MINTEL | "In order to consistently monitor consumer sentiment during the COVID-19 outbreak, Mintel is conducting proprietary research among consumers aged 18-59 across urban China.
Today, we’re excited to share the new key findings from data collected February 28-March 6, during which time most cities in China were still enforcing quarantine measures or encouraging people to stay indoors. We will have more research to share on changing consumer behaviour related to the COVID-19 pandemic, so continue to watch this space for the latest insights and analysis.
Change in financial circumstances
Our biggest learning from the data is a drop in financial security during the outbreak. Half of consumers say their finances are worse off than before the outbreak. And, understandably, this is most obvious among younger generations (under 30s), low earners, private sector workers, and those self-employed.
It’s not difficult to understand why so many consumers feel this way as many businesses, including manufacturing, retail (offline especially), foodservice, transportation, leisure, and holidays have either suspended operations temporarily or lost businesses as a result of reduced travel or people avoiding being in public places. However, having data to validate the change in personal financial well being sounds an early alarm for businesses.
To relieve the immediate pressure on individuals and businesses, the Chinese government initiated a series of measures (such as tax exemptions) beginning in February. Despite these measures, uncertainty about the duration of the outbreak and the general sentiment about being out in public (eg more than three in five consumers do not feel it’s safe to go out to a public place) mean that it will take months for some businesses to fully recover.
As businesses cut back on investment, this will soon impact job security and income growth prospects, which are the driving factors of consumer spending confidence, according to Mintel research on consumer spending priorities in China. Noteworthily, in 2018, private enterprises and self-employed individuals accounted for 56% of China’s urban workforce, according to the NBS. It is this sector that will be the most vulnerable to the negative effects of the outbreak.
Essential categories show resilience
Looking at immediate changes in spending compared to before the outbreak, essentials such as food, as well as categories that relate to better hygiene and wellbeing (ie household care, healthcare, and personal care) are enjoying the highest mention of increased spending; whereas spending in discretionary categories is all being reduced.
In-home food and household care are experiencing the highest mention of increased spending, which suggests new product launch opportunities. For example, as many as four in five consumers are cooking at home every day, with a third of 18-29-year-olds saying that they enjoy it; this indicates ample opportunities for brands to target younger households who are likely to own trendy, small kitchen appliances in the pursuit of a high-quality life, according to Mintel research on small home appliances. Instead of stocking up on long-shelf-life canned foods or prepared meals as a short term reaction, our research indicates a longer-term growth opportunity for high-quality home cooking products from fresh groceries, gourmet sauces, and seasonings or even creative recipes as people now find joy and pride in cooking from scratch, which also helps them eat more healthily.
Discretionary: slowly recover or bounce back quickly?
Holidays and eating out are taking the biggest hit – as expected – given the changes in circumstances for business in these sectors. By contrast, in 2019, around half of consumers increased spending in these two sectors, suggesting they were high on people’s priority list before the outbreak.
At this stage, it is too early to conclude how much of an impact changes in financial confidence will feed into consumer spending in these sectors in the near future. There will still be demand for an indulgence or treat on occasion, as people will need that feel-good factor to lift their mood during this challenging time (as discussed in a previous post on this topic). But as income is closely related to spending willingness in China, Mintel expects that rational spending, rather than relentless spending after the outbreak, is likely to be the norm.
Concerned but not panicking
Although healthcare has jumped from one of the bottom three (before the outbreak) to one of the top three sectors (after the outbreak) by mention of increased spending, the majority of consumers say they have not spent more on healthcare (including health supplements and over-the-counter (OTC) and pharmaceutical products) even during the outbreak. This suggests that people are not in panic mode any more. It is true that there was a buying frenzy of Shuang Huang Lian in early February (a traditional Chinese medicine (TCM) product that was rumored could ‘inhibit’ the novel coronavirus but was later refuted by experts from the National Health Commission). But as the outbreak starts to get under control in China and people get more information about how to stay safe, the initial period of nervousness and confusion will calm down. This, again, suggests it is more important for companies and brands to focus on longer-term impacts over short-term reactions.
What does it mean for businesses?
In a recent blog post on COVID-19, we said that “it’s important not to go overboard considering the short-term negatives.” Our view remains the same today.
There is no denying the negative impacts of the outbreak. In early March, stock markets around the globe suffered a relentless, breathtaking drop as investors were rattled by the global coronavirus pandemic. However, as learnings from China show, the initial period of panic will eventually move into a stable, recovery mode as people adapt to changes in their work and home life.
Some sectors will benefit from playing a more important role in people’s lives and altered spending priorities, either due to changes in lifestyle (eg home cooking coming back in fashion) or because they support protective health and wellness measures (eg household cleaning products). Brands that take the chance to bring more and better offerings to market are likely to make big wins. This requires businesses to be quick and agile in their decisions in order to seize these opportunities.
Some sectors will suffer more heavily and take longer time to recover, especially the out-of-home discretionary spendings categories. However, there has been a lot of speculation that reactionary consumption (buying things for the sake of it) will increase rapidly once the outbreak comes to an end because people will have missed the thrill of buying. But Mintel research does not support this theory – at least not given current markets and consumer sentiment. A bigger probability is that people, especially those who have lost job security, will go back to spending within their means and even becoming more prudent with a saving mindset. Making more money and spending it rationally is likely to be the main theme for Chinese consumers for the remainder of 2020. Instead of betting on hypothetical, retaliatory consumption, smart businesses should pay attention to risk management and be prepared to market a sense of protection, reliability, and value in their offerings."
Ruyi Xu is the Head of Mintel Reports North Asia, leading a team of analysts who are responsible for publishing consumer and market research reports. She specialises in new product innovation across a wide range of FMCG categories.