China’s changing demographics and its impact on the profiles of consumers will shape the consumption patterns in the next decade. Based on their types and branding logic, four kinds of consumers are selected to untangle the foreseeable opportunity in the country's brand revolution.
Explosive middle-class in new tier-one cities
Over the past several decades, China’s eye-catching development has lifted hundreds of millions of people out of poverty and resulted in a burgeoning middle class. According to the McKinsey quarterly report, ‘Meet the Chinese consumer 2020’, the household income of USD 16,000–USD 34,000 will become the mainstream, at a percentage of 51% in urban cities, a huge jump from only 6% in 2010. Moreover, the expansion of the middle class will be stronger in smaller, inland cities than in the coastal tier-one cities, making the lower-tier cities more appealing to consumer-facing companies.
Beneath the middle-class, there are significant shifts in consumption dynamics; for instance, the once practical and frugal Chinese shoppers are willing to pay a premium for quality and brand. The historically pragmatic purchase habits are turning to more discretionary spending, which is estimated to reach USD 4.4 trillion by 2020.8 Emotional benefits also became one of the key buying factors. Despite the saying of ‘consumption downgrade’, the reality is that an increasing percentage of Chinese middle-class buyers believe in the brand and are willing to pay for a healthier meal, sophisticated apparel and a better lifestyle.
The recent data from Zhenai.com unveiled that the number of single adults in China reached 240 million in 2019, accounting for 15% of the population. Among them, nearly half were between the ages of 20 and 29, with many citing that it was their personal choice to remain single. This ever-increasing group has spawned the growth of China's ‘singles economy’.
According to the ‘Chinese Family Development Report’ released by the National Health and Family Planning Commission, families are getting smaller, with an average of 3.02 people per household in 2014. Small-sized families of one to two members have increased to count for 40% of all families, double the number of a decade ago. Moreover, data released by e-commerce giant Alibaba in 2016 shows that more than half of the country’s single men and women have monthly disposable income which is twice as much as the average. Thus, the swelling singleton segment forms a consumption trend around convenience, self-entertainment, spiritual needs and self-improvement, as well as yielding opportunities for tourism, the fitness market, beauty industry, small home appliances, the pet industry and vocational education.
Singles are more willing to pay for convenience. With over 60% of singles being white-collar workers, free-spending is given in exchange for free time and space. They tend to rely more on online shopping and community-based stores, they start to receive more attentive service in restaurants with seats for singles, one-person karaoke booths and apartment designed for one.
Fast foods such as self-heating hot pot and rice, smaller red wine, mini-fridge selections and so on are getting momentum with sales at least tripling that of the previous year. The sales of mini-microwaves and mini-washers surged 973% and 630% over the previous year’s performance in the Alibaba Singles Day 2018.
And of course singles sometimes feel lonely, so they turn to fluffy pets for comfort, fulfillment and again, for convenience. Video games have become another mainstream culture for singles. Their social lives can be easily connected by video games and they watch more streaming that contains video game content and ACGN culture.
Moreover, singles spend to please no one but themselves. They pay more attention to their beauty, inside and outside, promoting the skincare, cosmetic markets as well as tourism and vocational education. For the beauty industry, the turnaround has been an invasion of male consumers, especially those who were born after the 1995s.
China will become a deep aging society by 2021 and the population will continue greying by 2050, by which time over one third of the population will be people over 60 years old. Facing these aging challenges, the 12th Five-Year Plan points out that the government will actively work to establish a multilevel elderly care service system called 9073, meaning 90% of the elderly populace will receive at-home care, 7% supported by communities with supplementary care for 3% by elderly care institutions. Compared with the current situation, 96% of elders still receive at-home care and only 1% can reach community service. The lack of manpower, funding and service has posed great challenges for community-based services. Moreover, China’s filial piety tradition made at-home care the major solution for looking after the elderly.
Therefore, the large number of at-home elderly people have produced and will keep on generating huge demand for domestic care products and smart devices in the coming five to ten years. Meanwhile, information and healthcare technology have become the main force of the smart care sector. Of the 53 smart care companies in a list released by the Ministry of Industry and Information Technology in 2017, more than 60% are tech-driven companies associated with 5G technology, AI and IoT, helping to accelerate the application of at-home smart care.
Compared with Germany and Japan, who have 21% and 27% of their populations now over 65 years old respectively, China is better off for the moment with an 11% senior population. Nevertheless, how Japan and Germany cope with the challenges will become a reference for China as she faces demographic time bombs in the future. Below is the product list of some elderly care devices.
Besides elder care products, people have long overlooked the fact that seniors are essentially consumers, even some of the most promising ones. The first generation of the country’s middle-class are now in their 50s and 60s; this group of over 200 million people have accumulated considerable wealth, possess consumer awareness and more importantly, identify with the power of brands, especially after China’s accession to WTO in 2001. After retirement, these well-off people will be the future biggest drivers of the senior markets. They’ve got plenty of time to travel, also pay great attention to Yang Sheng (nourishing life) and are willing to spend money on self improvement. Thus, skincare, apparel & accessories and health products all hint great potential as well. Nonetheless, the primary brands for seniors are yet to come.
Generation Z in China is fueled by an increased sense of security and optimism for the future
Millennials are not off-the-table, but a new generation has arrived. Roughly born between 1995 and 2010, this group of ‘kids’ is considered to be the main consumption force of China – Generation Z.
Due to the one-child policy launched in 1980, over 378 million Gen Z consumers in China grew up as the only child and were more likely to be brought up affluently, well-educated and with generous financial support. Having grown up as the focus of the family, they tend to have a strong desire to stand out and feel unique. They attend more to self-recognition and experience through consumption than other factors. According to OC&C, almost a fifth of Gen Z strongly agree that they would rather spend money on experiences than products.12 The activity is not just about consuming but to have a better understanding of themselves and express their attitude. For example, Lolita dresses and Hanfu gear (the traditional dress of China's Han people with wide sleeves, crossed collars and long robes) – are both representative of ACGN culture (an abbreviation of "Anime, Comic, Games and novel", used in some subcultures of Greater China) and have become carriers of uniqueness for Gen Z.
Witnessing China’s fast-growing economy and stronger impact worldwide, they are global-minded and patriotic. Guochao (国潮), referring to the rise of Chinese domestic brands, is largely backed by Chinese Gen Z, who are proud of Chinese culture and heritage. The top 10 search entries of Chinese elements, such as Peking Opera, Suzhou embroidery and the Imperial Palace, accumulated 12.6 billion entries on Alibaba’s e-commerce platform in 2018.
What’s more, revenues of items under the search category of National Treasure increased 560% over last year. Traditional Chinese brands such as Feiyue (飞跃, a sport shoe brand), Yongjiu (永久牌, a bicycle brand), Tong Ren Tang (同仁堂, traditional Chinese pharmaceutical company), Dabaitu (大白兔, a creamy candy brand) and so on are seeing a resurgence thanks to Gen Z’s love of retro heritage brands.
Most importantly, Gen Zers are digital natives. Largely exposed to the Internet, their social networks are more easily built online by hobbies and interests.
China’s Gen Z is the first Chinese generation to be born in a fully digital era. They are an extremely tech-savvy crowd, willing to share their feelings and experiences in forms of online reviews, blog posts and other means of self-expression. Compared to their Western counterparts who prefer to limit social media interaction to people they know in real life, Chinese Gen Z is more likely to make social media introductions. This suggests that information sharing extends even further beyond their immediate circles for Chinese Gen Zers, posing an immense marketing potential if leveraged appropriately.
On the other hand, they are under the influence of friends, celebrities, bloggers, etc. Take RED (小红书) and DU (毒App) for example, the two social-media apps that have flooded Gen Z with their user-generated content (UGC). These two platforms, which focus heavily on building trust and reliability between platforms and consumers, have attracted both domestic and global brands which are growing in a big way. International brands like Chanel, Gucci and Dior, and Chinese domestic brands such as Perfect Diary and Yuanqisenlin are beneficiaries of Gen Z’s prolific interactions on social media