Mark Tanner
25 March 2015 0 Comments

It wasn’t long ago when any Chinese city with a Starbucks was considered Tier 1 or 2.  How things have changed.  Starbucks will have more than 1,500 outlets in almost 90 cities by the end of this year, with many of the new openings in Tier 3 or lower areas.

Although average disposable incomes in China’s Tier 3 and 4 cities are two thirds of Tier 2 and just over half of Tier 1 cities, a lower cost of living and soaring growth is seeing many ‘small town’ folk get out and spend.  65% of FMCG sales come from Tier 3 or lower cities according to Euromonitor. 

Consumers in lower-tier cities aren’t just buying everyday household groceries.  Of China’s top-10 cities by per capita GDP, seven are Tier 3 or lower.  Four of China’s top-10 cities for disposable income don Tier-4 status and are mostly underserved by premium brands.

Although China’s GDP is expected to slow to 7% this year, it is still on track to be the world’s largest retail market by 2018.  Lower tier cities will contribute significantly to the expected 7.9% retail growth in 2018 – almost double North America’s rate and more than five times Western Europe’s according to PWC and the Economist Intelligence Unit.   By 2020, 75% of China’s estimated 280 million affluent consumers will call a smaller city home.  

Thankfully, many foreign businesses in China are cottoning on to the potential of the less-saturated markets of China’s hinterland.  China Skinny has had a sharp increase in projects over the past 12-months working with brands to evaluate and create opportunities in China’s lesser-known cities. We are still surprised how much consumer habits and trends can vary between locations.

You can’t beat feet on the ground in a city for analysis, but it is further enhanced by some of the analytical tools that are now available.  One of the great by-products of China’s soaring online and ecommerce habit is that it enables big data to provide valuable and reliable insights into consumer behaviour in different cities.  China Skinny can help with that.  We hope you enjoy this week’s Skinny.

Consumers,: Chinese Consumers

American-Made Products Sell Big with Chinese ConsumersChinese consumers’ demand for Western goods has seen a sharp rise in Chinese companies investing in U.S. businesses over the past two years. Agriculture & food, ICT, real estate, energy, pharma & biotech, and auto are the top six sectors, with private firms making the largest investments.

Luxury Discount Malls Bring Gucci Within Reach of More ChineseThere are currently 80 outlet malls across China, and an additional 100 expected to open in the next five years according to CBRE.  Many luxury brands are relying on outlet malls to boost China sales following the clampdown on corruption. Value Retail’s Suzhou Village claims their average transaction for fashion and luxury brands exceeds $700, more than those brands make at the Chinese tourist-frequented Value Retail outlet in the UK.

Uber’s Official WeChat Account Blocked in ChinaUber’s Official WeChat and a number of local accounts have been temporarily banned for allegedly violating the rule of ‘incentivizing sharing by offering deals or “enticing” users to share things with their friend groups’.

Online: Internet, Social Media & Online Video

WeChat: Half-a-Billion Users and GrowingWeChat’s active users numbered 500 million at the end of 2014.  That’s 41% more than a year earlier, although growth slowed over the last two quarters to a steady 6.8%.

China’s Top Video Streaming Site Now Getting 900M Views a Day150 million active users watched an average of six videos a day on Youku and Tudou in Q4 2014, with the number of videos viewed tripling over the past 15 months.

Premium Food & Beverage

China’s Demand for Juice Rises: Low Cost and Low Quality is What They’re DrinkingChina’s juice consumption grew 34.3% between 2009 and 2014 to 14 litres a year per person, accounting for almost a quarter of global consumption. Unlike in the West, China’s juice market is currently dominated by relatively low-cost, low-fruit concentrate juice drinks according to Euromonitor.

Chinese Drinkers Consume More Alcohol than the Brits and Australians, Says StudyChinese alcohol consumption per capita almost trebled between 1978 and 2010. A slightly dated, but still interesting, 2010 study found that 42% of men and 71% of women in China 15 years or older didn’t drink alcohol. Of those who did, average consumption was just over three standard drinks a day, more than those in Britain, the U.S., Sweden, Germany, Australia, New Zealand, and many other countries.  In related news, the inaugural World Baijiu Day on August 8 looks to be building momentum.

Bacardi Launches Tea-Distilled Liquor in ChinaBacardi is launching “Tang,” a China-inspired, light-green alcohol made from green tea leaves costing around ¥1,600 ($260) for a 500ml bottle. Although Bacardi is launching the drink in high end restaurants, its China strategy is to appeal for in-home consumption – where most Chinese consumers drink spirits. China’s spirits and liqueurs sales were $97.3 billion in 2014, up nearly 10% from 2013.

Overseas Chinese Tourists

Fly Cathay to Asia from Boston; Budapest-Beijing Flights Return; Visa-Free to FijiThe Pacific island paradise of Fiji expects to see a bump in last year’s 28,000 Chinese tourists following 30-day visa-free travel between the countries.

Chinese Tourists Push Back Against Rant About Poor MannersFollowing a bad experience at a South Korean airport, Thai model Phichitamphon created an online video about Chinese tourists who push and shove, and blamed them for dirty airport toilets. The video has had more than two million views, creating mixed reactions on China’s online video sites and social media.

Precious Little Emperors

How a Foreign Entertainment App Captured the Kids Market in ChinaBrazilian app Playkids cracked China’s top-five grossing apps for kids by licensing local content, understanding the differences, moving fast, and translating and localising content, marketing, channels and culture.

Banking and Investments

A $250,000 Tour With One Aim: Get Chinese to Buy a HomeGood chart illustrating the soaring growth of Chinese outbound real estate investment, with Australia going from barely a blip in 2012 to the leading destination in 2014. The U.S. was number two, just ahead of the UK. Property brokers like Erik Coffin in Los Angeles are hoping to capitalise on the trend, selling $250,000 villa tours in the US via private jet and Rolls Royce, complete with consultations on plastic surgery, picking the sex of a child and wealth-management.

Beauty Health

Why Chinese Tourists Are Wild Over Japanese Drugs (It’s Not Just the Quality)The Chinese Government is looking to lift a cap on drug prices in a bid to stop manufacturers using low-quality ingredients to save on costs. In addition to quality reasons, many consumers are buying drugs abroad as they aren’t approved in China yet. Last year, 501 drugs were approved for sale to consumers by the China Food and Drug Administration, including 70 imported drugs. There were 18,597 on the waiting list.

Premium &: Luxury

Why Chanel’s Price Cuts in China Could Boost Its Brand: The falling Euro has seen prices of luxury goods vary as much as 70% between Europe and China. Chanel is addressing this by dropping the prices such as its signature flap bag by $1,300 to $4,800 in Mainland China, while increasing prices in Europe by 20%.  They aim to keep prices within 10% globally and minimise China’s gray market online. Tag Heuer, Patek Philippe and Cartier are also lowering prices in China.

Knife-Wielding Watch Thief Robs Cartier Store in WangfujingCartier’s lower prices and the state austerity measures didn’t dampen the enthusiasm of one masked thief from stealing 11 watches in Beijing’s busy Wangfujing. The getaway vehicle: a taxi.  Anyone who has sat in a taxi in Beijing traffic should be able to guess his fate.

That’s the Skinny for the week! See previous newsletters hereContact China Skinny for marketing, research and digital advice and implementation.