Chinese millennials spending behavior

Chinese Millennials Spending Behavior: Online vs. offline, domestic vs. foreign, premium vs. convenience

Millennials, also known as Generation Y, are those born between 1981 and 1996. There are more than 350 million Chinese millennials, making over 25 percent of the entire population. They are more educated than previous generations, with 25 percent of them holding a bachelor’s degree or higher. A report in 2019 showed that young adults aged between 16 and 35 are earning an average monthly wage of 7,342 Chinese yuan (US $1,018).

They were born in a period of exponential economic growth, have witnessed the unprecedented advancement of technology, and are living in a time of endless opportunities and optimism. For this reason and others, they are the main drivers of the country’s surge in consumption. According to China Daily, those under the age of 35 account for 65 percent of total consumption growth. This spending is projected to increase by 11 percent annually until 2021.

A population witnessing the booming Stay-at-home Economy (宅经济), thriving under COVID-19

Chinese young consumers are the population that witnessed how technology changed their everyday life and the economy. In June 2019, the popularization rate of the Internet in China was 99.1%, compared to 5.3% in 2003. Notably, from March 2019 to March 2020, there has been an increase of 6.06 million monthly active mobile Internet users, aged below 24. The age group of 25-40 spend the most time on mobile Internet, with over 160 hours per person per month.

Population of Chinese internet users

Data source: QuestMobile, Population of Chinese internet users

This nationwide accessibility to the Internet made stay-at-home economy both a lifestyle and a trend for developing business in China, especially since the COVID-19 outbreak in the beginning of 2020. The stay-at-home economy is a series of consumption and commercial activities carried out by people at home, such as online shopping, entertainment, work, education and fitness.

According to a report by QuestMobile, the mobile internet industries that most successfully thrive since the epidemic are: short video apps, e-commerce, news and information, remote working apps, e-government and education.

Education industry attracts the most of new users

Schools switched to online learning during the COVID-19 outbreak, and there has been a significant increase in reliance on education apps. The number of hours spent on education and learning apps in March in 2020 more than doubled from last year.

Time spend on education apps monthly per person

Data source: QuestMobile, Time spend on education apps monthly per person

Driven by tough competition for good schools and jobs, as well as technological advances in virtual learning, China’s online education market is expected to more than triple to 696 billion yuan ($99.3 billion) in 2023 from 203 billion yuan in 2019, according to research firm Frost & Sullivan.

Millennials increasingly rely on mobile e-commerce

The high demand for shopping without leaving home has made the mobile shopping industry one of the most competitive industries during COVID-19, although China’s e-commerce ecosystem was robust to begin with. From March 2019 to March 2020, there has been an increase of 35% in number of hours spent on mobile shopping apps per person per month. The top three apps with the largest user size is Taobao, Pinduoduo (拼多多) and JD (京东).

Time spend on mobile shopping apps monthly per person

Data source: QuestMobile, Time spend on mobile shopping apps monthly per person

Among the categories of e-commerce, fresh food e-commerce has emerged as a popular market with high demand and a bright prospect. It is predicted that the market size of fresh food e-commerce will reach 300 billion in 2020. 55.7% of the users are people aged 25-34, which roughly fall into the category of millennials.

Post-’95s seek convenience and most frequently order food online

But young people in China demand more than having their raw ingredients delivered. The online food delivery market has been expanding year by year, despite at a slower growth rate. According to a prediction by Ali research in 2019, the total sales of the Internet food delivery market in China will reach 934 billion RMB in 2021.

The post-’95s generation are the dominant consumer group for the online food delivery service. They occupied 41.8% of the entire consumer group in 2019, compared to 35.6% in 2018. There has also been a significant increase in breakfast orders among the post-’90s and post-’95s, indicating that they value efficiency in terms of what to eat before starting a busy day at work.

Chinese millennials pursue a healthy lifestyle

Interestingly, despite an increasing reliance on the less healthy delivery food due to a tight modern life schedule, young people in China has demonstrated increasing willingness to adopt a healthier lifestyle.

Following the topic of food delivery apps, salad or light food (轻食) became one of the most popular choices for white-collar young people to order from Eleme (饿了么), one of the two most popular food delivery apps in China. According to Ali Research, YOY growth of the number of people ordering salad on the app in 2019 was nearly 40% compared to 2018. Most consumptions of salad take place in Tier-1 cities and new tier-1 cities, where Shanghai, Beijing, Hangzhou ranked top three.

What’s more, a vegetarian diet is increasingly common in China. In 2019, 20% more people ordered vegetarian food on the app compared to 2018.

Impact of COVID-19 on Chinese Millennial health consumption

COVID-19 has emphasized the importance of staying fit and healthy. People’s online shopping behaviors have reflected their changing attitudes towards health and fitness since the COVID-19 outbreak.

During the initial recovery phase, demand for dairy, vegetables, and eggs was 25-30 percent higher than it was before the crisis. Supermarket and convenience store data shows that, aside from fresh food, popular items during and after the peak of the crisis included grains, ready-to-cook meals, packaged food, and snacks. Other than the realization of eating healthy as a precautionary measure against the virus and a way to stay fit, this could also be due to the psychological need that people feel to stock up food in preparations for longer periods of staying in.

COVID-19 has also boosted people’s consumptions for fitness devices. On Alibaba business platforms, including Taobao, Tmall, Eleme (饿了么), etc., sales of rowing machine grew by 1.4 times in February 2020, compared to the same time in 2019. Other fitness devices such as jump ropes and yoga mats all grew by over 50%. Therefore, it seems as if people are indeed upgrading health consumptions to another level in response to this epidemic.

Online vs. offline shopping

The online retail market in China has been undoubtedly the largest in the world. In 2019, online retail sales are expected to swell to $1.5 trillion, representing a quarter of China’s total retail sales volume, and more than the retail sales of the ten next largest markets in the world combined.

Nonetheless, Chinese consumers never really abandoned the offline shopping experiences, but relied on physical retail stores even more. This is due to the irreplaceable nature of the offline stores, which, for example, allows consumers to test and try the product and to interact with the store event and salesperson directly.

As a result, increasingly, Chinese consumers are combining their experience shopping at physical retail stores with their online buying decisions. Also, the proportion of consumers saying they use their mobile phones to research products while shopping in a store, what is often referred to as the “showroom effect,” has more than doubled to 63 percent in just the past two years. The blending of online and offline channels is known as new retail, or omni-channel in China.

Omni-channel Influence on purchasing decisions

Data source: McKinsey China Digital Consumer Trends 2019, Omni-channel Influence on purchasing decisions

This change in Chinese consumers’ shopping mode suggests that they seek better rational purchase decisions more than ever before.

The next pocket of premium and luxury products: Small-town Youth (小镇青年)

As online shopping became accessible to most cities in China, brands are actively reaching out to young people from lower tier cities. According to QuestMobile, in 2019, post-’90s living in tier 3 and below cities have reached a population of 200 million, and they contribute even more than those in bigger cities in terms of monthly usage of Internet per person. Research also showed that young consumers in China’s lower-tier cities are almost as likely to shop online as their top-tier-city dwelling counterparts.

In addition, the option of shopping online provided small-town youth accessibility to premium and luxury brands, which, in most cases, have yet to enter their cities. In fact, in some product categories, the online purchasing rate of small-town youth can be even higher than consumers in higher tier cities.

Data released by Tmall following the “618” shopping holiday event in 2019 showed a 50 percent increase in young luxury shoppers aged below 25, with 70 percent of them living in tier 3 and below cities.

Luxury online retail adoption

Data source: McKinsey China Digital Consumer Trends 2019, Luxury online retail adoption

The small-town youths’ strong purchasing power of luxury products should inspire brands to provide then with better tailored products and in-store shopping experiences, further deepening their penetration in lower tires markets.

In terms of online shopping behaviors of small-town youth, during huge online promotion events like Double 11, they are less price-sensitive than those in tier 1 and 2 cities. Their buying decisions are also more susceptible to social engagement such as referral programs or endorsement by KOLs/KOCs and product exclusivity.

China Digital Consumer Trends 2019, Top buying factors for Double 11

Source: McKinsey China Digital Consumer Trends 2019, Top buying factors for Double 11

Generation Y and Z account for most of the Luxury good consumptions, no longer valuing just brands

Research showed that China delivered more than half the global growth in luxury spending between 2012–18, and is expected to deliver 65 percent of the world’s additional spending heading into 2025. In 2018, China’s post-80s accounted for more than half the total spending on luxury. The post-’90s consumers spend 25,000 RMB a year on luxury goods, already as much as their parents’ generations. This observation reflects young people’s increasing disposable income, optimism about the future and the pursuit for a more premium lifestyle.

Although young Chinese consumers often view high-end brands as representations of higher social statues, brand becomes less of an important factor to the younger generations compared to the older ones. This is because the social nature of luxury consumption accelerates sophistication: younger consumers have started to put more emphasis on design, fabric, and the production process.

Top reason for last luxury purchase by generation

Source: McKinsey Luxury Report 2019, Top reason for last luxury purchase by generation

Young consumers prefer foreign luxury brands, particularly those from France and Italy. However, compared to older generations that have few interests in Chinese luxury brands, one in ten post-’90s consumers said they would opt for a high-end Chinese brand. Chinese brands are starting to gain more reputation and popularity.

Social media commerce

Post-80s consumers are residents of the social media world. Browsing social media accounts for 2/3 of the total online time spent by Chinese people.

Social media & content account for 2/3 of total online time spent

Source: Mckinsey & Company, Social media & content account for 2/3 of total online time spent

Increasingly, brands convert awareness they generate on social media into purchases. This method is known as social commerce in China. 50 percent of respondents to a survey on social media commerce said they had become aware of a product on a social platform. Awareness is converting into sales: 25 percent of respondents said they had made a purchase directly through a social channel, an extraordinary increase of 3.6 times from just two years ago.

Notably, social platforms drive impulse shopping and create incremental demand. Social interactions on social media motivated 40 percent of respondents to buy a product they had not originally intended to purchase. The most notable social commerce platform in China is Xiaohongshu.

Chinese Millennials’ purchase premium products from overseas retailers

Chinese consumers are increasingly willing to pay for innovation, high quality and an upgraded lifestyle. Prices are no longer the primary factor for them when purchasing premium products. According to Nielsen’s survey, 61% of Chinese consumers decide to purchase premium products for their superior quality, while the global average rate is 49%. The top five premium products that Chinese consumers are most willing to buy are personal electronics, apparel, cosmetics, cars and jewelry.

Online overseas retailers have become an important channel for Chinese consumers to buy premium products. According to Nielsen research, 49% of Chinese consumers purchase premium products online from overseas retailers, which is much higher than the global average rate, 24%.

Nonetheless, overseas retailers have yet to replace domestic ones because of the need for faster logistics as well as after-sales service. Another related factor is the rising image of Chinese brands in recent years.

Chinese brands continue to gain popularity

Indeed, foreign brands used to represent comfort, modernization and lifestyle of the middle class. But in recent years, Chinese business no longer produce cheap products but focus on innovating quality, functions and values. As a result, Chinese brands reached 72% of the total online market share in 2019. Nearly one third of consumers choose Chinese brands for high-end products. The industries of domestic brands with highest YOY growth of market share are: health and medicine (38.5%), cosmetics and skincare (36.7%) and food (31.5%).

According to a recent report, among all population, those who work in healthcare and finance industries, and Post-95s female consumers most increasingly have their eyes on Chinese brands when making purchase decisions. In terms of search counts on online shopping apps, they search for Chinese brands nearly two-times more than they do for foreign brands.

7 steps to understanding Chinese Millennials spending behavior

  • Chinese millennials’ spending habits increasingly adapt to and reinforce the stay-at-home economy, more than just a response to the COVID-19 outbreak
  • They seek convenience and efficiency, but also a healthy lifestyle
  • Chinese millennials reach more rational decisions by combining both online and offline shopping habits
  • Thanks to e-commerce, small-town youth have become loyal consumers of premium/luxury products
  • Chinese millennials are highly influenced by social media in purchase decisions
  • They extensively shop premium products from abroad, while increasingly favor domestic brands in certain categories
  • They value social capital such as luxury goods, of which brand is the most important but not the only factor

Online or offline? Convenience or exquisiteness? Foreign or domestic? It’s never a single-sided story. Facing an unprecedented amount of available choices, Chinese millennials who wish to spend well are always learning to be a more rational decision maker. For businesses, the ability to be flexible and turn to their needs becomes the key.

Check out our piece on marketing to Gen-Z consumers in China!

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