Shanghai, China – March 26, 2009 – Global strategy consulting firm L.E.K. Consulting announced today the findings of a survey of a cross-section of Chinese consumers. As expected, consumer confidence is low, and as of January 2009 has matched the nadirs reached during the Asian Financial Crisis and SARS. Furthermore, based on the research, this downturn has materially impact consumers’ incomes. More than one-third of consumers surveyed reported decreases in family income. Not surprisingly, the impact was most strongly felt in the survey city of Zhongshan, in the heart of China’s export base.
The survey was conducted along with CTR, a leading domestic market research company based in Beijing. It had a sample of over 600 consumers and covered 4 cities representing different tiers -- Beijing, Nanjing, Zhengzhou, and Zhongshan and a wide range of consumer products.
Consumers still relatively optimistic towards the future
“Chinese consumers remain as a whole relatively optimistic, however,” commented Ken Chen, a L.E.K. Director based in Shanghai. “Fewer than twenty percent of those surveyed indicate that they are pessimistic about their family prospects, whereas 36% are either optimistic or very optimistic -- a statistic that would make many leaders of developed nations envious. Furthermore, the amount of spending has not changed much -- nearly 80% of consumers have either maintained or increased their consumption.”
Chen continued, “On the downside, Chinese consumers on average expect that this downturn will last 2.2 years -- well into 2011.”
Opportunities for companies
The study highlighted products that should do well in a downturn -- these are products consumers are least likely to cut back on, even if their incomes decrease. These products include OTC drugs, educational products and services, and personal care items such as shampoo. In fact, the research shows that consumers whose incomes have decreased have actually spent more on cosmetics and education.
For other products, the opportunities may be more subtle but just as powerful, if brand owners can understand their consumer and identify and leverage competitive differentiators. For example, core consumers of alcoholic beverages are generally younger and have higher incomes, but among older consumers alcohol is seen as less discretionary. Core consumers have come to value quality and brand, more so than price. This allows brand owners to fine-tune their marketing and pricing strategies towards different consumer groups.
In terms of channel, overseas and internet purchases have increased greatly, at the expense of brand stores. Hypermarkets and supermarkets have also gained shopping frequency. The increasing availability of modern trade and changing consumer tastes are already shifting purchasing channels for many products. For example, OTC purchases are shifting away from hospital dispensaries to chained pharmacies, and on-trade consumption of alcoholic beverages is increasing faster than off-trade in certain regions. This may be a good time to assess the distribution system for consumer products companies to make sure channel coverage is in line with market trends.
Ken Chen concluded, “Chinese consumers do feel the impact of the economic downturn, and despite the relatively low levels of consumer confidence, spending appears to be holding up. Spending pattern and channel changes impact product categories differently, and armed with the right data and consumer insight, companies can gain a competitive edge in this market.”
About L.E.K. Consulting
L.E.K. Consulting is a global strategy consulting firm whose experts partner with executives around the world to make the most difficult and critical business decisions -- quickly and with optimal results. As a leading strategic advisor to the retail, consumer products, and private equity industries, L.E.K. has worked on many of the key issues driving our future success for clients in all major geographies. L.E.K. Consulting’s portfolio of services draws on core capabilities of research, benchmarking, modelling, analysis and strategy development to help companies and funds determine, with precision, the best way forward.
To learn more about the survey and more detailed results which includes information on alcoholic beverages, cosmetics, apparel and shoes, nutritional foods, OTC drugs, packaged food and drink, home furnishing, entertainment, and education, please contact: Stella Chen, email: firstname.lastname@example.org or phone: +86 21 6122 3922
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