Updated: Feb 2
On November 10th, McKinsey & Company released a special edition of the China Consumer Report: “Understanding Chinese Consumers: Growth Engine of the World”. The document shapes perspectives on the trends that are defining the “next normal” in post-pandemic China. The company investigated how consumers’ behaviour shifted and will continue to shift during and after COVID-19 and how consumers and retail companies are responding. This is a review of that report, highlighting some of the most important insights.
In October, many countries are battling a second or third wave of infections. The challenge facing policymakers is to strike the right balance between containing viral transmission and restarting locked-down economies to secure employment. By contrast, China is optimistic. Having worked hard to contain the original outbreak of the novel coronavirus in Wuhan, the government has effectively controlled virus transmission. Since mid-March, a combination of travel restrictions, testing, and digital health and tracking initiatives has kept most of China virus-free. Factories are resuming production and consumers are beginning to spend again. However, the crisis has had a lingering impact on the nation’s shopping habits and has accelerated several pre existing trends. The report highlights five trends that usher in the arrival of a future that was already predictable:
Consumers and businesses in China have boosted their use of digital technologies as a result of COVID-19. Companies already engaged in digital transformations were able to accelerate momentum, and successfully cater for increased demand for online shopping and other digital services. Digitisation is accelerating in the typical business-to-consumer (B2C) applications and channels. In fact, based on McKinsey & Company surveys of Chinese consumers, about 55 percent are likely to continue buying more groceries online after the peak of the crisis. Digital development is also gaining traction in the traditionally less digitised part of the economy, such as areas requiring physical interactions and business-to-business (B2B) processes, transforming consumer and employee behaviour in ways that are likely to endure.
2. Declining Global Exposure
According to the McKinsey Global Institute (MGI) China-World Exposure Index, China’s exposure to the rest of the world in terms of people, capital, and technology has declined, while the rest of the world’s exposure to China has increased. China’s major driver of economic development is the consumer market, and the government is pushing for an increasingly local-innovation driven economy, leading to a decline in exports. On the other hand, other countries look at China as a source of capital and goods. However, changes in the international context, such as restrictions on mobility for travel and trade, have sparked a debate on the direction of globalisation.
3. Rising Competitive Intensity
In China, top performing firms tend to capture a large share of the country’s economic profit. Strong performers in the top 10% tend to have robust digital capabilities, as well as agility, and high labor productivity. The “superstar effect” appears to be growing even more pronounced as a result of COVID-19. On the flip side, companies with a slow reaction combined with an inability to go digital have struggled to sustain businesses. While TikTok was the world’s most-downloaded app just as COVID-19 intensified in China, many Small and Medium Enterprises (SMEs) were enduring a decline in businesses.
4. Consumers' Coming of Age
Until COVID-19, growth in consumer spending had continued on a national scale. However, the epidemic has severely disrupted the economy, and triggered profound changes in consumer behaviour, including those in their twenties and thirties, who were traditionally more willing to spend than to save. In a survey heavily weighted toward young consumers, 42 percent of respondents stated their intention to save more than before COVID-19. At the same time, Chinese consumers are becoming more cautious and they are now putting more thought into how they manage their personal finances. The epidemic has also increased awareness of product safety and quality, resulting in a tendency to spend more time and money purchasing safe and eco-friendly products. Chinese consumers focused their purchases on health-oriented products, such as sanitary and health products, fresh food, and life insurance.
5. Private and Social Sectors Step Up
Over the last 20 years, China shifted from an economy driven by government and state-owned enterprises (SOE) to one mainly driven by large private companies, where private sector actors are supporting the government in the fight against COVID-19. Many major Chinese companies, such as Alipay and WeChat, are aiding the national recovery with technology and resources, enabling the widespread adoption of a color-coded health system using QR codes, as well as sophisticated track and trace measures to contain the virus. Today, the private sector contributes close to two thirds of China’s economic growth and private enterprises have now become the major driver of China’s economic development. In addition, the role of social institutions has expanded to address gaps in the corporate and state response and foundations and other charitable organisations have also become more influential.
Consumer Attitudes are Changing
Chinese consumers have embraced the rapid shift to online during the crisis enabled by an advanced digital infrastructure. The usage of delivery apps surged, driving up online sales of food and daily necessities. Aside from online shopping, Chinese consumers have adopted new digital activities that do not require in-person interactions, leading to a rise in at-home occasions. Remote learning, as well as online fitness, have entered Chinese everyday life and are likely to endure. Health and family safety issues account for half of Chinese consumers’ top 10 concerns: Chinese consumers have become more conscious of health and quality as a result of COVID-19, and are trying to improve their overall health and ability to fight off infections. As a result, they are focusing on improving immune systems and making safe purchases.
Though the virus is under control for now, the consumer environment has fundamentally shifted, challenging brands and retailers to reconsider their operating models across product mix, pricing, channel strategy, and marketing. Brands should consider online as a must-do while innovating product offerings and services. Budweiser, for example, adapted by launching new ecommerce and omnichannel at-home consumer experiences, including DJ livestreams and e-gaming events that provided a platform for customised marketing, and home delivery promotions.
What about Chinese Consumer Habits?
Thanks to the loosening of restrictions by many local authorities in the first week of March, shops had the opportunity to welcome customers who had been isolated in their homes for as long as six weeks. China offline consumption is still impacted due to long lasting repercussions of COVID-19, but it is slowly recovering. Supermarkets, convenience stores, and drugstores saw a raise in activity during the crisis, as consumers stocked up on essentials and cooked at home. However, after the peak there was a divergence. Supermarket volumes fell, while convenience stores and drugstores continued to see a raise in their volume of affairs, driven by demand for medicines and a desire among many people to shop near their homes. In the grocery category, there was a spike in online shopping during the peak, with consumers spending more time and money online. Furthermore, as COVID-19 has emphasised the importance of staying fit and healthy, it changed attitudes in shopping behaviour. As a result, demand for dairy, vegetables, and eggs was 25-50 percent higher during the initial recovery phase than it was before the crisis.
Given the physical constraints of the crisis, Chinese customers have been more willing to try new stores and new brands. More than a quarter of shoppers have shifted away from their primary stores, of which 47% do not intend to switch back. Based on the survey run by McKinsey & Company, a third of consumers have switched brands based on convenience and 20% expect to continue purchasing the new brand post-COVID-19.
The effectiveness of China’s public health response has inspired an unparalleled rebound in consumer confidence in resuming daily routines after the pandemic. Some consumers’ habits like online shopping have been strengthened during the last months and digital has been one of the few real beneficiaries of the crisis. Companies who incorporated technology across their business managed to increase their efficiency and effectiveness. Another priority for companies is to align with the new customers trends: the pandemic has consolidated existing trends such as the delivery business, but has also generated new ones. The healthy and local lifestyle that Chinese consumers have assimilated during the crisis is likely to last and companies have to act decisively and adapt their supply.
Vania Tabanelli is a young sinologist passionate about the Chinese economy. She is a student in International Management from ICN Business School and ECUST Shanghai, China. You can find her on Instagram and LinkedIn.
The opinions expressed here are those of the writer and do not represent the views of European Guanxi.
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