China’s Consumer Trend Index (CTI) stood at 114 points – a high level in the third quarter this year, according to the latest study of Nielsen, the global performance management company.
The good performance of China’s CTI is consistent with the overall stable situation of the country’s economic operation. According to the National Bureau of Statistics, China’s GDP growth rate was 6 percent in the third quarter. Overall, the national economic operation in the first three quarters remained within a reasonable range, and remained stable on the whole, which laid foundation for CTI operating at a high level.
Justin Sargent, president of Nielsen China, said: “The continuously deepened supply-side structural reform and implementation of tax and fee cut policy has created a sound policy environment for China’s stable economic development. At the same time, the continuously tapping the potential of domestic demand and adopting more measures to support private enterprises, and constantly stimulating the resilience and vitality of the Chinese economy have effectively promoted the economy’s healthy and sustainable development.”
Nielsen’s Consumer Trend Index measures perceptions of local job prospects, personal finance and willingness to spend. Consumer Trend levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.
CTI in the lower-tier cities remained stable and grew rapidly
Nielsen report showed in the third quarter, all three components of China CTI remained stable growth. Specifically, job prospects increased to 78 points in the third quarter, up one point from the second quarter. Personal finance and willingness to spend maintained stable compared with the previous quarter, standing at 70 and 61 respectively.
From the perspective of different tier cities, CTI of all levels of cities have shown a growing trend. Among them, CTI of first- and second-tier cities amounted to 114 points and 119 points, respectively, an increase of 7 and 8 from the same period last year. The third-tier cities’ CTI increased most significantly to 121 points, an increase of 10 from the third quarter of 2018.
Meanwhile, consumers living in third-tier cities have a positive attitude towards the national and their own economic conditions. Nielsen data showed that consumers in third-tier cities’ take on economic state in China in the next 12 months amounted to 82 points, an increase of 2 from the previous quarter.
In terms of the three factors that constitute China’s CTI, job prospects, personal finance and willingness to spend in third-tier cities were all at a high level in the third quarter. Among them, job prospects stood at 75 points, much higher than that of first-tier cities (64) and second-tier markets (70). Personal finance reached 80 points, higher than first-tier cities (77) and second-tier cities (78). The willingness to spend in third-tier cites were 66 points.
“The country has been actively promoting the policy that helps migrants from rural places who are employed in urban areas to get permanent residence. It has also increased the supply of public resources in small and medium-sized cities, and guides the high-end industries in large cities. The moves have effectively enhanced the coordinated development of small and medium-sized cities and stimulated the vitality of lower-tier cities’ markets,” Sargent said.
Young men in small towns lead consumer trends
Continued urbanization unlocks the growth potential of third- and fourth-tier cities. The rise of young men in small towns is the epitome of the urbanization process. Nielsen CTI showed there is a high potential group of 1.2 million people in lower-tier cities, who are optimistic about next 12 months’ purchasing power. Specifically, 56 percent of the high potential group have monthly disposable income of over 3,000 yuan, and 26 percent of them obtain college degree or above.
The high potential group in lower-tier cities who would “like to try new things” accounted for 31 percent, and who would “like to trade up” for 55 percent – both are higher than those of high-tier cities (24%, 53% respectively).
Dynamic low-tier cities contribute to the majority of FMCG growth. FMCG’s total market size has reached over 900 billion yuan in 2019, increased about 190 billion yuan from 2015. Within the 190 billion FMCG total increase from 2015-2019, 59% is contributed by low tier cities.
At the same time, Nielsen data showed out of 2,186 cities, 50 large-size cities contribute to 40 percent of national FMCG sales, while mid- and small-sized cities contributed 40 percent and 20 percent, respectively. Within the 50 large-size cities, third-tier cities are leading in four key areas: 1. high city space utilization rate: that of third-tier cities was 56 percent, second-tier cities 43 percent and first-tier cities 59 percent; 2. high proportion of mainstream youth: 36 percent; 3. high modern trade sales importance: 78 percent; 4. high per capita consumption power: that of third-tier cities was 60, higher than second-tier cities (51) and first-tier cities (55).
Consumers in third-tier cities have higher aspiration for latest trends and fashion, and are more willing to try new things
In third-tier cities, consumers’ household spending has gradually increased year-on-year. Nielsen’s data showed that 58 percent of consumers in the third quarter said they increased their household spending. They were willing to spend more money on improving basic conditions. For instance, 15 percent of consumers spent more on housing improvement (5% in first- and second-tier cities); 14 percent spent more on health care (8% in first- and second-tier cities).
At the same time, consumers in third-tier cities are open-minded, but focus on self and make decisions independently. From society level, 32 percent of consumers living in third-tier cities were open to different views, higher than 26 percent in first- and second-tier cities. And 35 percent of them were dedicated to society, higher than 29 percent in first- and second-tier cities. From individual level, 27 percent of third-tier city consumers have their own personal thinking, compared with 24 percent in first- and second-tier cities. 31 percent of third-tier city consumers can consider and decide independently, compared with 23 percent in first- and second-tier cities.
Consumers in third-tier cities have higher aspiration for latest trends and fashion. Data showed 56 percent of third-tier city consumers “like to be considered as fashionable”, higher than 44 percent of first- and second-tier cities. And 54 percent of them “like to pursue fashion and novelty,” higher than 48 percent of first- and second-tier cities.
Consumers in third-tier cities love trying new products and trends. Data showed 63 percent of them had strong interest in new products and services, higher than 55 percent of first- and second-tier cities. And 56 percent said they were usually the early adopter of new products, compared with 48 percent of first- and second-tier cities. Meanwhile, they are more likely to purchase brands endorsed by celebrities. Data showed 44 percent of them said they would purchase brands used or endorsed by their idols, higher than 38 percent in first- and second-tier cities.
In Sargent’s view, influenced by the change of consumption concept and consumption upgrading, there’s increasing number of the demographic in third-tier cities who have the potential to consume. They are open-minded, pursuing trends and fashion, and advocating high-quality life. Their optimistic willingness to spend is undoubtedly a positive signal to the market. Only if brand owners take steps ahead of others, grasp and stimulate the growing demand for quality goods among consumers in third-tier cities, they can seize the market in a faster and more accurate way, and get a head start.