Post-pandemic consumer trends have not changed significantly. Although this year has been shrouded in uncertainties and new information, when we return to consumer trends and the overall consumer mindset, many essential aspects and trends remain unchanged. Among the Chinese Fortune 500 companies we serve, there are excellent consumer goods companies. From their perspective, after the pandemic and entering a period of major transformation and a new cycle, what changes have occurred in the foundation of consumption? Today, standing in the consumer goods and retail sector, I will share with you.
01 Old and New Worlds Today we discuss two points: consumer trends and brands. Mr. Hou Xiaohai mentioned the "old and new worlds," which aligns with many of our clients' views. Many industries in China are in the process of transitioning between old and new worlds, encountering the pandemic and a new cycle. A key point to break through the new cycle is the brand, so we will communicate from these two aspects.
Consumer Stock: Dominated by Mature 40-60 Age Group In China, you must first become a demographer. China is such a large market with a complex population structure; these numbers are open for research. Dividing China's population by city and county levels, there are six tiers. Excluding the lower-income rural population at the bottom, and focusing on the middle class or those who have somewhat escaped poverty, we have six city tiers, plus the vertical dimension of individual life trajectories: from no job to single without children, to young with children, to relatively mature, to retired families. Looking at the stock, if we consider the middle class as a whole, the majority are mature working families aged 40-60. We must admit that today's China is not yet a world dominated by young people. Now let's look at the increment. What does increment mean?
Consumer Increment: Population Discontinuity Increment means changes in population over five years. Here an unexpected change appears: the redder the color, the more the number decreases; the greener, the more it increases. As you can see, China has population discontinuities. High-tier young families with children will decline in the future, while the 40-60 age group in high-tier cities has great potential for growth. Setting aside regional differences between the Yangtze River Delta and Pearl River Delta, looking at China's population as a whole, there are at least three important markets: young people in high-tier cities pursue internationalization; they were born when China was already a moderately developed country, delaying childbirth and marriage, buying iPhones. Then there are mature working families; the 40-60 age group will still be the increment of China's population. This group is educated, caught the first wave of reform and opening up, has economic foundation, and has solved basic capital wealth accumulation. Another group is the young town youth with money and leisure, completely different from young people in first-tier cities; their population is relatively stable and growing, with certain consumption. So in the future, China's consumer sector will have three major segments: iPhone, Huawei, Xiaomi or vivo, OPPO. The brand choice represents the consumer group, which is a core foundation.
Structural Group Changes: Pre-75 and Post-75 Another major change is in demographics. Abroad, the income structure changed from pyramid to spindle over 50, 60, or even longer years, but China took only 15 years. By 2030, this change will not be altered by the current cycle or GDP slowdown, because income structure growth is relatively ahead, which will affect the growth rate after 2025-2030, but the trend is irreversible. In this process, there have been significant changes between pre-75 and post-75 generations. Taking the topic of baijiu as an example: the pre-75 group is like Moutai, while the post-75 group dares to put their own wine on the table and express themselves. This is a change in income structure, the second level, and a underlying logic behind the major transformation. Additionally, looking at population growth, the 40-60 male group is the main consumer group. Recently, many brands have grown rapidly, such as Arc'teryx, some baijiu brands, and car brands. New energy vehicles are actually driven by the 40-60 male group; targeting this group can see future growth. If you target the middle class, growth is weak. If you are an FMCG company, even with cost-performance priority, growth is also weak, but high-end groups will continue to grow, possibly affected by luxury goods, but the underlying logic is unchanged.
02 Consumer Mindset Change: From Looking Up to Looking Level At this point, people's mindsets have changed. In the past, when I was young, many brands entered China, and advertisements often said: I am the champion in this category, I am an expert in this brand, my sales circle the earth many times. At that time, the middle class was the mainstream of national consumption, and many consumers looked up to consumer goods. But today, they have begun to look level. Many consumers, when choosing a brand, are selecting what suits them; they want to understand the quality, origin, ingredients, and function behind the brand. At this point, there are no big single products, which is why many luxury goods rarely have big single products. Women with a certain economic foundation like to buy various jewelry or bags at home; this is a looking-down attitude. This change in consumption concept has occurred within one generation in China; abroad it might take several generations, but in China, one generation has completely changed many people's perception of brands. Therefore, a concept is proposed here: China has entered an M-shaped society earlier than expected. From a consumer perspective, you will find that consumption upgrading and downgrading occur simultaneously in a society. Due to economic slowdown and trend development, both are happening at the same time. Most brands have not studied consumption downgrading; they have only studied upgrading, but downgrading is a more difficult topic than upgrading. Consumption downgrading prioritizes quality-price ratio. The "quality-price ratio priority" today is different from that of 10 years ago. Ten years ago, "quality-price ratio priority" focused on "price"; today, it focuses on "quality" . In the past, the focus was on whether the denominator, the price, was cheap and the cost low; today, the focus is on the numerator, the quality, whether it is good. This puts more pressure on many practitioners.
03 Five Major Fragmentation Phenomena in the Consumer Goods Market Just now, from a macro perspective, I talked about population income structure and the M-shaped society. Today, I will share with you that in our cooperation with chairmen and CEOs of major brands, we have found that in the new cycle of major transformation, China's consumer goods market has some fragmentation phenomena. Here is a supplement.
1. Fragmentation of People From BCG's perspective, we do not emphasize regional changes or differences. Instead, we emphasize categories. We believe that basically any category in China's consumer goods market can have at least three different brands. These three brands each occupy a different region, which can form a moat. Taking mobile phones as an example: some young families with children face great economic pressure; high-income young people today have pitifully low disposable income, but their lifestyle is astonishingly high. If I were the chairman of a Chinese enterprise, what group would I target? Mature families. The real increment is in mature families, aged 40-60, with wealth foundation, education, and higher brand awareness or loyalty. At the same time, China has a large number of town youth; young people in first-tier cities have money and leisure, pursuing faster and higher cost-performance, like OPPO, vivo, and sports shoes and apparel. These three quadrants exist, and brands in these three quadrants are doing well, not interfering with each other. So this is the first point I want to emphasize: fragmentation of people.
2. Fragmentation of Retail Compared with foreign enterprises we have served, many Chinese consumer goods are not inferior in scale and development speed. The only exception is that offline retail has seriously lagged behind. It seems to be a problem of retail enterprises, but it is actually a problem for the entire consumer goods industry. China is in a very interesting phenomenon: retail worldwide goes through four stages: basic needs, abundance, upgrading, and segmentation. Japan and the United States have entered this process, but China's offline retail development is seriously lagging. Today, when we go to RT-Mart, Walmart, Wumart, or Carrefour, changing the sign makes no difference; it is still one-stop shopping, far from meeting the needs of Chinese consumers. The lag in offline retail, capability, and development is very serious. At the same time, looking at online retail, it quickly entered a rhythm similar to Europe and America. If we go to the United States, we find that American retail is very segmented, but China's online retail is also very segmented. This contrast brings a huge problem to all consumer goods: how to arrange online and offline channels and communicate with consumers? This is why many leading Chinese companies have to rethink how to arrange channels. Up to now, most brands have found that they can no longer rely on channels, partly due to retail fragmentation. China's offline retail development is slow, even lagging. Looking at our many distributor systems, many distributors now have a problem: old distributors are financially free and do not want to continue; the next generation does not want to take over. So many brands have to consider direct-to-consumer or new models to do their own things. This is the second point.
3. Fragmentation of Fashion Taste As a BCG partner, I serve baijiu and spirits more, and also some fashion luxury goods. Here is a prediction: the growth of Chinese consumer goods is not necessarily slow after the new cycle. Indeed, food and beverage FMCG may be slow, but it is certain that several industries have not yet reached their explosive period. One of them is fashion taste, which is inevitable in consumption. After satisfying basic needs, transportation, and social needs, the next need is the pursuit of beauty and the need for right-brain abilities. In fact, Chinese people's fashion taste and aesthetic taste are still relatively low. We cannot blame ourselves. Our parents' generation had no fashion at all, unlike European grandfathers who dress very fashionably, but this is changing rapidly. The post-00s and post-95s are far more sensitive to fashion than previous generations. When post-00s enter the workforce, fashion will develop explosively in China. Therefore, aesthetics, culture, and art, mainly fashion, will to some extent subvert the entire consumer goods industry. The right-brain implantation of aesthetics, design, and overall experience will change consumer goods. Especially in first-tier, second-tier, and third-tier cities, this fragmentation is more severe. You can pay attention to this.
4. Fragmentation of Value System For baijiu, 3000 yuan is already a very expensive price. We have done a lot of consumer research and found that when looking at the storage cabinets of relatively wealthy people, baijiu at 3000 yuan is already the price ceiling. But for the foreign spirits they consume, such as whiskey, 3000 yuan is just a starting point. Why is the same bottle of wine so different? The production process of baijiu is actually far more complex than whiskey. Why does baijiu reach its ceiling at 3000 yuan? A big problem is that when Chinese people make consumer goods, they do not form a true value system. Most baijiu today, including some leading brands, have no value standard. If an industry's value standard is unclear, the ceiling for the industry's development will be relatively low. For example, everyone knows that the supply of diamonds is not scarce. When proposing marriage, all men know the 4Cs, etc., which is entirely brand education. What value symbol did it establish? It tells you that a 20,000 yuan diamond and a 200,000 yuan diamond are worlds apart. All foreign spirits have clear value systems: age, barrels, old vines, etc., are deeply imprinted in your mind, allowing prices to rise continuously. Therefore, although Chinese consumer goods are large, they lack this backbone and value system, which is also a fragmentation.
5. Fragmentation of Internationalization The domestic economy has begun to slow down. Today, the most common projects BCG encounters are Chinese leading enterprises considering internationalization. A few years ago, it felt like a fantasy. With such a large market in China, why would you want to internationalize when you are busy expanding domestically? Now is a good time for internationalization. An international brand is worth more than many CCTV advertisements. An international brand is an important point to stabilize your capabilities. So for many lifestyle brands, fashion enterprises, catering enterprises, and even future liquor companies going abroad, there will definitely be new considerations. Here I remind you that we have already seen many enterprises advancing well on the path of internationalization, so internationalization will be very important in the future. These five fragmentations, to some extent, can bring development space for Chinese consumer goods enterprises.
04 Future Brand Trends: New Propositions, New Thinking, New Forms In the Chinese market, if your enterprise has not paid attention to the brand, or has not deeply seen the rapid changes in Chinese consumers' minds, and lacks brand power, it will be difficult to move forward in the future. China is a country with strong learning ability. For example, in one generation, many new categories have been learned: from never drinking coffee to being heavy coffee drinkers; from never driving a car to everyone wanting to drive a racing car. The brand is a prominent manifestation of the complex minds of consumers. But one point: is the brand still just a simple positioning? If you think that being first in a category, being the creator of a brand, or advertising on CCTV with high-profile tactics can win the battlefield, you are wrong. That era is completely over.
Enterprise Change - Psychologist So to some extent, what should every entrepreneur become? The first point already mentioned is to become a demographer; the second is to become a psychologist. In the past, many people thought BCG's brand theory was too complex and preferred to listen to positioning theory. But recently, we have found that almost all our clients are using this set of training to study people's minds. This theory can explain Western religions, people's psychology, and brand development. They found that European and American professors or brand researchers discovered that a person's psychology is constantly changing in two dimensions: trust and integration. There is a Chinese saying: "Things will divide after being united for long, and unite after being divided for long." Between unity and division, I want individuality, I want to be different from my parents, or I return to family. This is an eternal intersection between unity and division, or individuality and integration. In addition, "development is the absolute principle"; I must be the best. For example, Chinese people have a mindset: I must be better than the son of Aunt Zhang next door; I must be richer and more successful than my second uncle. Enterprise Change - Return to the Origin There is also a mindset of "returning to the origin": What do I really want? I do not compare with others; I compare with myself. These two forms to some extent form eight different minds. If you are in branding, you will find that people's minds are not divided by category; to some extent, it is cutting cross, crossing all categories, all spirits, all thinking. So the same excellent, financially free people placed on a compass are different. When we do branding for Europe, the United States, Japan, and recently China, we find that the overall direction of brands in each country is different, which is related to the true inner minds of an era and a nation. Recently, when serving American brands, we found that when a country's class solidification rushes toward a religious, forward-looking, mind-occupying country, many consumers will develop toward freedom and individuality. Many American brands, such as the new brand Supreme, emphasize street fashion, freedom, individuality, and self-expression. But few Chinese brands emphasize self-expression and individual freedom. If a baijiu brand emphasizes individuality, it might have no sales next year. People will find it strange: What do Chinese people pursue? Authority. Chinese people emphasize being the best and having excellence. Just as every Chinese parent hopes their child gets into Tsinghua or Peking University. Look at what Japanese brands are doing: think of Muji and Uniqlo, both returning to a transcendent tone. Some new Chinese brands want to go in that direction, but the faster they go, the faster they die, because Chinese people have not yet reached a stage of completely letting go of competition and pursuing self. Up to now, Chinese people's minds have undergone subtle changes. We are not a maritime nation, so we do not have a strong desire to explore individuality. We are a continental nation with agricultural civilization, so we emphasize authority and obedience, which is the mindset of the pre-75 generation. For example, during social engagements, a pre-75 leader might say: "Xiao Zhang, drink this cup." Xiao Zhang drinks it, essentially an obedient mindset. Like some leading baijiu brands, they represent authority. But in recent years, great changes have occurred, especially among the post-75 generation, especially when a new generation of entrepreneurs emerges. This mindset has begun to have propositions and critical thinking. Chinese people are inherently good at systematic reflection, believing in philosophy, Confucianism, Taoism, and Buddhism. So when this generation of Chinese people is fully educated, has broad vision, and international thinking, they begin to reflect. This reflection is not challenging authority; it is having self-awareness under obedience. If you have a post-80s executive under you, you will find that he still maintains complete consistency with leaders, but he often says: "Leader, I have this idea; Leader, you should also pay attention; Leader, let's try it." They have systematic reflection, which is influenced by Chinese traditional culture. Let me give a few examples. Look at brands that have grown rapidly in the counter-cycle: Adidas, Nike, Anta, all authoritative brands. But who is really growing? FILA and Arc'teryx. FILA represents the elegance of mature Chinese women, adding fashion elements to sports shoes and apparel. What clothes do Chinese men aged 40-60 buy the most now? What luxury clothes? Arc'teryx. Although Arc'teryx reflects authority to some extent, behind it is a spirit of perseverance. A 50-year-old corporate cadre wearing Arc'teryx tells the team: "Look, I am in good spirits; I can still go climbing." NIO, although a new force, has a new proposition, emphasizing mileage and functionality. The change is to change a group of Chinese consumers from the spiritual level, pursuing entrepreneurial success and health. So new rapidly growing brands are no longer authoritative, no longer occupying a track, but seizing a new form, seizing propositions, and seizing the critical thinking ability of Chinese people at the bottom. So I use this example to further prove that the real battlefield and difficulty in the future may no longer be channels, distribution, or simple high-profile branding, but should be to create a new brand theory and new thinking.
Organized by New Distribution
About the Author: Ding Jiachuan, Managing Director and Global Partner at Boston Consulting Group, core leader in the retail and consumer goods sector, head of the Asia-Pacific brand specialty, long-term support for local brand growth and international brand development in China, holds a master's degree in computational algorithms from MIT.
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