Chinese consumers get more selective with spending

While China’s economy continues to grow at a moderate pace, consumers have become more selective spenders in 2017 as a result of increased pressures both at work and with their personal finances. New research from global market intelligence agency Mintel reveals that, today, urban Chinese consumers* are more conservative with regard to increasing their spending than they were in 2016, as 36% of surveyed consumers report spending more in 2017 compared to 43% who said the same in 2016. Meanwhile, consumers are more likely to control their spending this year, with nearly half (49%) reporting that they are spending “about the same” as they did in 2016.

However, while consumers in general have a positive outlook for their financial status, they are aware of potential future risks in life, and want to make sure that every purchase they make can be justified, and that what they buy is worth the price.

Mintel research indicates that overall consumer expenditure increased by 10.5% to reach RMB 33,511 billion in 2016. The categories that experienced the most growth in 2016 include transportation, holiday, leisure and entertainment, and OTC (Over-the-Counter) and pharmaceuticals. Mintel forecasts that consumer expenditure will increase 8.4% year-on-year through 2021, while holidays will surpass clothing and accessories to become the third largest spending sector. Meanwhile, transportation and leisure and entertainment, as well as beauty and personal care, will also see an increase in consumer spending .

Laurel Gu, Research Director at Mintel, said,

“Demand for upgraded consumption for new options, better quality and greater convenience will be the major driving factor in 2017. The development of the consumer products and services market is expected to remain active over the next five years to 2021, with health and experience being the two major themes. When it comes to Chinese consumers in tier one to three cities, perceived trends in spending are similar with holidays being the most popular and alcoholic drinks the least popular. However, although in-home food, clothing and accessories, as well as eating out, are enjoying moderate increases in total spending, they are among the top sectors where consumers claim to be spending more this year. This suggests potential gaps that consumers living in towns or rural areas are not yet picking up as a part of upgrading their living quality.”

Achieving a healthy lifestyle continues to be Chinese consumers’ top priority, with “have a healthier diet” (80% of consumers say they will definitely do this in 2017) and “exercise more” (75% report they will definitely do this in 2017) the top two goals that consumers are determined to achieve in 2017, as was the case in 2014. “Travelling to new places” is a goal that has become increasingly important to consumers over the last four years, rising from ninth place in 2014 to third place in 2017. Meanwhile, “spend more time with family” – which 73% of consumers say they will do this year – dropped from third position in 2014 to sixth position in 2017.

“While living a healthy lifestyle continues to be a focus area for consumers, over the last few years we see that spending time with family and having a better work-life balance are being deprioritised for other goals like traveling and getting household finances in order. The reason for these changes in life priorities is likely because consumers, Mintropolitans in particular, tend to associate a healthy lifestyle with not just exercising and watching what they eat, but also a variety of meaningful leisure and social experiences.” Laurel continued.

When it comes to the quality of their life, one quarter (24%) of Chinese consumers say spending on holidays is what makes them feel their quality of living has improved. Other top areas include spending on technology (eg. mobile phones) (9%), clothes and accessories (eg. apparel) (9%) and leisure (eg. working out) (4%), which is largely in line with consumers’ spending priorities.

Mintel’s annual Chinese Consumer 2017 report tracks spending across 15 major consumer markets, revealing the categories that present areas of opportunity, disruption and innovation in the years ahead. Highlights from the 2017 report include:

Better-for-you foods drive further growth

Mintel forecasts that the in-home food market will reach RMB 7,001 billion in value by 2021, driven by the demand for more trading-up options in the form of better-for-you versions and higher quality ingredients. Looking forward, yogurt products positioned as an indulgent pleasure and cheese for snacking occasions will see the greatest potential. On the other end, both ready meals and instant noodles are in jeopardy due to the thriving food delivery service.

Healthy drinks take leading positions in non-alcoholic drink market

Thanks to a nourishing and healthy image, plant protein drinks (PPDs), functional beverages (eg. sports drinks, energy drinks), as well as some light flavoured beverages, are all growing in popularity. Overall, the Chinese non-alcoholic drink market is likely to retain its positive growth with a CAGR of 7.2% in the next five years. Besides consumers’ ongoing interests in pursuing healthy food and drinks, their knowledge of nutrition and ingredients is also growing. As such, the premium soft drinks market is expecting products featuring a clean and natural ingredient list that create associations with functional health benefits.

Beauty products designed for special occasion have room to grow

Consumer spending in the beauty and personal care (BPC) sector is estimated to have reached RMB 566 billion by the end of 2016 – increasing by 8.1% from 2015. Mintel forecasts that the sector will grow, driven by innovations from local brands, imported products and consumers trading up to premium products for better quality. In 2017, there will be increasing demand for safety products and segments that are designed to cater to special occasions, including the athbeauty trend and consumers in need of time-saving routines.

Technology and communication market on a slow incline over the next five years

Smart phones and more niche technology gadgets like smart wristbands or VR (virtual reality) headsets will enjoy strong growth in 2017, while computers and games consoles face challenges. Upgrading technology products, especially those consumers use daily (like smartphones), may help consumers improve their quality of living. High product quality, such as high processing speed for smartphones or reliable health-monitor function of smart wristbands, are essential for technology brands to win fans in the years ahead.

More demands on social and leisure activities drive transportation spending

The fact that the segment is closely related to two other strong sectors – holiday, and leisure and entertainment – together with accelerating new car sales, growing car usage spending, as well as increasing public transport cost, are all key drivers of spending in transportation. In the five years to 2021, Chinese consumer expenditure on transport is projected to see a 12.7% CAGR and reach RMB 3,605 billion. Opportunities exist for market players tackling daily commute issues, including those in the ridesharing and bike-sharing industries.

Urban Chinese consumers seek more experimental activities

Chinese consumers are becoming more sophisticated and selective in terms of where they spend their time and money for entertainment and relaxation. Mintel forecasts that the leisure and entertainment sector will reach RMB 2,823 billion in value by 2021. This is largely driven by the shift from products to lifestyle services and experiences, and the trend of trading up from mass to premium offerings; both are reflecting the change in life priority from wealth accumulation to a more balanced life. In 2017, there will be increased demand for virtual entertainment products, health and fitness services and family-focused recreations.

*3,000 internet users in tier 1-3 cities aged 20-49; survey conducted January 2017

Mintel’s Chinese Consumer 2017 report is available for download here.

Interviews with Laurel Gu, Research Director, as well as Mintel’s team of category analysts, are available on request from the press office.