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Consumption upgrading or downgrading?

28/11/2018

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Consumption upgrading or downgrading?

With Chinese consumers entering a new era of shopping, brands need to understand shoppers even better.

Recently in China, there are a lot of questioning about the once prevailing belief of “consumption upgrading” or “premiumization”, which means consumers start to buy better products/services for higher quality and no longer care too much about prices. What is shaking the belief is the quick rise of so-called “consumption downgrading” apps and brands. The bellwether of this crop is social group shopping/discount app Pinduoduo (拼多多), which enables consumers to buy small brand (or even copycat brand) products at very low price and achieve even deeper discounts if they invite WeChat friends to buy together. Pinduoduo went public in Nasdaq only three years after its founding and has more than 300 million users.

Netease Yeation (网易严选), the B2C e-commerce platform which Chinese Internet portal Netease founded in 2016, offers consumers mostly white label products and its slogan is: “Good life is not that expensive”. It has become one of the mainstream e-commerce shopping channels among young urban consumers.

Is the strong growth of these new app/brands a sign of China’s consumption downgrading?

According to Kantar Worldpanel data, the total fast-moving consumer goods sales in China is still growing. The annual growth rate has rebounded since 2016. In the 12 months ending June 2018, the FMCG growth rate is 4.5% from a year ago, picking up pace from that of the whole 2017. We can confirm the consumption upgrading is still continuing and expanding.


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Kantar Worldpanel data showed that price continued to expand its contribution to the total FMCG sales growth: from 42% in the 12 months ending June 2017 to 64% in the 12 months ending June 2018.

From a channel perspective, online is still the fastest growing sector: its growth rate in 12 months ending June 2018 is 30.3%, six times that of the total FMCG. With online accounting for increasingly big share of total sales, omni-channel shopping is becoming mainstream. From June 2017 to June 2018, 57% of urban families are buying FMCG from both online and offline. They buy a lot of premium goods online, and strongly supported the premiumization of online shopping.


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With Chinese consumers entering a new era of shopping, brands need to understand shoppers even better. Kantar Worldpanel believes, the consumer needs in the near future would grow around three themes: health, instant satisfaction and personalization.

Firstly, consumers are demanding brands to offer healthier products/services. The concept of health needs to start from the foundation of their offers – only those with truly healthy ingredients can convince increasingly sophisticated consumers. Soybean milk, for example, has promoted itself as a “non-additive” drink and the category sales in 12 months ending June 2018 is 87% higher than a year ago. Soda water, another “non-additive” category, has also increased its penetration by 110% in the same period.

Secondly, instant satisfaction and efficiency become major competitive edge for many new products, such as washing capsules (sales annual growth 34%) and high-end instant noodles (+20%). These innovative products have won over new shoppers because of their convenience in usage.

Among cosmetics, products packaged in ampoules (+81% new shoppers) and concealers (sales +92%) can help improve skin condition in quickly and hence achieved great growth. In terms of channels, small supermarkets and vending machines offer quick buying solutions and have become more popular: according to Kantar Worldpanel’s Out-of-home Panel, the shopper visit to small supermarket has grown 5% and that for vending machines has grown 26%.

Last but not least, brands that offer personalized services and fun can stand out. Jo Malone London invites consumers to create their individual scents.

“Cross category joint marketing” is another trend. Popular milk tea brand HEYTEA worked with L’Oreal Paris to launch lipstick gift package. Japanese brand Nissin launched cup noodles according to flavours that had appeared in manga series “Ms. Koizumi Loves Ramen Noodles” and showed TV commercials at the end of each episode. It has successfully raised brand awareness among young audiences.

As China’s consumption landscape keeps evolving, brands have to explore and constantly find new paths to their next stop, and next, and next. Kantar Worldpanel would recommend brands to focus on three key directions:

1. Redefine the relationship between brand and consumers

Brands are trying to make breakthroughs in their relationships with consumers from different dimensions. International brands continue to build their images among young consumers. High-end cosmetics brand Estee Lauder has invested heavily to attract young consumers, especially those younger than 25. The strategy paid off as in the past 12 months, 50% of sales growth comes from this group.

At the same time, brands also need to leverage the power of KOLs (influencers) and celebrities. Compared with celebrities, KOLs are closer to consumers and trusted by them. They are very effective in influencing young consumers’ behaviours.  

Brands can also benefit from celebrities’ halo effect through partnership on content marketing platforms. Since the beginning of this year, social shopping platform RED (小红书) has invited many female celebrities to open accounts to share their experiences of using inexpensive products. On the one hand, it gives celebrities an opportunity to show the “real me” side. On the other hand, it is impactful in creating consumers’ interests in those products and eventually buying from RED’s e-commerce platform.

2. Redefine the relationship between social and purchasing

WeChat and social shopping app Pinduoduo have demonstrated the sales driving power of social media. Kantar Worldpanel data has shown that in the past 12 months, 20% of urban Chinese families have bought FMCG through WeChat. Consumers would proactively show off what they’d bought on their WeChat Moments feed, which is an invaluable “earned media” for brands.

Pinduoduo invites its users to form “buying groups” through WeChat platform to earn deeper discounts. The app successfully leveraged the close connections established on WeChat, supplemented by the much cheaper unit price of goods on its platform compared with other channels, to earn more than 300 million shoppers within three years of its launch.

3. Redefine the boundary and mission of channels

With online and offline retail channels keep merging, the boundary and mission of different channels are being redefined. Previous, each channel had a clear and distinctive positioning: hypermarkets like Wal-Mart stand for value-for-money shopping; e-commerce retailers, such as Taobao, means endless options; convenient stores like FamilyMart (全家) means easy and quick shopping.

Now with technologies empowering everyone, the boundary is blurring: consumers can buy from Wal-Mart’s website or app to get goods not only at reasonable prices but also with convenience; people can order food from popular restaurants through take-away apps without queueing for a table for hours any more. Channels have also become media because they also publish contents to engage consumers.

These blurred boundaries will have profound impacts on reshaping the future marketing landscape.

Get in touch

Jason Yu
Managing Director, Great China

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