Member's News - January 2, 2020
PwC – Zooming into post-pandemic changes in consumer behaviours and values

As we boldly made our way to 2021 with a common hope for a better and healthier world, one might look back to the past year and wondered how things could have been different. 2020 was indeed a year of unprecedented challenges and unparalleled opportunities for everyone – including consumers.

COVID-19 has brought dire consequences to the global economy already battered by uncertain trade relationship between the US and China, the wide fluctuation in energy prices, and the abrupt disruption of global supply chains affecting manufacturing output. Nevertheless, China was among the few countries to stage a positive GDP growth and a V-shape recovery since March, making it an ideal rebound market for consumer companies.

For one thing, the pandemic has accelerated digitisation and altered consumer behaviours and values. Here is a snapshot of some of the emerging trends in the consumer landscape for brands and retailers in Mainland China and Hong Kong to take note of in their pursuit of market opportunities and sustainable growth.

   

Supply Chain Reconfiguration and the Rise of the C2M Model

One of the most obvious changes in the consumer market is the source of production. The current health crisis and evolving global trade environment have exposed the vulnerability of the global supply chain and accentuated the drawbacks of having a supply chain that is over-reliant on a single market or geography.

Many economies including mainland China and Hong Kong have experienced varying degrees of supply disruption of input materials due to factory shutdowns at the height of Covid-19. A number of consumer categories, especially high value-added items such as consumer electronics and medical equipment, which involve upstream and downstream supply, have seen a lengthening of their production cycles.

Hence, supply chain reconfiguration has become a lingering question for businesses as they manage sourcing risks and rethink their operation footprints. In view of supply chain disruption, some enterprises have started to implement more efficient and larger-scale manufacturing models shaped by customer-driven demands, or the C2M (Customer to Manufacturer) model, and have achieved considerable benefits in cost savings and improved customisation.

The C2M model refers to consumers who use digital platforms to buy directly from manufacturers. The model bypasses all the traditional intermediaries, such as distribution, sales, logistics, and inventory, and reduces unnecessary costs, allowing consumers to purchase high-quality products at lower prices. By producing on-demand, factories can eliminate the inventory-sales ratio, which alleviates the inventory risk.

   

Post-pandemic Acceleration in Online Consumption and E-commerce 

COVID-19 has caused a massive offline-to-online migration of consumers across categories, especially in the digital arena such as remote office, video-conferencing, web-based education, online sales of fresh produce, e-sports, and gaming. The Single’s Day festival in 2020 has set another record of US$75.8 billion in gross sales over the 11-day shipping gala, and such a trend has prompted more Hong Kong retailers to rethink their digital channel strategies.

As Chinese and Hong Kong consumers become more familiar with shopping online, and as more brands prioritise on digital platforms to evolve their business from pure commerce to ‘retailtainment’ – retail marketing as entertainment. Brands that previously created static, one-way communications are now able to engage with their consumers 24/7, in real-time, on-demand, and create a stronger emotional bond for their products through digital channels. Luxury brands that have previously relied on offline engagement to deliver luxury shopping experiences have now found a greater presence on online platforms in order to stay relevant to digital-savvy consumers.

On the other hand, live streaming has gained prominence in mainland China in recent years as a viable way to market, communicate, and sell products online. Some retailers in Hong Kong were quick to adopt live streaming through the combined use of KOLs and KOCs to drive online traffic and sales. KOL live streamers are internet celebrities who are paid by brands to generate traffic, stories, and engagement around products; while KOCs operate in the more fragmented mass market managing sales operations for smaller retailers.

Looking forward, physical stores will need to provide consumers with experiences and interactions to stay relevant, as opposed to selling products alone. Brands that will survive the post-pandemic environment will be those with a robust online presence and relevant physical setups that revolve around experience. As the online and offline worlds converge, consumers expect, more than ever before, to obtain products and services at any time and any place. Therefore, omnichannel marketing and sales must adapt to meet the rise in consumer expectations.

   

A New Frontier of Opportunities Unearthed By Generation Z

Gen Z’ers in China - defined as a digital-native consumer group born after 1996 - are relatively optimistic about their future and have little hesitation about spending their money. Their participation in Tmall/JD.com Prime Membership is the highest amongst all age groups. They are keen to share their thoughts and feelings in social media posts, blogs, and online reviews.

Behind the spending power of Gen Z lies the idea of manifesting individual identity and self-expression. Gen Z and millennials are not only eager for more personalised personalized products or services but are also willing to pay a premium for things that accentuate their individualism and life values. Gen Z consumers are also brand-conscious followers, who keep a close eye on trends and show less brand loyalty, instead of seeking products that match their character and personal style.

Faced with a major disruption during the lockdown period, the younger population started to reassess their spending patterns and revalue certain things, such as personal health and family relationships. Some even subscribed to the concept of minimalism - cutting off trivial things so they can focus on pursuing more important things in life.

Retailers realised that to appeal to this generation, they must work smarter on a wider range of attributes beyond price tags, such as stylishness, convenience, and functionality. Gen Z’ers are socially conscious consumers, and they expect a certain standard of business ethics. Retailers are now more mindful of how their brands are being perceived around on the issues of sustainability, animal welfare, data privacy, and so on.

   

Consumers Are Turning to Health and Sustainable Living

The health crisis has forced people to take extra precautions on their personal hygiene, health, and long term well-being. Physical and mental health is now on the minds of more consumers than ever before. Whether it’s wanting healthier diets, looking to exercising more frequently, or simply searching for grocery items that cater to particular dietary needs, the quest for a healthy and sustainable lifestyle is pervading the consumer market in full swing.

As consumers become more interested in caring for themselves and the planet, they are gravitating to consumption patterns that make their lives simpler, easier, and less impactful on the environment. Such behaviour change is likely to persist as consumers continue to lower their carbon footprints and resort to digital entertainment, outdoor and fitness, and remote learning for themselves.

Likewise, this is perfect timing for retailers to become acutely aware of their customers’ concern for health and wellbeing. They should revisit and rebuild a more direct, genuine, and caring relationship by interacting with them at a deeper level. Consumers today are more conscious of their choices and will seek relevant solutions rather than overpriced gimmicks. In response to the growing concerns about sustainability, more local retailers are taking a serious approach to social responsibility.

   

A Stable Path to Recovery

Looking forward, the consumer landscape in China is still laden with considerable challenges and untapped opportunities. Many traditional retail models are being challenged and displaced, while new opportunities have emerged for those who are prepared and agile enough to take advantage of the paradigm shift.

On the bright side, the recent signing of the Regional Comprehensive Economic Partnership (RCEP) between China and 14 other Asia-Pacific countries, which may see the removal of all tariffs in the trading bloc within 10 years, has added a positive spin to the global trade headwinds. Moreover, the dual circulation strategy devised by China also represents the country’s commitment to revive domestic consumption and promote regional economic integration. With that being said, the medium and long-term prospect for the consumer market would be a brisk one albeit temporary volatilities.

     

ABOUT THE AUTHOR

Michael has been PwC’s Asia Pacific, Hong Kong, and China Consumer Markets Leader since 2013. Prior to that, He was PwC Hong Kong’s Consumer Markets Leader for over 5 years. He is now responsible for coordinating practice strategy and service delivery for companies in the Consumer Markets sector in Hong Kong, China, and the Asia Pacific region.

With almost 35 years of professional assurance experience in Hong Kong and the United Kingdom. He has developed a strong passion in the consumers market sector specialising in IPO advisory, business and due diligence reviews, asset injections, and M&A activities in Mainland China and Hong Kong.

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