Despite the slowdown in economic growth, China will continue to be one of the fastest growing consumer markets in the foreseeable future. Three emerging forces – upper middle class and affluent consumers, the new generation of young consumers, and online shopping will drive China’s consumer market according to a joint report by BCG and Alibaba.
With the rise of these three forces, consumer demand, consumer behavior, and lifestyle have also changed. With the globalization trend and the popularity of media and brand, consumer demand and preferences tend to be more personalized and niche. Therefore, new segments of customers in the Chinese consumer market continues to emerge such as “singles”, “seniors”, etc. These new customers have a very different needs, eager for personalized products and services.
According to the data of the Economist Intelligence Unit (EIU) and the analysis of the Boston Consulting Group (BCG), China’s consumption growth will reach US$1.8 trillion between 2016 and 2021. And, China’s consumer market will expand by almost half to US$6.1 trillion by 2021.
Upper middle class and affluent people boost high-quality consumptions
It is expected that China’s upper middle class and affluent households will drive 75% of consumption growth, and the proportion of young consumer groups in overall growth is 69%. In terms of channels, online and offline integration and digitization will account for 44% of the incremental contribution of private consumption.
Mobile will account for 38% of the growth. Mobile GMV transacted on Alibaba China retail marketplaces accounted for 79% of total GMV in Q1 2017, an increase of 49% year-over-year.
It is expected that by 2021, more than 90% of the purchase path will involve at least one digital touch point. Companies must manage the influence and business coverage of all the channels.
According to BCG’s “China Private Bank 2017” report, the number of households with investable asset values of $1-$5 million and $5-$20 million groups will see the fastest growth to 3.4 million and 0.5 million by 2021 from 2.1 million and 0.3 million in 2017 respectively.
The number of China’s upper middle class (monthly disposable income of 12,000-22,000 yuan) and wealthy families (monthly disposable income of more than 22,000 yuan) will double and reach more than 100 million from 2016 through 2021, driving 75% of consumption growth.
More affluent and increasingly mature consumers in China’s rapid growth have a higher demand for custom and personalized consumption. They favor high-end products and lifestyle products and services, which has brought unprecedented opportunities and challenges to local enterprises and foreign-funded enterprises in China.
With the rapid increase in household disposable monthly income, the upper middle class and the affluent population show a very different consumer demand and priority consumer goods categories.
While middle-class consumers’ main consumption demand is on FMCG products such as packaged food, personal care, the affluent and upper middle class begin the pursuit of green and healthy food and lifestyle. At the same time, wealthy people are not only keen on wine and luxury consumption but also automobile as well as more frequent and higher quality travel experiences.
New generation of young consumers will release huge spending potential
As demographic structure becomes mature in China, young consumers who were born after 1980 have become the potential driving factor for the growth of Chinese economy. At present, new mature consumers generation (18 – 35 years old) occupy 40% of the population with 15 -70 years old in cities and towns in China, and such proportion will exceed 46% in 2021 according to Boston Consulting Group.
In 2016, urban expenditure of new generation was US$1.5 trillion, which was US$400 billion lower than the former generation. However, by 2021, the new generation will exceed the former generation with expected urban expenditure increased to US$2.6 trillion, US$200 billion higher than the former generation.
Between 2016 – 2021, compound growth rate on the year-on-year basis of consumption ability of the new generation will be 11%, which is more than twice of the growth rate of the former generation. In the corresponding period, the contribution rate of growth of consumption in the new generation will reach 69%, however, the contribution rate of the former generation is only 31%.
New generation consumers are the focus that future enterprises shall pay attention to; compared with the elder generation, they are born in the age with abundant material conditions that they are affected and edified by international famous brands since childhood, so their demands on products are diversified.
Online and offline integrated channel is the future retail trend
In recent years, shopping online grows explosively in China; among which, the growth of shopping through the mobile terminal is amazing. The further popularization of smartphone urges the change on the pattern of consumption.
It is expected that the penetration rate of the smartphone in cities will increase from 78% to 95% between 2015 and 2025. The proportion of shopping which involves at least one digital touch point will increase from 70% to more than 90%. Mobile internet will become the important media for consumers to buy products in future; consumers are able to browse what they need on the internet at any time and anywhere, followed by a quick one-click purchase.
Shopping paths featuring high fragmentation and plentiful information sources make consumers spend more and more time on selecting products. Therefore, it is vital for future consumers to well integrate online digitized experience with offline digitized experience. Merchants shall balance different channel strategies based on the online and offline market evolution and adjust tactics according to different categories.