“It is vital for companies not to underestimate the strength of domestic brands”
While businesses are bracing themselves for a choppy start to 2023, there is also a sense of a light at the end of the tunnel. Inflation, the War in Ukraine and China’s reopening after three years of strict Covid-restrictions, are set to have the largest impact on global trade.
China is set to experience extensive levels of Covid-19 cases in the following weeks, with the peaks expected during Chinese New Year and after the return to work following the festive period. [Airfinity] Yet, investment analysts say China lifting restrictions will help rebalance economies sooner than anticipated.
Having opened our Shanghai Import Pavilion in Nov 2019, Sinowei teams throughout China, UK and EU have had first-hand experience of the challenges presented across international trade during a pandemic. We’ve observed the quick pace at which things can change in China and how opportunity can arise. The annual McKinsey China Consumer Report released in December, projected several consumer trends pinned for companies to watch in 2023.
- “The Middle-Class Continues to Rise”
Not only is China experiencing the highest growth of middle-class households every year; China is also “expected to add another 71 million upper-middle and high-income households.”
- “Premiumization Maintains Momentum”
Consumers still “trade up” to premium over mass, “despite rising anxiety over the economy and their personal incomes”.
- “Smarter Choices, but not Trading Down”
Consumers becoming increasingly creative in how they’re getting the brands they want for less – whether it’s through Community Group Buying Platforms, Taobao or livestreaming offers.
- “It’s all about product”
With a world of information at our fingertips, savvy consumers can quickly “educate themselves about the technical specifications of their favourite products on social media” and the likes of Baidu.
- “Local Companies are Winning”
While foreign brands could once persuade consumers to pay premium based on country of origin, “Chinese companies today offer excellent products that are competitive or sometimes even superior to their foreign peers. … Today domestic companies are reacting faster to trends, are closer to the consumer and making bolder investments.”
“The resurgence of the world’s most important source of international travellers has already created a positive impact for neighbouring economies.”
China’s growing spending power presents greater opportunity in 2023, due to the easing of China’s zero-Covid restrictions. Not only do we expect to see uptake in bar and restaurant visits – but the resurgence of the world’s most important source of international travellers has already created a positive impact for neighbouring economies.
The key consumer demographic, set to influence consumption trends over the next decades, are those in their 20’s and 30’s. This category generally has better education, aren’t too concerned with savings and will spend more on entertainment. Most importantly, they are more concerned with quality and value over low price.
Understanding the omnichannel experience for Chinese shoppers can seem overwhelming to Western companies, who are used to more straightforward touch points. Having spent several years establishing our B2C distribution through these online channels, what we found most interesting were the community group buying platforms.
This refers to several small house-hold orders combined into one larger community order. It’s in often favoured in Tier 3,4,5 areas where there’s lower-income as these platforms offer better group price offers. Also in these areas: community values are stronger and neighbours more familiar with one another. [Dauxe Consulting]
Covid-lockdowns forced the shift in online commerce in first and second tier cities, as logistics and delivery workforce were impacted. Community group buying models are increasingly showing high-conversion and retention capabilities. We see this as an excellent channel for Western companies to reach consumers beyond the traditional market points for imports.
Domestic Adaptability and Innovation
While foreign companies were once held in esteem of having higher-quality goods, mainly in food, drink, clothing and cosmetic products – this was largely because of their newness and unfamiliarity to China. Fast forward two decades and Chinese manufacturers have quickly adapted to consumer demands while offering further innovation than imported counterparts.
It is vital for companies not to underestimate the strength of domestic brands. They should demonstrate understanding of China’s consumer culture and cater their offering accordingly.