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Where next for China –The New China PlaybookThe New China Playbook
September 6, 2016
BCG' Chi C f C I i h (CCI)BCG's China Center for Customer Insight (CCI)
WHERE are my consumers?1 4
Macro-economy
Industry perspectives
consumers?
WHAT is my futureWHAT is my future consumption?
32
Consumersize and
shape
Consumer mind and behavior
WHO are my consumers?
Helping our clients answer key HOW to reach and influence?
1
g yconsumer questions with proprietary databases and tools
and influence?
Chi i h i l iChina economic growth is slowing
Real GDP growth (% quarterly YoY)
12
13
Real GDP growth (%, quarterly YoY)2011 2012 2013 2014 2015
9.3% 7.7% 7.7% 6.9%
2016
6.0-6.5%7.3%1
11
12
Below official target at 7.0%
Below official target of 7.5%
E i f 6 GDP h
9
10 Estimate of 2016 GDP growthDragonomics 6.0%Oxford Economics 6.3%Goldman Sachs 6.4%IMF 6 5%
6.77
8IMF 6.5%Official target 6.5%
62011 Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2
1. Revised down from 7.4% to 7.3% in Sep 2015Source: NBS, analyst reports, lit research, BCG analysis
Yet, even 5.5% GDP growth yields another "G " f i b"Germany" of consumption by 2020
2 6
1515.0
2020 Nominal Private Consumption (USD, Tn)
2015 private consumptionConsumption growth from 2015-2020
2.6
66.5
2015 private consumption
2.3
63
6
1 72.1
12.40 42.8
2.23.0
4.22.4
1.6
1.31.81.81.30
1.70.40.3
0.40.5
FranceUKChina India JapanUS Germany
3Source: EIU, BCG analysis
G i f d dGoing forward, a two-speed consumer economy
Rising affluence A new generation The rise of E-commerce
20
Consumption CAGR, '15–'20 (% )
20
Consumption CAGR, '15–'20 (% )
20
Consumption CAGR, '15–'20 (% )
1710
15
910
15
92010
15
9
5
17
0
57
14
0
56
0
5Overall China
Overall China
Overall China
0
Upper-middle and
affluent
Emerging middle classes
0
Ages 18 to 35
Ages 36 and older
0
OnlineOffline
4
Source: BCG analysisNote: CAGR = compound annual growth rate. Emerging-middle and middle classes include consumers whose annual household incomes range from $10,001 to $24,000; upper-middle class and affluent include consumers whose annual household incomes exceed $24,000
Diff f h
i i h ib i f
Different sources of growth
Income Generation Channel
Private consumption growth contribution from 2015 to 2020
Service Geography
From EMC From offline From 60/70's Continuing in From owning to UMC+ to onlineto 80/90's
glower tier cities
gto being
81%1 65% 50%51% 42%
Upper middle class and
aboveDigitalYoung
generationLower tier
citiesService / lifestyle
5
1. Contribution to overall private consumption growth Source: BCG analysis
above
Chi f h il h d1. Where to buy？ 2. What buy? – 3. How to buy?
China fresh retail shopper trends1. Where to buy？
and who?2. What buy?
trading up3. How to buy?
• High quality and di d t
4 • Diverse consumer t h i t
7• Online fresh growth is i it bl
1diverse products
• Reliable and professional offerings
5
touch points
• One-stop shopping no longer popular
8
inevitable
• Upper middle +, young and big cities drive
2professional offerings
• Innovative lifestyle solutions
6
longer popular
• Fresh categories can lead to cross-sell
9
and big cities drive future online growth
• Different advantages 3 gfor offline vs. online
6
O li f h i h i
2016 fresh e commerce penetration by shopper and by value
Online fresh consumption on the rise
2016 fresh e-commerce penetration by shopper and by value
20
of fresh grocery spend1
15
20 • Offline might loose share to online in certain categories, i.e. dry food and fruit
• Offline will require more exciting and unique offerings to face the challenge
12
10
5 5 7 7 8 811 12
0
5
Seafood Fruit Dry Food2MeatPoultryDairyVeg.Bakery / Deli
7
1. % of total online fresh spend ; 2. dry food includes rice, flour, dried mushroom, dried fungus, nuts etc.Source: BCG China CCI fresh survey 2016, BCG analysis
Consumers are trading up for better products and i b h li d ffliservices both online and offline
High quality and diverse products
Reliable and professional services
Innovative lifestyle solutions
Both online and offline
Driven by imported, i i d
A bit more online
Emerging needs for f i l
Both online and offline
City dwellers increasingly organic, premium and diversified products
professional merchandisers
willing to pay for convenience
8
Fragmented consumer purchase pathway i h li i l i h l h
Discovery Research Purchase Payment Delivery After-sales
requires a holistic multichannel approach
Shelf displayProduct display and usage
Online to onlineOffli t ffli
OnlineOffline
On average, every purchase has3 triggers and 4 searches before
the final decision is madeTop 3 e-tailers
Traditional media
In-store sales and services
Promotions
Offline to offlineMixed online offline
the final decision is made
Traditional media
In-store sales and services
Word of mouth
Top 3 e-tailers
Super marketShopping mallWet Market
Cash / credit carddigital payment of off-line shoppingCoupon / VIP card self take
ff li hi tNoneoffline return
Word of mouth
Other retailer and
Other online shopping activities
Wet MarketHyper marketOther offlineCVSTaobao/TmallJD.comOth li
digital payment of on-line shopping
credit cardpay upon delivery
off-line shipmenton-line deliveryon-line self pickup
coupon / pointsoffline WOMonline WOMon-line return
offline return
Other retailer and brand sites
Other apps / sites
Price comparison,
Social media
Other mobile apps
Price comparison, rating sites
Other onlineOther appsYihaodian
9Source: BCG 2015 Omnichannel Consumer Research Survey, BCG CCCI, BCG analysis
rating sitesSocial media
Order consolidation for free deliveryOther websites
Wi i i h h N N l l b kWinning with the New Normal playbook
China is still a priority
China’s consumer market will pose both huge opportunities and competitive
1
China s consumer market will pose both huge opportunities and competitive challenges for companies
The winning strategies of the past are becoming outdated – early mover
2
More important than ever for companies to be highly strategic in the way
The winning strategies of the past are becoming outdated – early mover disadvantage3
More important than ever for companies to be highly strategic in the way they pick targets
Not too late to develop a winning Chinese strategy - the preferences of new
4
Not too late to develop a winning Chinese strategy - the preferences of new consumers are still being defined
5 For fresh retailers demand-driven approach critical to upgrade offerings
5
10
5 For fresh retailers, demand-driven approach critical to upgrade offerings, services, and capabilities (category mgmt, supply chain, logistics, etc)6
Thank you
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