From Coffee to Cosmetics. Burgeoning “New Premium Market” in China.
The Chinese consumer market in 2020 was hit hard by negative growth due to the impact of the spread of the new coronavirus infection at the beginning of the year. The total retail sales of social consumer goods, which indicates the trend of personal consumption, fell 3.9% year on year over the full year, although it turned to positive growth from the same month of the previous year since August.
However, it showed a sharp recovery during the January-February period this year, up 30.7% year on year, and the Chinese government projects the growth of more than 10% year on year over the full fiscal year 2021. The government hopes to restore economic growth at an early stage even amidst the corona pandemic, intending to strengthen the domestic market.
Partly with this background, the reshoring of Chinese consumers and business operators into the domestic market is rapidly advancing. Before the corona pandemic, Chinese consumers were active in consumption outside their country, including overseas travels. However, the current restrictions on overseas travel have forced their vigorous appetite for consumption to turn to the domestic market.
Along with the consumer reshoring sentiment, Chinese business operators have prominently been beefing up their domestic market. Many foreign companies are also hammering out policies to enforcing the Chinese market, which made the fastest economic recovery in the world. With these backgrounds, the Chinese consumer market is expected to be further revitalized this year, centering on domestic demand.
The Chinese consumer market is now showing signs of change. In the past, there was a polarization between “premium” and “mass” markets. While imported products dominated the former, the latter handled domestically made, low-cost products from domestic enterprises. However, a “new premium” market, with different features from these markets, has now appeared. There are two types of markets in the new premium market. One is a “market initiating premium,” which has the same price range as the existing premium market with a different concept. The other is a “mass premium,” with the middle price range between those of the premium and mass markets.
Instant Popular Saturnbird Coffee
The driving force of the new premium market is domestic start-up enterprises. Most of the founders were born between the 1980s and 90s. They try to differentiate themselves from the existing premium brands by pursuing “novelty” in their products with concepts, manufacturing technology, and package designs. Besides, they succeeded in grabbing the heart of the “Generation Z” (the generation born around from the late 90s to 2000s) in a short period by raising the recognition with mass advertisements, mainly the social media. These enterprises have been burgeoning thanks to the well-received product quality, which compares favorably with imported products.
In the Chinese food market, the market initiating premium brands is already gaining ground. The most prominent one is Saturnbird Coffee, a new local brand emerging in the premium instant coffee market. So far, U.S. Starbucks, which entered the market in 1999, has been highly popular. However, as soon as Saturnbird Coffee started selling new types of coffee powder on Tmall.com, an affiliated EC platform of Chinese retailer Alibaba Group Holding Ltd., in 2018, it gained popularity in no time. The company launched the business in Hunan Province the previous year.
The price of the coffee powder is 5 yuan (about US$0.8) per pack, which is higher than that of the traditional local brands (about 1-2 yuan per pack). The powder is developed with their unique super instant cold-blew method, enabling it to dissolve easily in water or milk. The sophisticated design of small cups with coffee powder are also popular with young people. In 2019, it leaped to win first place in the sales category of Singles’ Day, one of the biggest events for Tmall. At the same event last year, sales of over 100 million yuan (US $0.15 million) were recorded.
Regarding cosmetics, overseas import brands still dominate the premium market, but local companies in China have conspicuously emerged in the mass market. One of the representations of the Chinese emerging enterprises is HomeFacial Pro.com. Its functional skin-care products gain supports of young people who care for acne or anti-aging measures to reach sales of about 2.7 billion yuan (US$420 million) last year.
In the mass premium market, some OEMs (production by partner companies) that were originally commissioned for overseas companies have launched new brands. One of them is a biotechnology company called Bloomage Biotechnology Corporation Limited. It was established in 2000 and launched its brand “Biohyalux, ” using the technology of hyaluronic acid developed in products for global companies. The brand has been burgeoning online.
Generation Z to be Leading Consumers
Behind the growth of the new premium market, there is a situation that the leading role of Chinese consumers is shifting to young people, especially generation Z. The number of Chinese consumers born between 1995 to 2009 is said to reach approximately 260 million.
Generation Z, who has lived in a digital environment, is also a generation whose parents have already become wealthy and they have the luxury to use their money for their consumption relatively freely and rapidly increasing their consumption power. Their characteristic is that they have a good command of using social media (Social Networking sites), and have reasonable product values while being sensitive to fashion. Moreover, unlike other generations, they are more receptive to new brands and less resistant to the locally produced products in China. They weigh less value on “premium brand=foreign brands,” which their previous consumers used to have.
On the other hand, as they are in the early stage of their career, while buying premium brands, they allocate a portion of their purchases to relatively inexpensive products. In recent years, however, consumers in China have become increasingly concerned about safety and security, and they are more demanding on quality than before. With these circumstances, the medium-price range of the mass premium brands are showing signs of expansion.
The expansion of the new premium market in China is also an opportunity for foreign enterprises amidst the coronavirus pandemic when the volume of Chinese travelers has decreased. However, the period when Japanese products are purchased only for the reason of “high-quality Japan-made” is coming to an end. With the emergence of the new premium market, marketing that comprehends and forms the trends of the Chinese consumers is required more than ever.
Yutaka Go（Principal, ICT Media Consulting Department, Nomura Research Institute）