Chinese consumers: Revisiting our predictions
In 2011, we tried our hand at predicting the ways in
which, in the decade to come, Chinese consumers would change their preferences
and behaviors. This article takes stock of those predictions.
Why check in now? One
reason is we’re about halfway to 2020. Another is a comprehensive new McKinsey survey,
which follows nearly ten years of previous research that includes interviews
with more than 60,000 people in upward of 60 cities in China. Along the way,
we’ve bolstered our own team’s data on consumer preferences and behavior with a
number of complementary analyses and models, including McKinsey’s macroeconomic
and demographic studies of Chinese urbanization and income development. We’ve
also interviewed academics to draw out the major trends shaping the course of
the Chinese economy, such as its rapidly aging population, the growing
independence of women in society, and the postponement of critical life
milestones, such as marrying and having children.
We’ve done it all with
the abiding belief that companies getting ahead of the trends can build their
brands and offerings to fit a rapidly evolving set of consumer needs in
China. Deeper and more nuanced understanding of Chinese consumers can help reveal fresh
opportunities—for new entrants and incumbents alike—and signal those areas
where established players may need to be more wary.
Looking back nearly
five years on, it is plain that Chinese consumers are evolving along many,
though not all, of the lines we’d predicted. While geographic differences
persist, Chinese consumers are, on the whole, more individualistic, more
willing to pay for nonnecessities and discretionary items, more brand loyal,
and more willing to trade up to more expensive purchases—even as their hallmark
pragmatism endures.
Evolving geographic differences
Much of the research we
described five years ago highlighted the vast differences we found among
consumers in China’s various cities and regions. Just as it was then,
generalizing about Chinese consumers continues to be almost as difficult (and
maybe as foolish) as it is to generalize about European consumers.
We predicted these
differences would remain—and even grow more significant, especially in the
consumption patterns and tastes that relate to discretionary items. To help
companies better tailor their go-to-market approach, we grouped most cities in
China into clusters based on their similarities, including their geographic
proximity and the transportation infrastructure that connects them.
As the economic
structure in each of the 22 biggest city clusters has evolved—and as each of
them has been affected differently by the recent slowdown of China’s
economy—significant differences, for instance, in consumer confidence, do
indeed persist between these clusters.
For instance, some 70
percent of consumers in the Fuzhou–Xiamen city cluster, which lies on the coast
across from Taiwan, said in our latest report that they are confident their
income will significantly increase over the next five years. In that same
report, the Byland–Shandong city cluster, which lies on the coast between
Beijing and Shanghai, was comparatively pessimistic, with only 33 percent of
its consumers expressing such confidence.
Furthermore, when our
latest survey compared the consumers in the Shanghai area to those around
Beijing and Hangzhou, certain spending attitudes also showed marked differences.
For example, brand loyalty increased much faster in Shanghai (24 percent
increase in three years versus just 7 percent in Beijing and 9 percent in
Hangzhou), as did the willingness to pay for better or healthier products.
Growing discretionary spending
Despite geographic
differences, there are broad similarities among Chinese consumers. These mirror
the general trends economists have found among consumers around the world as
economies develop. The general tendency is for consumers, as they earn more, to
spend a lower percentage of their income on food, a little more on healthcare,
and even more on travel and transportation, as well as on recreational
activities. It was no great stretch then, in our report five years ago, to
predict a significant shift in consumption from necessities and seminecessities
into discretionary categories.
Sure enough, our new
survey shows Chinese consumers following the anticipated pattern. When we asked
how they plan to increase spending as their income increases, dramatically fewer
consumers said they will increase it on food (46 percent in the latest survey,
compared to the 76 percent who said they would do so three years earlier).
Responses trended
slightly up for healthcare products (from 16 percent to 17 percent), and increased
for travel (from 14 percent to 23 percent) and leisure (from 17 percent to 25
percent).
Aspirational trading up
In our previous
predictions, we also argued that as the income of Chinese consumers grew, they
would aspire to improve their quality of life by not only spending more on discretionary items, but also by shifting their spending to more expensive
items in the same categories.
In necessity categories
such as food, for example, we predicted consumers would be willing to spend
more for healthier versions of the same products—for instance, that olive oil
would grow much faster than less healthy (and less expensive) oils. In seminecessity
categories like apparel, we predicted people would buy more special-occasion
and premium brands. We anticipated that the strongest beneficiaries of these
changes would be in the more discretionary and aspirational categories, such as
skincare and automotive. So what has happened so far?
Premium categories have
really accelerated. Comparing cosmetics purchases between 2011 and 2015, 44
percent of consumers have traded up their purchases, compared with 4 percent
who traded down. Even for rice, 25 percent of consumers traded up versus 3
percent who traded down. Automotive was not included in our survey, but sales
data from the Traffic Management Bureau of the Ministry of Public Security in
China suggest significant trading up. In 2011, 51 percent of the renminbi spent
on cars by Chinese consumers were for autos cheaper than 100,000 RMB. These
sales accounted for only 43 percent of the market. Cars selling for 100,000 to
250,000 RMB grew twice as fast with a compound annual growth rate (CAGR) of 19
percent versus 9 percent. And cars with price tags between 250,000 and 400,000
RMB grew the fastest of all, with 23 percent CAGR.
Emerging senior market
In 2011, we observed a
big generational difference between consumers in their late 50s and early 60s,
who were very conservative spenders, and all of the age cohorts younger than
them.
We predicted that by
2020, as the needs of consumers over the age of 55 changed along with their
economic confidence, their spending habits would follow suit, making this age
group worth pursuing by consumer-product companies. If anything, we
underestimated the speed and force with which this trend would unfold.
By 2015, the 55–65 age
group had started to shift even faster than the rest of the population. For
example, 52 percent of the people in this age group showed a preference for
premium products, compared to just 32 percent in 2012. They leaped from being
the most conservative age group to the one most likely to trade up. Similarly,
the preference for famous brand names among these older buyers jumped by more
than 20 percent, fully closing the previous difference among cohorts. These
older consumers don’t shy away from indulgences, and they have grown more
likely to use the Internet to research their purchases, even if they still do
so less often than younger consumers.
That said, the upper
age group has remained more pragmatic and cost conscious than any other age
group, as we discuss in the following section.
The still-pragmatic consumer
Back in 2011, even as we were predicting changes in the behavior and preferences of
Chinese consumers, we also saw ways in
which their essential pragmatism would likely stay the same. For instance, we anticipated
that impulse buying would remain lower than in other countries and that value
for money would continue to be an important consideration when choosing
products and services. Interestingly, Chinese consumers across all age groups
have, in some ways, become even more pragmatic. They’re now even more likely to
compare prices across multiple stores, to be more price aware, and to stock up
on promotions. That said, they’re now willing to buy more often on impulse
The individual consumer
We also predicted that
as Chinese consumers aspire to a better life and trade up their purchases, they
would become more discerning and gradually more individualistic. This would
lead, for example, to a shift toward more healthy choices, more user-friendly
products, and products and brands that better fit their personality. This could
be a big opportunity for niche brands—and a threat to the mass-market brands
that had won big in previous years by using scale and ubiquitous availability,
supported by the trust gained by heavy advertising.
Our latest research
certainly shows a decrease in consumption in categories deemed less healthy and
a willingness to spend significantly more on health and more environmentally
conscious categories. It also shows consumers are more likely to spend more to
indulge themselves and more likely to try new technology. While their
consumption choices have become more individualistic, though, it is important
to note that family values continue to be at the top of their priorities.
One area our predictions
missed, however, was by anticipating that consumers, as they became more
individualistic in their choices, might focus less on basic product reliability
and safety. Perhaps in part because of a number of more recent food scandals,
however, consumers seemed more concerned with these issues in 2015 than they
were before.
The increasingly loyal consumer
When our team first
started researching Chinese consumers, nearly ten years ago, many of us were
surprised by their fickle attitude toward brands. Fewer than half of consumers
tended to stick with their favorite brands, compared, for example, with almost
three quarters of US consumers.
As we debated this
tendency while making our predictions, we wondered if, in the clash between
pragmatism and individualism, brand loyalty would stay low, increase, or even
decline. Ultimately, we decided it would increase as the emotional benefits of
brands became more important to consumers and as increased choice and
availability of branded products (online and off) would allow consumers to
optimize for price and convenience without changing choices too often.
Our recent research
confirmed the changes we anticipated. Consumers are now significantly less
likely to buy a brand that is not already among their favorites, continuing the
upward trend we observed in 2011.
The modern shopper
Our 2011 predictions
were bullish on e-commerce, predicting that Chinese consumers would adapt their
channel choices even faster than has occurred in developed markets.
We estimated that by 2020,
online consumer-electronics purchases would jump to 40 percent, from about 10
percent. More mainstream categories would rise to 15 percent, and some
categories, such as groceries (now below 1 percent), could reach about 10
percent. These changes are occurring even as the enduring pragmatism and
diligence of the Chinese consumer continue to be in place. Our latest research
shows that consumers of all age groups are much more likely to collect
information online, even on fast-moving consumer goods, than they were just
three years ago.
In 2015, online food
and beverages sales (excluding fresh) reached 7.2 percent: reaching our
predicted 10 percent in five years looks very likely. The online share of
consumer-electronic purchases, meanwhile, has reached a whopping 39 percent in
2015, and it now looks possible that by 2020 it will be about 50 percent of
overall sales.
Looking from today’s perspective at
our 2011 predictions, it is impressive to see the evolution of Chinese
consumers—even as their most characteristic traits endure. Certainly, we’ll
check in on their progress as we get ever closer to the year 2020. Making
predictions may be difficult, especially about the future—as US Baseball Hall
of Famer Yogi Berra famously observed. But they can still provide valuable
foresight for executives.
By Yuval Atsmon and Max Magni
http://www.mckinsey.com/industries/retail/our-insights/chinese-consumers-revisiting-our-predictions?cid=china-eml-alt-mkq-mck-oth-1610
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