2021 Consumer Trends and insights – Brain Food – 65 Takeaways

  1. Consumers, about 55 percent are likely to continue buying more groceries online after the peak of the crisis. Nike’s first-quarter digital sales in China increased 30 percent
    one year after the company launched home workouts via its mobile app, while property platform Beike said agent-facilitated property viewings on its virtual reality showroom in February increased by almost 35 times compared with the previous month.
  2. In healthcare, digital interactions accelerated—the rapid growth of online consultations, partly thanks to a regulatory shift in reimbursement policy, as well as broader virtual interactions between pharmaceutical sales agents and physicians. These changes occurred ahead of the wide deployment of 5G technology, which will likely catalyze the use of digital tools.
  3. COVID-19 has intensified the debate, with several governments calling for companies in critical sectors to relocate their operations back to their home countries and announcing financial support packages to facilitate this.
  4. Investing in a supply chain and innovation footprint to serve China will continue to remain important.
  5. Weaker companies, particularly SMEs that are not sufficiently agile or digital-savvy, are vulnerable to cash flow issues, unemployment, and business failure.
  6. Attitudes to spending among consumers in their 20s and 30s, traditionally the engine of China’s consumption growth, have changed markedly in the wake of COVID-19. One survey showed 42 percent of young consumers intend to save more as a result of the virus. Consumer lending has also declined, while four out of five Chinese consumers intend to purchase more insurance products post-crisis. Savings have also rocketed—the country’s household deposit balance increased by 8 percent over the first quarter to reach 87.8 trillion RMB. Meanwhile, 41 percent of consumers said they planned to increase sources of income through wealth management, investments, and mutual funds.
  7. More than 70 percent of respondents in our COVID-19 consumer survey will continue to spend more time and money purchasing safe and eco-friendly products, while three-quarters want to eat more healthily after the crisis.
  8. COVID-19 might be accelerating long-awaited structural reforms to land, labor, and capital markets.
  9. About 55 percent of consumers are likely to continue buying more groceries online after the peak of the crisis.
  10. 74 percent of Chinese citizens increased their online grocery visit frequency during the epidemic. Purchasing trade-offs amid a flight to quality: Chinese consumers have become more cautious as a result of the epidemic, tending to spend less but buying better quality products. According to a post-epidemic survey, close to half of Chinese respondents intend to live more frugally and seek value-for-money when selecting products, while 36 percent are more willing to spend more for better quality mproducts.55 Consumers are potentially seeking quality in their necessities, while focusing on value-for-money in other categories. A survey reveals that post-COVID-19, consumers increased their net purchase intention by the largest degree toward essential, health-oriented products, such as sanitary and health products, fresh food, and life insurance, while expressing negative net purchase intention towards non-necessities such as hair and beauty products, and large home appliances.56 Consumer complaints relating to quality have
    also increased. In Guangdong for example, consumer complaints rose 40 percent on year in the first quarter to 98,000, suggesting tolerance for low- quality products and poor service is on the decline.
  11. A majority of consumers told us they intend to keep watching e-sports and online fitness programs. Remote learning for adults looks like another trend that might be here to stay.
  12. Trust is vital as consumers navigate an uncertain information environment, with 89 percent telling us they are turning to brands that they trust
  13. Demand for dairy, vegetables, and eggs was 25-50 percent higher during the initial recovery phase than it was before the crisis. Supermarket and convenience store data shows that, aside from fresh food, popular items during and after the peak of the crisis included grains, ready-to- cook meals, packaged food, and snacks.
  14. There was a reduction in demand for personal care products and cosmetics in January and February, and these categories are only recovering slowly.
  15. In-store pickup, QR code and self-check-out are the most widely adopted digital retail initiatives.
  16. About a third of consumers say they prefer organic but only 1 percent actually purchase.
  17. We believe there is a potential 400 billion RMB opportunity for offline grocery retailers that can adjust their formats in line with shifting consumer behavior.
  18. Offline formats such as wet markets, which account for 30 percent of the market, will lose share to modern offline and online channels.
  19. Several convenience stores could achieve rapid growth by perfecting their use of automation and artificial intelligence to optimize operational efficiency, allowing them to compete in economic terms with mature players.
  20. Offline retailers can take advantage of low-cost consumer traffic and mature last-mile delivery operations from delivery platform partners to unlock online business opportunities.
  21. The majority of growth in the next few years will likely come from leading modern players who re-invent themselves in the digital era, ecommerce players, and new retail challengers.
  22. Demand for domestic travel is approaching prepandemic levels. Hotel-occupancy rates and numbers of domestic flight passengers bounced back to around 90 percent of 2019 levels by the end of August, and railway travel also shows a strong recovery (Exhibit 1).
  23. People of all ages are willing to travel again.
  24. Most survey respondents would likely choose a self-guided tour or road trip.
  25. Some types of travel, especially high-end travel, are booming. Borders remain closed for outbound travel, which means that domestic high-end leisure trips are booming. Occupancy rates at luxury and high-end hotels were back at 85 percent of 2019 figures by the end of August,2 representing a significantly faster recovery rate than that seen by midrange and economy hotels. In September, the average price for five-star hotels on leading online-travel- agency (OTA) platforms was up 10 to 15 percent year over year for trips over the National Day holiday in October. Furthermore, leisure travel to destinations in Western China and Hainan Province—which boast beautiful scenery, outdoor activities, and beach resorts—have seen significant growth.
  26. Companies operating in markets with very low transmission rates may focus on rebuilding domestic demand, finding new channels, or exploring opportunities for travel bubbles.
  27. Rebuilding demand and propelling volume (such as through discounts and presales) are key during the early stages of recovery.
  28. For countries where—as in China—the outflow of high-end tourism-related spending is significant, it will again be important to focus on providing new or improved high-end domestic offerings.
  29. The pandemic has accelerated the adoption of mobile and digital tools. Building digital touchpoints and experiences will therefore be essential. In China, social media and new media are now major sources of inspiration and information for travel decisions.
  30. Asian shoppers buy luxury goods outside their home countries not only to benefit from lower prices in Europe, but also because shopping has become an integral part of the travel experience: buying a brand in its country of origin comes with a sense of authenticity and excitement.
  31. Chinese consumers remain the biggest growth opportunity for the luxury sector. Brands, clearly, will need a new approach to attracting luxury shoppers.
  32. From ownership to experience, and back again. “Experiential luxury”—think high-end hotels, resorts, cruises, and restaurants—has been one of the most dynamic and fast-growing components of the luxury sector. Millennials (those born 1980–95) opted more for experiences and “Instagrammable moments” rather than luxury items. Baby boomers (born 1946–64), too, were moving in this direction, having already accumulated luxury products over the years. While we expect the positive momentum of experiential luxury to persist, it will slow down in the short term as consumers temporarily revert to buying goods over experiences.
  33. More than 40 percent of global luxury goods production happens in Italy—and all the Italian facto- ries, including small, family-based façonniers, have temporarily shut down.
  34. Many consumers also craved comfort food during a time of anxiety. And they wanted value for money as they feared for their financial future.
  35. Young people were feeling financial pressure as a result of the crisis–about half our customers said they needed to save more money, which helped us focus our response on value and non-discretionary purchases of things like breakfasts and working lunches.
  36. Now, delivery is the mega trend and is already about 30 percent of total sales.
  37. The rise of mobile pick-ups propels us to rethink restaurant design. How much do we reserve for seating versus bigger catering and kitchen capacity that would allow us to produce food faster? In tier one cities like Beijing, restaurant formats can be smaller because people are looking for fast service; white-collar workers in the central business district have more incidence of ‘grab and go’. If you’re in a lower-tier city, family occasions remain prominent, so we’re still committed to a full-blown dine-in restaurant experience.
  38. The restaurant safety measures we put in place will probably be permanent. We still take crew members’ daily temperatures. If you buy McDonald’s takeaway, the paper bag still carries a record of who prepared it and their body temperature. At the office level, we are cutting back on travel. We found less travel is more efficient. Digitization is helping us reprioritize what needs to be face-to-face and what can be done remotely.
  39. Amid all the uncertainty, clarity of purpose is important to inspire and to guide the whole company. Company values and culture seem to be invisible but are extremely important at times like these. If everyone shares the same values of being passionate in helping others and having pride in serving the community, we will be better people and build a better brand as well. From a business standpoint, it is a good time to reset and to reimagine.
  40. On the consumer side, everything shifted to online. The out-of-home, on-the- go channel completely shut down, and we cut down our stock-keeping units (SKUs) to focus on a core of three or four. That’s all consumers wanted–stuff they knew they could trust: Coke and instant noodles.
  41. The acceleration of the online channel has been breath-taking and is here to stay. Except for market visits, I’ve only been into a supermarket three times since March; I even ordered a dozen eggs on my phone and they arrived in 30 minutes! The hard part is figuring out who pays, the seller or the delivery partner?
  42. All our customers are rethinking what they should do in terms of physical retail. Obviously, in some areas you have to have presence, but to what extent will this be true in the future?
  43. Some of the out-of-home, on-the-go business is bouncing back–maybe to 80 percent of the pre-COVID-19 level–but some will never come back, so what fills that void?
  44. On a daily basis, 855 million Chinese consumers were spending an average of six hours on their phones–twice as much as digital consumers in the US–and buying $2 trillion worth of goods and services annually. Now, since China’s outbreak and subsequent lockdown, consumers have become even more digital, buying additional products on their phones, such as grocery items, that they previously would have purchased in stores.
  45. When COVID-19 closed stores and cancelled public events, digital marketing costs went up further as virtually every brand doubled their efforts to reach Chinese consumers digitally, with some shifting their entire marketing budgets into digital.
  46. Major apps have splintered into hundreds of mini-apps and sub-channels, the popularity of new platforms like Douyin (TikTok) and Bilibili has exploded, and live- streaming has become widely adopted, all leading to what we call the ‘dustification’ of consumer attention, meaning that outlets for reaching consumers are hyper- fragmented.
  47. The basics of marketing haven’t changed–find your target consumers and give them the right product and the right message, at the right place and the right time. The difference in the digital era is that marketing technology, or ‘martech’, allows brands to accelerate and maximize this basic endeavor at minimal cost.
  48. An Internet Celebrity approach uses public social apps and China’s thriving “fan economy” of celebrities, key opinion leaders (KOLs), and key opinion consumers (KOCs) to drive brand image and awareness. It’s a focus most effective for newer brands.
  49. A leading international beauty brand, for instance, taking a Performance. First approach, wanted to identify the best marketing content for different consumer segments on its flagship store at Tmall. The company worked with an AI provider to instantly create thousands of layouts with different models, product photos, and colors. Each was dynamically A/B tested with customers to identify those with the highest purchase rate. The result was an ROI boost of 20 percent and a 50 percent reduction in annual design costs
  50. Social commerce, where social media is the driving force behind sales, is one of the hottest trends in China and a major disrupting force.
  51. The average consumer in China now spends more than seven hours a day on the mobile internet, a figure that increased by a fifth in the aftermath of the COVID-19 crisis. About two-thirds of those seven hours is spent using social or content apps, as users increasingly seek out information from social media, social influencers, and friends in order to make decisions about purchases.
  52. Time spent using social or content apps is now driving 50 percent of shopping interest, and 25 percent of purchases, a marked change from the 2017 figures of 37 percent and 7 percent, respectively (Exhibit 1). And the size of the overall social commerce market is expected to more than double from 2019 levels to reach gross sales of 2.9 trillion renminbi by 2021.
  53. Social-first commerce. Food and lifestyle blogger Li Ziqi is an example of a KOL that has effectively deployed social-first commerce. She has become one of China’s biggest
  54. social media stars by posting artistic videos of traditional life and cooking in Sichuan province’s rural areas. Having built an enormous fan base (26 million on Weibo, 39 million on Douyin, and 11 million on YouTube), she now operates an eponymous brand of traditional Chinese packaged food, promotes third-party brand foods, and operates a store on Tmall to sell directly to her followers.
  55. Li Ziqi sold 100 million renminbi of products in 2019, more than three times the year before, with her success demonstrating the power of converting social engagement into commercial results.
  56. Convenience stores are the fastest-growing store type, while small supermarkets are also large in number. These stores have deeper local coverage and more loyal consumer relationships since they are deeply rooted in their local communities and located closer to customers.
  57. Gen Z represent the next engine of domestic consumption growth. Officially defined globally as the cohort of people who were born between 1996 and 2010, Gen Z make up about 15 percent of China’s population and represent the next engine of domestic consumption growth.
  58. Gen Z spent their childhoods during the fastest sustained expansion of a major economy in history, and are consequently used to rapid improvements in their standard of living.
  59. Gen Z: 10-23
    Millennials: 24-38
    Gen X: 39-54
  60. This behavior is driven in part by robust confidence in future earnings: 78 percent of Chinese Gen Z respondents said they believe they will earn more, or much more, in the future. This combination of impulsiveness and optimism also leads 36 percent of our survey sample to overspend their budget. In fact, China’s Gen Z refer to themselves as “the moonlight clan” in reference to their propensity to spend their entire monthly salary over the course of a single lunar cycle, effectively living paycheck to paycheck.
  61. Gen Z consumers in the US are similarly inclined to spend big on consumer products, while their outlay on luxury apparel and accessories even surpasses that of Millennial shoppers with higher incomes.
  62. More than half (51 percent) of China’s Gen Z consumers prefer brands that offer customized products, while 53 percent opt for brands that provide tailored services.
  63. Once engaged, China’s Gen Z are also more brand loyal : 47 percent agreed that they stick with brands they like, while 43 percent said they will always choose a brand they know over a new one.
  64. Fifty-one percent of Gen Z consumers say that official social media accounts of consumer brands are one of their top three sources of influence, while 44 percent count bloggers and online influencers among their top three sources of influence. Gen Z value these sources of information more than Millennials and Gen X. Key opinion leaders (KOLs) who resonate with Gen Z are driving this trend, such as Li Jiaqi, whose forthright opinions can make or break a beauty brand or product, and online sales superstar Weiya, whose interactive livestreams on Taobao have helped sell billions of RMB of products.
  65. In the US, social media is most influential for 39 percent of Gen Z consumers when deciding to recommend a product or brand, while online reviews and blogs is top choice for 26 percent. Friends and family offline still have most sway for 15 percent, and just 10 percent are primarily guided by influencers.

References:

China consumer report 2021, Special edition, Understanding Chinese Consumers: Growth Engine of the World (November 2020): https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20still%20the%20worlds%20growth%20engine%20after%20covid%2019/mckinsey%20china%20consumer%20report%202021.pdf