In March of this year, global consultancy McKinsey released results of an extensive survey to serve as a follow-up on prior research that the firm undertook on China which included interviews with more than 60,000 citizens across nearly 60 cities within the mainland. Citing the “abiding belief” that companies getting ahead of current and burgeoning trends can be empowered to build their brands and customize offerings to fit a “rapidly evolving set of consumer needs” within mainland China, McKinsey this month has updated their research to include recent findings from the initial report published in 2011.
Now more than halfway to the year 2020, McKinsey is pursuing an even more nuanced understanding of Chinese consumers. This, the firm says, can aid in bringing new opportunities to light for both current and potential retailers. In addition, fresh research serves as a call to already established players in China–change is afoot.
An Evolving Consumer
McKinsey research and data clearly shows that the Chinese consumer has made strides–in habit, preferences and spending power. Geographic differences, McKinsey says, still do persist. “Chinese consumers are, on the whole, more individualistic, more willing to pay for non-necessities and discretionary items, more brand loyal and more willing to trade up to more expensive purchases–even as their hallmark pragmatism endures.”
The economic structure in China’s 22 biggest city clusters has also evolved. The recent economic slowdown within China has impacted each city, however, in different ways. Consumer confidence, McKinsey says, shows different paths and trends persisting between these city clusters.
For example, some 70 percent of consumers in the Fuzhou–Xiamen city cluster, located on the country’s coastline across from Taiwan, stated they are “confident” in their income [significantly] rising over the course of the next five years. In that same report, respondents within the city cluster of Byland–Shandong, which lies on the coast between Beijing and Shanghai, voiced pessimism over personal incomes, with only 33 percent of its surveyed consumers expressing the same level of confidence.
Discretionary Spending Continues to Grow
McKinsey’s newest survey also shows Chinese consumers following what they refer to as “the anticipated pattern.” When queried on how they intend to increase spending as personal income rises, “dramatically” fewer consumers said they will direct extra income to food–a 30 percentage point increase from 46 percent in the latest survey, compared to the 76 percent who had stated the same in the three-years prior. A general tendency for consumers, the firm explains, is that as they earn more, less income is directed towards food. Healthcare expenditures tend to become more of a benefactor of any extra cash on hand. Travel and entertainment, along with transportation also benefit.
It was no great stretch then, in our report five years ago, to predict a significant shift in consumption from necessities and semi-necessities into discretionary categories.
A Maturing Emerging Market
In 2011 McKinsey noted a significant generational difference across age groups in China. Mainly, core consumers in their late 50s and early 60s, who showed to be more conservative spenders against all 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,” McKinsey said. This, the firm notes, has led to this core age group to become one “worth pursuing” by consumer-product companies. “If anything, we underestimated the speed and force with which this trend would unfold.”
Photo Credit & Graphic: McKinsey Global Institute