Nielsen report: Ten trends of China’s consumer market in 2018
Throughout 2018, China’s Consumer Trend Index stabilized at a high level. As of the third quarter of 2018, China’s average consumption trend index stood at 113 points, the same as last year and still far above the global average of 105. With the continuous development of China’s economic structure, consumption has become an important driving force for the market.
Statistics released by the National Bureau of Statistics show that consumption will continue to be the engine behind China’s economic growth in 2018. Consumer spending contributed 78 % to economic growth in the first three quarters of 2018, an increase of 13.8 percentage points over the same period of last year. Consumption has played an increasingly prominent role in boosting the economy, and Chinese consumers’ willingness to spend will continue to rise.
Nielsen research found that the FMCG market remained strong in 2018, with an overall growth rate of 14%, a significant increase from the 9% in the same period in 2017. Product innovation, consumption upgrades, physical store growth and e-commerce development are still the main driving forces for fast consumer products to maintain their dynamic growth. The contribution rate of new product sales to offline fast-moving goods growth is as high as 41%. With the continuous progress of structural reforms on the supply side and the further implementation of innovation-driven development strategy, the vitality of consumer innovation will continue prosper, which will become the main impetus for the long-term sustained and stable growth of China’s economy. Consumption upgrading reflects people’s pursuit of a better life. According to Nielsen data, consumption upgrading is still the main driving force for the growth of 84 % of fast-food categories. In a more complex and diverse consumption environment, we need to better understand the trend of people, product and place through data analysis.
So, what consumer trends will emerge in upcoming 2019, and how will these trends drive business innovation and marketing innovation? As a global measurement and data analytics company, Nielsen has uncovered China’s consumption trends in 2018, in order to help brands leverage these insights to achieve success in 2019.
Trend 1: The era of national consumption
Economic independence led to consumption independence, paying for interests and enjoyment of life is no longer only the privilege of small consumer segments. The former consumption pyramid gradually collapsed and has been replaced by the era of national consumption. Different consumer groups have their own preferred consumption areas. According to Nielsen’s consumption trend index research, clothing and dining out are among the top five consumption areas for all major consumer segments. Clothing is the preferred consumption area for girls and young married women, with 51 % of girls and 38 % of young married women willing to spend on clothing respectively. For the wealthy elderly, dining out (24%) is one of the main ways for them to enjoy their daily life, those elderly people are no longer as frugal for their families as before, but prefer to enjoy their retired life, with most of them (33 %) choosing to spend their holidays travelling.
Trend 2: The era of Rational Consumption
Today, when material life is unprecedentedly developed, consumers are becoming more mature. Many people are more inclined to rational consumption than blindly buying high-priced goods. According to data from the National Bureau of Statistics, in the first three quarters of 2018, the per capita disposable income of residents nationwide was 21,035 yuan. Compared with 2017, people reduced the proportion of consumption in food, alcohol, tobacco, clothing, housing, and spent more money on medical expenses, education, culture, entertainment, transportation and travel, showing a willingness to pay for services and experiences. Due to the emergence of more consumer goods, consumers are becoming more cautious when choosing fast consumer necessities. Rational consumption is manifested in two dimensions: cautious product selection and multi-channel price comparison.
From the perspective of product selection, Nielsen research shows that 39 % of consumers are still willing to continuously upgrade their consumption, saying they are willing to buy products of better quality with relatively higher prices, only 9 % of consumers are willing to spend more money on things that fail to reflect their identity and status, while 15 % of consumers are willing to buy products that satisfy the basic functions and are relatively cheap, but only 1 % are willing to buy low-cost products at the expense of product quality. Due to the emergence of more rational consumers, more quality-guaranteed but cost-effective product types are emerging, manifested in three aspects: simplicity, the rise of small brands, and smart promotion.
In the new retail era, prices are more transparent and price comparison is easier and more convenient. About 24 % of consumers will find cheaper channels to buy the products they want, and 31% of consumers will buy memberships for cheaper member prices. Another 65% will use group-shopping services and platforms for cheaper product prices. The growth rate of the group-shopping consumers is as high as 57% in 2018.
Trend 3: Reconstructing Social Connections
As consumers in first-tier cities increase in sophistication, more consumers, especially younger consumers, build their own social circles through common interests and topics, and have more trust in the evaluation and recommendations from others. About 56 % of consumers believe that recommendations from interest circles is an important reference. Therefore, smart e-commerce operators are constantly building interest-oriented social e-commerce to reach first-line consumers. Compared with consumers in first-tier cities, consumers in the third- and fourth-tier cities still prefer to trust recommendations by acquaintances and group-purchasing platforms, 66 % of consumers have bought products recommended by relatives, friends or colleagues. According to Nielsen data, monthly active users of social e-commerce increased 439 % in 2018, almost ten times the growth of second-hand e-commerce (46.4 %), cross-border e-commerce (38.5 %) and integrated e-commerce (21.9 %).
Trend 4: Customized products win more consumers
With the improvement of people’s consumption level, standardized products can no longer meet the personalized needs of consumers. The market share of big brands is constantly being eaten by niche creative products. Diversification of categories and products upgrading are becoming new trends in the market. Products should be well-designed and customized to satisfy each type of customer, and targeted promotion is necessary. Creative new products are increasingly favored by the market. Creative marketing in line with brand positioning will continuously create competitive advantages for brands, accumulate brand assets and form unique brand symbols, which will ultimately stimulate purchase demand.
Trend 5: The pursuit of the integration of beauty and functionality
According to Nielsen data, 64 % consumers will try new products because of the packaging. At the same time, consumers also have a higher pursuit of product functionality. For example, the average annual working hours of Chinese people rank first in the world (2100 hours). The phenomenon of hair loss caused by high-pressure life brings about functional demand for shampoo. Data shows that the growth rate of demand for anti-hair loss shampoo is 5 times higher than that of other types of shampoo, and the price is about 1.7 times higher than that of ordinary shampoo. Healthy lifestyle has become a consensus. 82 % of Chinese consumers are willing to spend more on healthy food and beverage products, much higher than the global average of 68 %. In 2018, the overall sales growth rate of food and beverages was 9.8 %, the sales of relatively healthy foods could reach 36 %, while the sales of some relatively unhealthy snacks decreased by about 3 %.
Trend 6: Product innovation is accelerating, product life cycles are shortening
Tens of thousands of new products appear in the Chinese market, but up to 70 % of the new products can survive no more than 18 months. The four major innovation challenges faced by FMCG companies are: rapidly changing consumer demand (67 %), difficulty in creating strategic products with sufficient market potential (54 %), high cost but low return on investment (44 %), and faster product launching speed (33 %).
Trend 7: Offline channels are recovering with small retail altered frequently
Nielsen’s research found that the channel upgrade changed dramatically and the alternation of shops accelerated. Physical stores still make up the primary retail channels for the market. The number of physical stores in all provinces generally continued to grow in 2018, with Jiangxi, Guangdong, Hunan, Sichuan and Guizhou these five provinces contributing 46 % of the store growth, mainly from small businesses. According to Nielsen, the total retail sales nationwide have resumed nearly double-digit growth since 2018, with small retail channels accounting for nearly 60 % of sales. The number of new small stores are opening fastest in Guangzhou, Chengdu, Zhengzhou, Hangzhou and Shenyang. Cities at the prefecture and county levels in Jiangsu, Shandong, Hebei and Hunan also showed a strong trend of new small store openings. Convenience stores, as one of the small channels, still have great room for development.
As for large-scale channels, Henan and Jiangxi provinces have experienced drastic changes in the channels for two consecutive years, Heilongjiang and Guangdong provinces having the largest upgrades in the channels in 2018 compared with other provinces. The growth of large supermarket channels in cities nationwide is mainly driven by fresh and high-quality supermarkets. The total number of high-quality supermarkets in the country has reached 364, increased by 26 % from 2017
Trend 8: Improving shopping experience and product quality is key
The innovation of new retail format stores can break through geographical boundaries, redistributing online and offline shoppers, expanding the reach of retail stores, and maximize online traffic to physical stores. New retail has brought consumers better products and experiences, and the competition for in-store resources has intensified. This change is challenging for lower tier cities, where large stores have 7.5 % fewer single items than top tier cities, while small channels such as convenience stores have 29 % fewer single items. How to meet consumers’ demand for new shopping experience and product quality, while improving product assortment and optimize space layout is the top priority in the new retail era.
Trend 9: Digital Transformation of small business
In the B2B era, in addition to timely delivery, small businesses now have higher requirements for brand, dealer support in channel activities, new product support, and the frequency of agency visits. The B2B service mode is changing all the time. Although the eB2B (online business to business) platform has effectively penetrated into the traditional channels and the penetration rate in China has reached 22 %, it still needs to improve its service quality if it is to be compared with the traditional purchase channels such as wholesalers and distributors, with penetration rates of 90 % and 56 % respectively. The evolution speed of channel reform varies from region to region in China. The eastern region has the most customers of EB2B platform(26 %), and it is also the region with the most abundant channels. Shopkeepers in Northern China are also trying new platforms. The western region is now the most conservative area and still contains huge potential for development. Meanwhile, small businesses are also transitioning to digital platforms for communicating with and serving consumers. 8 % of the shop owners interviewed are trying to strengthen their relationship with certain consumers groups with online sales, delivery distribution and social platforms, and these shops’ online sales account for about 13 % of the market’s average daily sales.
Trend 10: Data is the key to integrating people, product and place
The rapid development of modern communication technology and the rising awareness of consumer have given today’s consumers unprecedented control and freedom over their choices. They not only have unprecedented powerful social communication capabilities, but also can easily create one after another hot products on Internet. More importantly, consumers are no longer limited to shopping in a single place, but have more choices to satisfy their needs in the most convenient and appropriate way. This is the fundamental reason for the transformation of the new retail era from “place first” to “people first “, and it is undoubtedly the most serious opportunity and challenge the entire retail industry will face.
Retail enterprises not only need to accurately evaluate consumer needs, but also need to have the ability to catch the needs and meet their demand in the first place. However, China has a vast territory with more than 2200 cities and uneven development among regions. There are more than 3.2 million retail stores in China with the market landscape in constant change. In some urban areas, the annual rate of store turnover has reached 48 %. To stand out in retailing in such a complex market without complete and detailed data support is unimaginable. Integrating the data of the people, products and places by understanding consumer demand, store structure and layout, category trends by region, and accurately predicting the regional consumption potential and development trend, have all become a prerequisite for success in the new retail era.
Nielsen Holdings plc (NYSE: NLSN) is a global measurement and data analytics company that provides the most complete and trusted view available of consumers and markets worldwide. Our approach marries proprietary Nielsen data with other data sources to help clients around the world understand what’s happening now, what’s happening next, and how to best act on this knowledge. For more than 90 years Nielsen has provided data and analytics based on scientific rigor and innovation, continually developing new ways to answer the most important questions facing the media, advertising, retail and fast-moving consumer goods industries. An S&P 500 company, Nielsen has operations in over 100 countries, covering more than 90% of the world’s population. For more information, visit www.nielsen.com.