Cross Category Trends
Pursuit of the Chinese Dream adds opportunities for brands
Wants, not needs, drive spending
The Chinese government’s promotion of responsible and sustainable growth, rather than growth at all costs, influenced the purchase choices made by consumers. People who have attained a reasonable level of wealth shopped less for fast moving consumer goods (FMCG) and spent more on discretionary items. Airlines expanded their overseas routes, and travel agencies, like Ctrip, acquired brands to provide expanded services for Chinese abroad. Brands in categories as diverse as apparel and food and dairy responded to a growing concern about personal health and wellbeing. Healthcare was among the fastest rising categories in value. One of the most popular items purchased was intangible—knowledge. For the second consecutive year, education led in the rate of category value growth. And education brand Xueersi increased most in value, 139 percent.
Quest for the best inspires shoppers
Premiumization is not a new trend, but it spread more widely across categories and more deeply into China, beyond the affluent coastal cities. Increasingly sophisticated and affluent Chinese consumers discriminated among product offerings to select the quality and features they desired. Premiumization, a stage in lifecycles of most markets, happened with the speed characteristic of China, and the trend touched many categories. In alcohol, Chinese consumed less beer but paid more for the beer they drank. Similarly, the sales of some food and dairy products increased in value even as volume slowed. Hotel brands, which had expanded rapidly to capture the budget segment of the Chinese market, added more personalized services to enhance guest experience. The appliance category surged in value as brands introduced large and small appliances loaded with up-scale features.
Adding more customers is key to growing sales
As brand choice increased and loyalty weakened, penetration was the surest path to sales growth.
The greatest opportunities were in lower tier cities and other locations in the interior, home to over a billion people with increased purchasing power. These consumers were not strictly price-driven. Like consumers in the coastal megacities, they were willing to pay a premium when merited.
More categories travel overseas
Measured by the percent of revenue derived from overseas sales, the technology and appliance categories still lead—a legacy from the days of serving as original equipment manufacturers (OEMs). The Chinese state-owned airlines also rank high. However, brands in other categories are expanding abroad, sometimes to nearby Asian countries first, a traditional route recently taken by the apparel brand Heilan Home when it opened its first overseas store, in Kuala Lampur. In contrast, the Chinese car brands Geely and Great Wall plan to introduce cars in Europe and North America, respectively, in a few years.
Policy shift increases purchasing potential
In rescinding the one-child policy and replacing it with permission for married couples to have two children, China intended to rebalance the population demographics, from aging to youth, and stimulate consumption. China’s birthrate has increased, and many categories have experienced—or anticipated—a positive impact on sales, including baby care and education.
Brands advance China’s interests and their own
Dual mission statements guided many Chinese brands—their own and China’s. Historically, State Owned Enterprises (SOEs), in strategically important categories, acted as the agents for realizing the national agenda. Now, brands, regardless of ownership and across categories, linked their own Brand Purpose with the Chinese Dream, the government effort to sustain responsible economic growth, build a more equitable society, and restore China to its historic global stature. Banks financed poverty reduction projects at home and added overseas branches to support Belt and Road activities. Car brands developed new energy alternatives to help abate air pollution. Besides developing electric cars, BYD introduced its first monorail, in Yinchuan, in central China, to reduce urban congestion as well as pollution. Apparel brands aligned with the effort to develop Chinese champion athletes. Food and dairy brands improved safety and quality.
Ecosystems engulf more categories
More than elsewhere, Internet brands—especially Baidu, Alibaba, and Tencent (BAT)—have enabled consumers to handle the transactions of daily life—shopping, purchasing, banking, communicating, cab hailing—on a single integrated platform. Now, internet giants are increasingly crossing categories and disrupting markets as they enlarge and protect their ecosystems. Baidu collaborated with China Life to launch an internet investment fund. Alibaba and Tencent have also entered the insurance business. And they are active in the travel category. At the same time, the growth of internet brands, particularly the e-commerce leaders, drove the expansion of the logistics category, included in the BrandZÔ China Top 100 for the first time this year.
Brands probe deeper into shopper behavior
Alibaba CEO Jack Ma gave it a name, New Retail—the integration of data, logistics, online, and offline. The phenomenon, which has been developing for years, accelerated dramatically when Alibaba, JD.com, and other e-commerce giants acquired or collaborated with brick and mortar retailers. These hook-ups potentially provide a retail brand with deep insight into how the same customer behaves online and offline, and they enable the brand to effectively respond.
Once the copier, now the copied
Older people are more likely to still think of China as a copycat nation. But younger people see China as the nation to copy. And it is not just that Chinese brands produce some of the most popular titles for gamers. Having acquired a lot of technology, China is investing in the research and development to compete for leadership in diverse technologies, including: artificial intelligence, autonomous vehicles, and drones.
Global tensions impact brands
As China asserts itself internationally with Belt and Road and other initiatives, geopolitics impacts brands. Huawei, now the world’s third largest smart phone manufacturer, after Samsung and Apple, continued to build its brand in Europe and other regions, but it experienced a setback in the US, when an arrangement to sell its premium Mate 10 smartphone through AT&T collapsed. US government security concerns have also slowed the American market expansion of two other Chinese technology brands, ZTE and DJI. Separately, Korea’s deployment of the defensive THAAD missile system provoked a negative reaction in China that resulted in slower sales for popular Korean cosmetic products, a phenomenon that affected the value increase of the personal care category.