Since it lifted a zero-COVID policy in late December, the massive Chinese consumer market is now gaining vitality.
International investors are rethinking whether to seize opportunities to enter the market or double down on China retail in 2023.
We look at how customer behavior changes have created untapped opportunities and key lessons to support global brands’ success.
International travel consumption returns
China’s “revenge” tourism spending will reach $160 billion annually, Natixis predicts, which will bring a new boom to the global duty-free industry. China Tourism Academy expects the annual number of inbound and outbound tourists to exceed 90 million in 2023, doubling year-over-year.
International duty-free retailers have suffered from the inability of the Chinese consumer to spend abroad, while return visitors provide the impetus for growth. Earlier this year, during Chinese New Year, the level of Chinese tourists’ outbound travel increased by 640% YoY, according to leading travel service provider Ctrip’s statistics.
In addition, orders of overseas hotel bookings and flight tickets by mainland visitors increased by more than four times year-over-year. Given consumers’ enthusiasm to go abroad, global duty-free sales are forecasted to return to 2019 levels or even exceed them in 2023.
With China’s international flights gradually resuming, more high-income spenders are expected to visit popular luxury shopping destinations, including Europe.
Physical well-being is thriving
In China, the health supplement dividend is set to pay off, as consumer awareness of personal fitness has exploded since the start of the COVID-19 pandemic. According to the latest report on China’s Health Supplement Trend by China e-tailer JD.com’s health care e-commerce platform, JD Health, by 2023, China’s market scale is expected to approach 329 billion RMB ($47.8 billion US).
So far, the penetration rate of health care products among all age groups in China is generally lower than that of the United States, especially those above the age of 35. This means China’s nutritional health market has very high growth potential.
Chinese consumers’ awareness of personal and family health care continues to rise, even though their attention to the pandemic has dropped significantly. For consumers to overcome a suboptimal health state, buying health supplement products, enjoying regular workouts, and taking tonics have become the top three options for Chinese people to enhance their health condition, accounting for 64%, 61%, and 57% of respondents, respectively.
A recent Ipsos survey reveals that multivitamins, Omega-3, vitamin C and probiotics were the most-chosen or plan-to-take products in February. As for supplement products, consumers are more concerned about food hygiene, product origin, and scientific-backed R&D.
The health care industry should seize the opportunity to pursue and strengthen consumer health awareness of immunity enhancement to explore sustainable business growth in China’s lucrative supplements market.
Rational consumption is on the rise
Amid increased uncertainties in the external environment, consumers are evolving toward more pragmatic and rational decisions.
Impulsive shopping will not last long, since consumers have started to tease out their needs rationally, with their thought process being: “This product is what I really need.” According to the China Consumer Trends Report, people refuse to blindly buy discounted goods and will regularly clear out unnecessary items. More than 75% of consumers said they would not buy products even if they missed out on appealing deals, and nearly 80% said they would regularly clear out unnecessary items.
Instead of blindly following the trend, consumers will choose products that are of high value to them and products that are no longer of practical value will be disposed of by consumers.
However, there is still room for further consumption upgrades overall, but mainly from high-income groups. If customers see authentic efficiency or benefits that can fulfill their demands, they are more willing to pay a premium for the product. Notably, the beauty, nutrition and fashion industries are forecasted to benefit from this Chinese consumer trend of trading up to premium products.
- When customers plan to reduce their impulsive spending, they have a clear focus on what they really need, rather than revenge shopping only to get great discounts. This means demand and pain point still exist, and they are looking for the brands and products that best fit their evolving needs.
- New brands entering the China market need to realize the intense market competition, explore the market’s needs, and highlight unique brand propositioning, competitive advantages, etc.
- Companies must adapt to change, especially learning how Chinese homegrown brands combine their marketing strategy with market and platform dynamics to engage customers. Cultural language and localization are competitive advantages that help companies succeed in China.
Franklin Chu is managing director US for Azoya International, a provider of turnkey cross-border e-commerce solutions to assist retailers looking to expand into China through a cost-effective and lower-risk method. In recent years, over 100 retailers and brands in 12 countries have partnered with Azoya to expand into China with ease, including French fashion retailer La Redoute, Australia’s largest pharmacy group, Sigma, as well as Feelunique, the largest online beauty retailer in Europe.