The Top 10 Consumer Trends Defining China’s Emerging Domestic Market

Thursday, April 15, 2010 0:19
Posted in category Uncategorized

6 years while working on my first consumer research projects, I was speaking with the head of development for one of China’s largest beverage companies, and he loudly proclaimed that to win China, you had to win China’s mass markets. Markets that at that time were largely out of reach of the average Western firm, who were still working to stabilize the first tier markets.

A situation, as Richard Ho of Bain & Co writes in his recent article for AdAge The top 10 consumer trends defining China’s emerging domestic market, that is changing.

With total consumer spending increasing by nearly 15% annually over the past few years, China’s domestic market is in the midst of a boom. As the country’s middle class expands, companies that sell consumer goods are poised to serve consumers with a broader array of high-quality product

Which he supports with a list of ten trends that he sees:

1. More middle-class shoppers in smaller cities
2. More top-tier cities
3. Diversified retail formats
4. Increased retail competition
5. Consolidated distribution networks
6. Multinationals will move ahead in the top cities
7. Local companies will maintain leads in smaller cities
8. New management strategies
9. Better product quality and safety
10. No global Chinese FMCG brand by 2020

… and he wraps up his analysis with:

As the new decade begins, domestic companies have a unique opportunity to win against multinationals in the biggest battleground on the planet: China’s booming domestic economy. It will take a strategic approach to customers, costs, channels and competition. If they succeed, the next ten years will be heralded as the decade when China makes major strides-moving halfway towards reinventing its own brand.

The most striking trend that I think this list represents is simply how complex and fragmented he sees conditions will continue to be over time, and going back to that conversation and aligning the list above with my own experiences, I would largely agree with the trends he has highlighted… but have a few comments.

1) Looking at the 2nd and 3rd tier cities of China,the speed by which these cities have created wealth has been phenomenal.  Growing faster than the traditional gateway cities, luxury and midtier brands alike have quickly been able to capitalize on the development of these cities.. and will continue to

2) Beyond the sales that these cities are able to create, many buyers in Shanghai, Beijing, and Hong Kong still are from these cities as well.  That, regardless of what is available in their own cities, having an investment property and office in Shanghai is still considered to be a sign of status, and that buying that LV bag from HK is still seen as better than the one in Chengdu’s Panda mall.

3) Speaking of 2020, and beyond, one of the most important determinants of the long term is going to come back to how successfully China manages the socieconomic fact that its current population of spenders are soon going to find themselves to be primary caregivers to parents and grandparents.  That, while the post 80s crown may be flush with cash (provided by job and parents), this equation is going to flip on its head in the not so distant future… which will lead to new and interesting opportunities…

4) As local firms are removed from the market through competition, consolidation, and otherwise, and national brands are solidified, I look forward to seeing what this will mean for foreign firms and how they will then develop strategies to counter.  There will most certainly be times where local protectionism will enter the picture, but this will also provide foreign firms with the opportunity to highlight their strengths in quality/ safety to win consumer backing.

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2 Responses to “The Top 10 Consumer Trends Defining China’s Emerging Domestic Market”

  1. China Portrait says:

    April 18th, 2010 at 4:25 pm

    Well said! I too have been monitoring the progress of China’s domestic market, albeit in a less formal capacity, and am quite surprised to witness the same mad dash to “buy stuff” in even the smaller Chinese cities as one would in, say, Tokyo. Comparisons between China’s retail purchasing power and the blind consumerism of the Japanese ought to be further examined, as I don’t think China would handle the same kind of economic crisis that Japan has been weathering the past decade.

  2. Jing Daily says:

    April 20th, 2010 at 1:34 pm

    I think this is certainly something to be watching. For your fourth point, about how foreign firms will counteract when national brands are solidified, I think its important to think about certain steps that companies are already taking to localize. From Hennessy marketing their premium whiskey with green tea or Hermes investing in a local brand, “Shang Xia,” luxury brands are already understanding the need to build branding around the Chinese consumer in regards to appealing to local tastes as well as ensuring quality.