more than 200% (source: Baiguan Technology). The reason why dithering e-commerce is popular with Chinese consumers is that its recommendation algorithm based on user interest can stimulate users' potential shopping desire, shorten the shopping decision-making journey, and more efficiently complete the shopping transformation link. In addition, dithering also provides a more interactive user experience, which is more suitable for new product release and testing. Although the era of stars as key opinion leaders (KOLs) has not ended, as Chinese consumers are eager to understand the characteristics and functions of products in more detail, "vertical KOLs" focusing on providing professional product information are becoming more and more popular. #Compared with emotional factors, consumers pay more attention to quality and function when making purchase decisions Chinese consumers are becoming more sophisticated when buying products. In 2022, as the most important factor for Chinese consumers to purchase FMCG, "function" not only regained the lost ground from 2015 to 2019, but also further expanded the leading edge (Figure 7). From the formula of face cream to the filling type and quality of the favorite down jacket, Chinese consumers are very familiar with the characteristics and specifications of the products they buy. In the clothing industry, the functional trend is reflected in new professional and occasion clothing. Those brands that sell so-called "effortless" bras or sunscreen clothes have achieved strong sales growth. Some brands that are more responsive to the market will launch niche outdoor products in due time, integrating high-quality design and functions for luxury camping or skiing and other scenes. Although consumer confidence and spending may continue to fluctuate with the changes in the macroeconomic environment, it is an undoubted trend that Chinese consumers will become increasingly demanding in their research and purchase of products. Trend 5: Local enterprises are winning the market
#Chinese consumers choose local brands mainly because of recognition of their quality and innovation, not just because of low prices and national pride According to the survey, 49% of Chinese consumers believe that local brands are "better quality" than foreign brands, while 23% of Chinese consumers hold the opposite opinion. The survey involves 12 different product attributes, and the data results are roughly the same. In another survey, "high quality" is the third most important reason for consumers to choose Chinese brands, second only to cost performance and support for local enterprises, and innovation ranks fifth (Chinese Academy of Social Sciences, Tiao Yin and Ocean Engine reports). In short, Chinese consumers care less about where the brand comes from, but more about what benefits and functions it can provide. It is this tendency that has led consumers to increase their purchases of local brands in the past few years (Figure 8). For example, although foreign brands dominate the fuel vehicle market, Chinese brands are far ahead in the sales of electric vehicles. The smart electric vehicles of Chinese brands not only adhere to the consistent cost performance advantage, but also perform significantly better than the models of traditional international brands in terms of intelligent networking, automatic driving, etc. McKinsey's research on automobile consumers found that the consumer awareness of Chinese brands in the field of electric vehicles was far higher than that of traditional international automobile enterprises in the field of electric vehicles.
Thanks to product advantages, Chinese brands have also performed well in the field of home appliances. Through continuous investment in innovation, Chinese brands have occupied more than 80% of the local market share (source: Euromonitor International). In the past five years, the R&D expenditure of a leading enterprise has increased by 15% every year to help it launch energy-saving products in the global market, resulting in a significant increase in revenue. For example, among the top 20 mobile phone brands, the sales of domestic mobile phones will increase from 46% in 2013 to 64% in 2021. Chinese consumers also increasingly favor domestic infant formula. Among the top 20 brands in this category, the sales of domestic brands will increase from 48% in 2013 to 52% in 2021. These trends show that Chinese brands have the ability to produce differentiated products of first-class quality with market leading formulas and specifications; Behind this, there will be an important and lasting change. How the brand changes rapidly
Keep leading in the market of
For enterprises facing Chinese consumers, understanding the impact of the above five trends on their business will help them to better formulate strategies and make more intelligent decisions. Although each company's final response is different, executives should consider at least the following four measures in the face of China's surging consumption pattern: Increase the rolling review mechanism, maintain the agility of operation, and make adequate preparations for the market full of variables
The rapid changes and uncertainties in the past two years may become the new normal of the Chinese market. For a long time, enterprises will conduct annual or quarterly business reviews, but such frequency will not be enough to help managers keep pace with the times in the ever-changing environment. On the contrary, in the face of rapid changes in consumer demand, new macroeconomic impacts or new policies, if enterprises want to respond more quickly and effectively, they should adopt the rolling review mechanism, and have the willingness and ability to adjust business plans quickly and boldly. In terms of personnel deployment, managers should also improve their agility and rapidly rearrange and retrain human resources to deal with the company's top priority. Establish a unified image and deliver a unified voice throughout the consumer decision-making journey to inspire, influence and transform affluent consumers
Consumer groups with medium and high incomes are growing and their willingness to consume is not declining, even in the face of increasingly uncertain economic prospects. This means that millions of new middle - and high-income consumers are looking for opportunities to spend money, hoping to buy high-end brands and new categories. When they choose products they have not touched before, they naturally hope to get more information and guidance. This creates a rare opportunity for enterprises to shape consumers' views on the whole category, and even make the subtle impact happen before the first purchase. For example, help consumers understand why more steps should be added to the morning skin care program, so as to attract them to buy more kinds of skin care products and cosmetics. This information needs to appear in front of consumers at a very early stage of the consumer decision-making journey. Brands need to establish a sense of presence in different offline and online contacts. When consumers collect information there, purchase decisions will be affected. From short videos and live broadcasts of dithering, to physical counters in shopping malls, to traditional word of mouth, Chinese consumers will obtain information through various channels when they decide to purchase a new product with their hard-earned money. Turn consumers into brand ambassadors
In recent years, Chinese consumers have become more sophisticated and less vulnerable to marketing gimmicks. Some brand innovation methods are used to solve consumers' concerns about product safety and reliability, for example, inviting them to visit the factory to understand the product production process; Set up an open kitchen to truly show how food is cooked; The traceability code is added to the package so that consumers can track the origin of the product and the supply chain journey. If you want to win the minds of Chinese consumers, you must find another way. If brands can deepen their understanding of consumers' needs and expectations, and provide information to help them make better purchase decisions, they can attract more consumers' attention and make them pay more. Build a strong supply chain, predict in advance and effectively deal with future uncertainties and systemic shocks
Until recently, supply chain management only predicted the demand in the next quarter or two, and efficiently met the demand by configuring the supply chain. In the future, forecasting is still crucial, but when the sudden increase and decrease of demand in the environment will impact the entire supply chain, learning how to respond quickly and quickly becomes increasingly critical. During the annual "Double 11" period, the sales volume of a clothing brand's popular products may be more than one thousand times that of ordinary products, but it is almost impossible to predict the popular products in advance. A leading cosmetics brand should use the time one month before the "Double 11" to adjust production facilities, inventory allocation, pricing strategies and marketing plans to cope with the unpredictable situation. In the era of continuous uncertainty and volatility, it will gradually become normal to stop pursuing absolute correctness in supply chain management. Increasingly wealthy Chinese consumers still have strong resilience 。 Our research shows that they believe that the current economic slowdown is only a short-term phenomenon. Nevertheless, the economic pressure has made consumers more cautious in making shopping decisions, and they are also increasingly valuing quality and function 。 In this landmark change, the performance of local brands is better than that of foreign brands in both aspects. It is vital that consumers will continue to consume when conditions are appropriate. With the continuous expansion of China's consumer market, those enterprises that can properly cope with the changes will stand out.
