Recently, on a podcast, I interpreted two trend reports: McKinsey's 2024 China Consumer Trend Survey and Amazon's Global E-commerce Consumption Trends and Product Selection Survey, to explore future business opportunities with you.

After reading the reports, my core conclusion is: The current economic situation is such that from a macro perspective, there's no money to be made, but from a micro perspective, opportunities abound.

Chinese people are not short on money to consume; they are saving it. Predictable high-certainty ongoing expenses are the core reason suppressing consumption.

Often, describing the consumer market with terms like consumption upgrading or downgrading is too simplistic.

Some industries are experiencing consumption downgrading, but the overall market is growing; some industries are upgrading, but consumption frequency is decreasing.

Consumer confidence across the market is continuously diverging, not a monolithic whole: some spend without hesitation, while others "remove desires and save for needs."

Chinese people are not short on money to consume They are saving it

The first trend in McKinsey's 2024 China Consumer Trend Survey is: Short-term savings are king, and consumption potential is not fully released.

According to the People's Bank of China's "2024 First Half Financial Statistics Report," in the first half of 2024, Chinese residents' savings increased by 11.46 trillion yuan, with household savings increasing by 9.27 trillion yuan.

This indicates: Chinese people are not short on money to consume; they are saving it.

Sometimes, to check if a report's conclusion is correct, you can compare it with your own and your friends' mindsets to see if it's a false proposition. Recently, I, along with people around me and the older generation, have clearly felt that if we have money, we want to put it in the bank, not even in funds or wealth management products.

The second trend in the report is: Two-thirds of respondents are optimistic, but pessimistic sentiment significantly suppresses consumption expectations.

They conducted a social survey where about 76% of people are optimistic about China's economic development, but 67% are optimistic about their own future development.

This is a simple conclusion: Most people believe China's future is bright, but whether I will be fine is uncertain. That is, people are optimistic at the macro level, but their micro-level sentiment is somewhat pessimistic.

Why are many people pessimistic about their own and their families' consumption? The report states an abstract short phrase: "Predictable high-certainty ongoing expenses are the core reason suppressing consumption."

So-called predictable high-certainty ongoing expenses refer to mortgage payments, car loans, children's education fees, parents' support, and anxiety about unemployment... When the economic environment fluctuates, the money people spend is visible, but the money they earn becomes uncertain, making people anxious.

In fact, many people's incomes haven't changed. People are more influenced by external news, leading to pessimistic consumption sentiment. For example, we often see news of layoffs at big companies and startups going bankrupt.

Some companies have gone bankrupt, but others are doing better.

For instance, Pop Mart's first-half revenue this year was 4.56 billion yuan, up 62.0% year-on-year, with net profit of 1.02 billion yuan, up 90.1% year-on-year. Overseas performance growth even reached 200%!

A non-essential product continuing to grow in sales indicates that consumers still have money. It's just that different people have varying feelings about the market, and consumer confidence is continuously diverging.

Consumer confidence is continuously diverging: Some spend without hesitation Others "remove desires and save for needs"

The third trend in McKinsey's consumer trend report is "continuous divergence in consumer confidence." The report divides the Chinese population into five major categories: Urban Gen Z, First-tier affluent silver-haired, Third-tier affluent silver-haired, New middle class in first- and second-tier cities, and Rural middle-aged and elderly.

Urban Gen Z: Spend without hesitation

Urban Gen Z refers to students, post-95s, post-00s, and ordinary employees who have just graduated.

These people haven't yet been "beaten by society" and generally have no vulnerabilities in life.

They don't have "money-devouring beasts" (children), nor do they have to support both parents and children; they are the most unburdened group. They are very confident about future consumption and spend without hesitation.

For product categories targeting this group, there are naturally strong growth opportunities in the future.

For example, if you're in the beverage business, this group is naturally your consumer base, and similar to Pop Mart, your market is very stable.

First-tier affluent silver-haired: The curtain rises on later life, with extremely strong spending power

First-tier affluent silver-haired refers to those living in first-tier cities who were once middle or senior managers in enterprises or business owners.

This group's consumption is also relatively optimistic, with strong spending across various items.

First, rigid spending is strong, such as food and beverage consumption.

At the same time, their demand for certain special categories remains strong, such as tobacco and alcohol, home appliances, furniture, consumer electronics, and travel. In these categories, their spending is even growing.

Why can first-tier affluent silver-haired maintain such strong spending power?

Because the silver-haired are close to semi-retirement. They have struggled all their lives and have a certain self-compensation psychology.

If they are corporate executives or owners in first-tier cities, their pensions are basically sufficient.

As the curtain rises on later life, they will certainly plan their retirement with ambition: Where will I spend? Where will I travel? What will I buy? What hobbies will I cultivate? Therefore, their spending power is very strong.

Moreover, influenced by their children and the media, first-tier affluent silver-haired have realized they should be good to themselves and enjoy life first.

Third-tier affluent silver-haired: Consumption contraction, more money spent on children

Similar in situation but with different consumption concepts are the "third-tier affluent silver-haired."

This group also consists mostly of corporate executives and owners, but their consumption growth is basically flat, and some have even stopped spending much.

The more real situation is that they spend more on expenses related to their children.

I privately speculate that the consumption behavior of third-tier affluent silver-haired is influenced by their concepts.

Middle-aged and elderly in first-tier cities may have more Westernized concepts, thinking that their children's lives are their own, but my life is still mine.

In contrast, middle-aged and elderly in third- and fourth-tier cities are more likely to save money for their children and believe that money should be left to them in the future.

Under such concepts, they will contract their consumption. In fact, the consumption concepts and decision paths of these two groups have always been like this, not greatly affected by the economic environment.

New middle class in first- and second-tier cities: Remove desires, save for needs

The so-called new middle class in first- and second-tier cities is vaguely defined in the report as "highly educated outsiders." This group has a particularly low overall consumption optimism index.

They worry about falling housing prices, asset depreciation, unemployment rates, and unstable income. I can feel this from myself and friends around me.

First, their demand for material necessities like food and beverages is relatively saturated.

I think this is related to their living environment. These people have long been immersed in first- and second-tier environments, constantly exposed to a large number of brands and information. They have bought what they needed to buy and eaten what they needed to eat. Facing this well-traveled group, it's hard to stimulate their consumption.

Now, in terms of material goods, they are basically "removing desires and saving for needs." There is a certain disenchantment with brand consumption, and they start buying white-label products.

I am like this myself. Beijing's summer is long. In previous years, I would buy T-shirts costing six or seven hundred yuan, but now I've downgraded to buying T-shirts for 99 yuan each in live-streaming rooms. I find that their quality is no different from big brands, and they even have features like coolness, antibacterial, and wrinkle resistance, and they are comfortable to wear.

Second, the new middle class still has high demand for stress-relieving, spiritual, and experiential consumption.

For example, travel, cultural entertainment, and the currently popular mind-body-spirit activities like meditation classes. If you make products that provide spiritual relief for the new middle class, future growth will be good.

Because they have high expectations for their children's education, this type of consumption is also growing.

In summary, the new middle class is the most stressed group. They have both parents and children to support, high demands on themselves, and high expectations for the next generation. They not only have high material consumption but also constantly question the meaning of life, living in a tangled way, with strong spiritual consumption needs.

Rural middle-aged and elderly: Pessimistic consumption sentiment, money-making opportunities come from their children

The last group, strictly speaking, is a group many companies don't care much about, but it is a large base in China: the rural middle-aged and elderly.

This group is, first, quite idle, and second, doesn't have much money. Their money mainly comes from "transfer income." In my understanding, it's money given by children and red envelopes from younger generations during the New Year.

Their money is basically spent on rigid needs, such as food, medical care, and nursing. Their willingness to consume is low, consumption growth is low, and consumption sentiment is pessimistic.

This group is price-sensitive and unprofitable for many brand businesses. Many first- and second-tier entrepreneurs might overlook this opportunity because their cognition and experience cannot match it.

But in reality, this group has never been ignored. Many companies earn money from this group, but more from their children.

For example, in the gift market, Brain Platinum (a health supplement brand) is not something the elderly would buy for themselves, but if children buy it to honor them, they will accept it.

In an era of continuously diverging consumer confidence, how you choose and define your track is important.

Divergence in spending intentions across consumer categories Consumption upgrading and downgrading are widespread

Whether it's consumption upgrading or downgrading, they are not absolute across different groups and categories.

There are four categories still growing in China: education, food and beverages, health products and services, and travel.

Food and beverages are rigid needs; unless there's a major economic fluctuation, people's demand won't change much.

Education growth comes from the progress of people's concepts. My relatives in third- and fourth-tier cities in Northeast China are increasing their monthly education investment, and tutoring classes are everywhere.

Insurance and services are related to the health trend. Nowadays, even young people start health care, and even general products have health characteristics.

Travel growth doesn't even need data. People of all ages around me are traveling. Graduates have graduation trips, and the elderly travel after a lifetime of hard work.

So, in recent years, a new type of advertiser has emerged: local governments and local cultural tourism agencies.

When "the sky-high fortune comes to me," local cultural tourism will cooperate with a series of marketing activities. We once studied which travel products were fleeting and which lasted long.

The conclusion was that only cities with well-built cultural tourism systems have hope of lasting prosperity.

For example, Harbin became popular because it caught the sky-high traffic, but I always thought Harbin should be popular, and it might become a long-lasting city in the future.

Because Harbin not only has food, but also entertainment, sightseeing, and cultural depth. Moreover, its urban infrastructure is very good.

After looking at growth categories, let's look at risky ones.

The report shows that home appliances, furniture, tobacco and alcohol, and consumer electronics are declining, and the future is not optimistic.

Recently, we discussed business with a well-known home appliance company, and they told me that this year's business volume has dropped quickly, and they feel it's hard to stimulate.

Entrepreneurs in durable goods should be careful; the current situation is not friendly to you.

There are also some interesting phenomena. For example, although the travel category is growing, it is actually experiencing consumption downgrading.

People used to go to Europe, but this year they've switched to Liuzhou, Zibo, Harbin... Even trips to Sanya have decreased.

Once, on a business trip to Sanya, I went to a seafood square with a friend. Previously, that square had many diners, but now there were only our two tables.

The growth in travel comes from consumption frequency, not consumption upgrading. That is, people go out more often, but spend less each time.

In contrast to travel, the frequency of tobacco and alcohol consumption is decreasing, but people buy more expensive ones, and the market size still grows by about 4% annually.

Often, using consumption upgrading or downgrading to describe the consumer market is too simplistic. You can observe your own consumption structure changes: has it become less but better, or more but cheaper?

There are also categories affected by industry changes.

For example, in the food and beverage industry, Genki Forest launched products with zero sugar, zero fat, and zero calories.

This is because industry technology and demand trends have changed, stimulating consumption again. Without such changes, the market would be stable or slightly declining.

Summary

We have some vague suggestions for coping with the current environment.

First, you need to see that the entire market is in a state of divergence, not a monolithic whole. Don't unilaterally say that business is bad because of consumption downgrading.

You need to separately see what categories, what groups, and what industries, as different combinations of factors lead to vastly different states. The macro is an illusion; the micro is the truth.

Second, consumers are not short on money; they are afraid to spend. When consumers are afraid to spend, it's useless for companies to simply lower prices. You need to create reasons to buy in various ways to make products sell.

Especially, don't believe that low prices are useful. Low prices are certainly useful, but they are not the most critical part. The most critical thing is to help consumers find a reason to buy from you.