Low-tier city youth-key consumer segment for FMCG brand
Low-tier city consumers are an increasingly important source of growth for fast-moving consumer goods industry. For many brands, they are the make-or-break factor for their success in China. To win them over, brands need real-life data to understand what they’re buying and, more importantly, why.
Low-tier city youth: must-win consumer segment for many brands
China’s total movie box office revenue in 2018 hit 56.58 billion yuan (US$8.23 billion), a 7.99% increase over a year ago. The once high-flying double-digit growth industry now has to struggle to maintain a high single-digit growth. It’s widely agreed among the movie circle that those who win the low-tier city young movie-goers will win the market, because unlike their counterparts in big cities, they have plenty of leisure time and not so much financial burden for housing mortgage or kids’ education.
The same is true in the market of FMCG. Kantar Worldpanel data showed that young families (young singles or couples without kids + young couples with junior kids or infants) in low-tier cities contributed 85% of FMCG sales value growth in local markets. To be specific, young couples with junior kids or infants contributed 59% of local growth. On the other hand, each young family in low-tier cities spent 170 yuan more on FMCG in 2018 (note) compared with a year ago, much higher increase than young families in big cities. This is really a key factor for FMCG brands to achieve growth in China.
Kantar Worldpanel China continuously measures household purchases over 100 product categories including cosmetics, food and beverages and the toiletry/household sector through its 40,000 sample families. Its national urban panel covers 20 provinces and four municipality cities (Beijing, Tianjin, Shanghai and Chongqing). The channels within its monitoring scope modern trade (supermarket, hypermarket, convenient stores), traditional trade (grocery, free market, whole sale), e-commerce, overseas shopping, direct sale, work unit/gifting etc. The goods under monitoring are those obtained for in-home consumptions.
What appeals to low-tier youth?
1. Premium categories
Kantar Worldpanel data showed that the average price of products these consumers bought has been increasing - higher price contributed to nearly half of sales value growth from this consumer segment. Low-tier city young consumers are price sensitive, but it’s valid only when they are comparing goods in the same category. In terms of category upgrading, they do not lag behind their counterparts in big cities: for example, they are upgrading from blend cooking oil to olive oil, from bar soap/soap powder to laundry liquid, etc.
Compared with the situation in big cities, international brands are earning a smaller share of young consumers’ spending in small cities. To unlock their potential, foreign brands should consider marketing premium categories where they are dominating towards low-tier city young consumers.
2. Smart price
The rise of social group shopping app Pinduoduo has reflected the fact that low-tier city youth pay more attention to prices than young consumers in big cities. Kantar Worldpanel data showed that the average prices they paid for daily categories such as cooking oil, soybean oil and laundry liquid are between 7% to 12% lower than young consumers in big cities. Manufacturers need to promote premium products with “great value for price” to win them over.
In low-tier cities, 33% families are young couples with kid(s) below 14, which is much higher than that in big cities (25%). Products related to kids or infants can attract many new buyers in smaller cities, such as cheese for children, baby clothe laundry liquid with natural ingredients, kid safe disinfectant spray, etc.
When buying for their children, young parents in smaller cities are very keen to shop through e-commerce channels: 59% of moms have bought children/infant products online and 18% of moms have bought through WeChat. In diaper and infant milk formula categories, low-tier city young consumers are more likely to buy through WeChat than those in big cities.
Where to attract low-tier city youth?
In the overall FMCG market, modern trade (especially hypermarket) is becoming marginalized in low-tier cities, but young consumers still like to visit hypermarkets to buy. Kantar Worldpanel data showed that 95% of low-tier youth shopped in hyper/supermarkets in the past year, and they shopped more than twice each month. This explained why hyper/supermarkets, whose contribution to sale value is still higher than any other channel, managed to maintain growth in low-tier cities. Compared with 2017, low-tier city youth paid 68 million more visits to mid- and small-size supermarkets, and 44.2 million more visits to big supermarkets. In addition to that, they spent 7%-8% more than their big city counterparts on each visit.
Young consumers in low-tier cities of course like e-commerce channels where discounts are frequent and deep. Digital platforms are not only a key channel to meet their demand for category upgrading, but also an ideal channel to supplement the inadequate coverage of physical retail networks. Kantar Worldpanel data showed 64.5% of young consumers in small cities shopped through e-commerce channels, 2.5 percentage points higher than in 2017 and narrowing the gap with their peers in big cities.
Young consumers in smaller cities are also more likely to switch to online channels from offline channels for the goods they have previously bought. Brands should consider use e-commerce retailers to serve the unmet needs that offline retail networks are not able to cover due to logistics reasons.
So how can brands win over low-tier city youth?
* Promote “great value for price” premium products to attract these price sensitive consumers who at the same time are keen to try category upgrading;
* Use kid-related marketing campaigns, or launch kid-related products to win young parents in small cities;
* Give priority to supermarkets (from small size to hypermarket) in offline channels;
* E-commerce channels will help accelerate category upgrading, and cover the “blind spots” of physical retail networks.