August 2010

2010 annual Chinese consumer study

Executive summary

One of the main ways the global credit crisis has played out among the world’s developed markets has been through the wallet of the formerly freespending consumer.

Hard-up shoppers are deciding to save rather than spend. In China, however, consumers have reacted in quite different ways. After a modest dip in 2008, Chinese GDP and consumption rebounded strongly in the wake of a flood of new liquidity unleashed by the state banking sector into the economy. Led by auto and property-related goods, and helped along by a slew of government and private-sector incentives, the retail sales growth rate soared to 40% by the end of 2009. As a result, the Chinese consumer sector is now arguably the healthiest of any major economy in the world.

In some ways, overall spending patterns in China remain quite conservative. Consumption is rising strongly in line with rapid income growth, but households still retain more than a third of their income as savings, and buying on credit remains the exception, not the rule. More interesting, however, is that while Chinese consumers are evolving at times along lines already seen in developed markets, they are also blazing a more pragmatic—but uniquely Chinese—trail.

As in the west, consumer behavior is becoming increasingly complex and demanding, as shoppers’ horizons expand beyond basic concerns over product functionality. Today, Chinese buyers are willing to research and seek out product nuances. They are willing to pay more for better value and quality. And new segments of consumers are emerging, such as the youthdriven ‘what fits me’ group, whose purchases are driven more by a spirit of individualism than by the desire to make a social statement.

At the same time, however, local behavior patterns are diverging from norms in the West and Japan in a number of ways. Chinese consumers remain very brand conscious, for example, but their intense focus on value means that brand loyalty is often a secondary consideration. They regard the needs or interests of their families as more important than their Western counterparts, and they have adopted wordof- mouth as an extremely important way to research and source products.

Most intriguingly, though, China’s consumers have evolved significantly in the way they prioritize their purchasing across different categories of goods by ‘trading-off’—maximizing their buying power by spending more in the categories they care most about and less in others. Increasing numbers of shoppers, for example, are now buying for health reasons, with half this group comprised of middle-aged parents or retirees. Overall, some 58% of people in this group were buyers of health food supplements, compared to 25% of consumers generally. Other shoppers (in particular higher-income women) are now increasingly fashion conscious. Almost 100% of this group are spending more on clothes, while 81% have upped spending on shoes, compared to respective rates of 53% and 46% for Chinese consumers overall. Both groups, however, are simultaneously abstaining from purchases of other types of goods to help pay for their increased spending in these types of goods.

These emerging trends bear witness to an ongoing transformation in Chinese consumer behavior patterns as they evolve into some of the most complex in the world. As new products continue to emerge and more people in China find themselves with significant discretionary income and choices, companies need to adapt their strategies to capture the trade-off opportunity. Educating consumers about spending options is one possibility. Exploiting wordof- mouth (especially via online media) as a conduit for product information and adjusting product development cycles to continuously innovate and excite consumers are others.

Finally, the size and reach of China’s far-flung markets mean that the impact of any given trend may vary from place to place depending on local circumstances. Companies need regionally-focused strategies based upon conditions on the ground. For this reason, we anticipate that the cluster-based strategies first introduced in our 2009 Chinese Consumer Study (and the McKinsey ClusterMap) will become increasingly important to managers as they look to shape regional strategies or empower local teams to do so.

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Max Magni

Max Magni, a principal in McKinsey’s Shanghai office, discusses some of the insights in the 2010 annual Chinese consumer survey.

 

3-pointer: Trends that are defining the future Chinese shopper

  1. Chinese shoppers are placing a higher value on the emotional benefits of their purchases – 16% in 2010 compared to 5% in 2008.
  2. More than 85% of Chinese consumers stay within a budget when making purchases.
  3. The number of Chinese who shop for fun continues to increase from 70% in 2008 to 73% in 2010 – and so is the amount of time they spend shopping.
SOURCE: McKinsey research
 

5 trends that are shaping China

  1. In 2009, China was 46% urban; by 2025, that is expected to reach 62%. 
  2. About 30% of Chinese households had middle-class standards of living in 2005; by 2025, that could reach 87%. 
  3. Urban household income is growing 9% a year – and consumption is growing even faster – 11%. 
  4. The savings rate, 37% in 2009, will decline to 21% in 2025. 
  5. As a share of  urban household spending, food will decline from 30% to 17% in 2025. Meanwhile, discretionary spending will rise from 33% to 44%.
SOURCE: McKinsey research