China Consumer Market Quarterly Watch Q1 2024 Issue

Complexity and Excellence—
The Year Ahead
Foreword

The Macro Economic Context

Since the 1980s, BCG has been deeply engaged in themainland China market. BCG’s Consumer Products teamhas witnessed the rapid growth of China’s consumer packaged goods (CPG), fashion and luxury, and retail markets
over four decades. Today, more than 50 of our core experts
are active in various industry tracks. We uncover consumer
insights and industry trends, and partner with our clientsin their growth and transformation.

On January 17, 2024, China’s National Bureau of Statistics(NBS) released annual macro data 2023. The releaseshows that the GDP growth rate for 2023 was 5.2%, higher
than the previous official forecast of 5.0%, almost in linewith the forecast of eight domestic and foreign research
institutions (5.19%), and 2.2 percentage points higher thanthat of 2022. (See Exhibit 1.)

This year, we are launching a series of articles titled China
Consumer Market Quarterly Watch. In this series, we will
analyze the industry macro environment and provide
forward-looking consumer insights and industry observations.
We hope to be a partner in thought as well as in action ascompany executives lead their firms to new heights.

Exhibit 1 - In 2023, China’s GDP Growth Exceeded Official Expectations, inLine with the Average of Eight Institutions
2019–2023 real GDP growth at constant prices%, quarterly cumulative year-on-year, fourth quarter of each year for the full year
25
20
15
10

8.1

6.1

5.2

5

2.3

3.0

0
–5
–10

2019

2020
6.2%

2021
6.0%

Sources: National Bureau of Statistics of China; WIND; Bibliography.

2022
8.3%

Upper rangeof forecasts
Actual oﬃcial
annual data
Lower rangeof forecasts

2023
5.2%

5.2%

Forecast
average

Note: Market forecasts come from eight domestic and foreign financial institutions including Goldman Sachs, Morgan Stanley, UBS, CICC, Huatai
Securities, Bank of China Research Institute, China Macroeconomic Forum and OECD; Data covers Q1 2019 to Q4 2023.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q1 2024 ISSUE

Total retail sales increased by 7.2% for the year. Based on
2019 absolute values, total retail sales have been climbing
in a roundabout manner over the past four years. The
numbers for 2023 were moderate, with no uptick observedat the end of the year. The less-than-bullish results, together with the underlying lack of consumer spending confidence, partly echoes the fact that key economic indicators,
such as real estate investment and sales, still need to befurther repaired. It may also be a market response to theoverall low consumer price index (CPI) for 2023, with therisk of deflation still lingering. (See Exhibit 2.)
2024 will continue to be a year of reboot and restoration.
Based on the opinions of eight research institutions mentioned in Exhibit 1, the predicted average GDP growth rate
in 2024 is 4.68% (in the 4.2% to 5.0% range). However, atthe same time, institutional forecasts are mostly “conditional.” For consumer markets, the conditions for high or
low growth are concentrated in the real estate sector,
international trade, and the degree and speed of improvement in external demand. The volume-price relationshipof growth is also affected by inflation rates. For the few
institutions that published expected inflation rates, theprediction is well below the 2% mark (a common targetof central banks).

Consumer Market Observations
China’s reform and opening up has been going on for morethan 40 years, with periodic turbulence a part of corporate
managers’ experience steering their companies. But despite these challenges, Chinese entrepreneurs are taking
the initiative to find new growth and increase firm profits.
In fact, we have found that many sectors are already showing signs of action and change in 2023.
Growth of Fast-Moving Products Is Hampered
If we compare like for like the growth in pre-COVID 2019
versus in 2023, we find that 2023 was a year of very unevengrowth. It showed a slowdown for fast-moving consumer
goods (including beauty), a slight increase for home goods,
and steady development for fashion and luxury (excluding
beauty). It was a fast-growing year for restaurant services,
and a year of strong recovery for travel, especially domestic
travel. Overall, the willingness to spend on consumption
has shifted from physical goods and home consumption toservices and out-of-home experiences. (See Exhibit 3.)

Exhibit 2 - Based on 2019, China’s Consumption and Personal Disposable
Income Climbed Back in 2023, Housing Sales Tanked
Changes in key economic indicators for each year, quarterly, with 2019 as the base year
Index, based on 100
200

Individual
disposable income

150

Individual
consumption
Retail sales

100

Sales of commodity
housing50

2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 2023Q4

Sources: National Bureau of Statistics of China; BCG analysis.
Note: Data covers Q1 2019 to Q4 2023; calculation method: Normalize the four key economic indicators for 2020-2023 based on the absolute quarterly values for 2019. For example, 2019 Q1 zero is RMB 9.8 trillion in absolute value, 2020 Q1 zero is RMB 7.9 trillion in absolute value, based on 2019with the index of 100, then the 2020 Q1 zero index is 7.9/9.8*100=80.6. Three other categories of economic indicators by analogy.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q1 2024 ISSUE

Exhibit 3 - The Rate of Recovery in 2023 Was Significantly Uneven Across
Sectors Compared to That of 2019
Accumulated value for the year (see note for units)

FMCG²Retailsales¹

2019

Home
goods4

2019

Domestic
travel

24,6462023

Luxury &fashion³

Restaurant

Service5

2019

32,934
13,3382023

14,576
13,7252023

14,7842019

39,4692023

44,460

2019

586

2023

International 2019
travel
2023

544
74
25

2019 year-onyear growth2023 year-onyear growth

6.4%

4.2%

2.9%

11.9%

1.8%

2.7%

9.3%

22.7%

6.9%

117.6%

16.6%

1246.9%Sources: National Bureau of Statistics of China; BCG analysis.
Note: Data calculation covers Q1 2018 to Q4 2023, with international and domestic travel data as of November 2023 (latest data from the National
Bureau of Statistics of China).
1

The unit value of retail sales is RMB 100 million.

2

FMCG covers grain, food, beverages, tobacco and alcohol, cosmetic products, and household goods items.

3

Luxury & fashion covers clothing, footwear and headgear, knitted textiles, and gold, silver and jewelry items.

4Home goods covers household appliances, audio-visual equipment, furniture, and communication equipment.

5

Under the service category, the food and beverage income unit is RMB 100 million; the domestic and international travel unit is 1 million people.

Online and Offline—Converging in Price
Movements
Uneven growth in consumer spending is also shaped byretail developments. In 2023, fast-moving products accounted for about 32.6% of online sales. Advances in e-commerce
have shown signs of plateauing and the game is more of ashare transfer between different online formats. Approximately 3% went from conventional platforms to live broadcasts and other content-based e-commerce. Price competition for online channels is becoming more heated, while
discount stores and warehouse membership stores in offline
channels are also on the offensive when it comes to prices.

BOSTON CONSULTING GROUP

Together, they shape consumer price expectations forfast-moving consumer products, home goods, electronics,
and more. This is also borne out by NBS price data. Prices
for food, tobacco and alcohol, household goods and services, and transport and communications products are flatin the 2023 CPI. The supply of standard goods is abundant
and the downward movement of the price index increases
the “sense of gain” for consumers. At the same time, infashion, service, and experience sectors, which are relatively
non-standard with rebounding demand, consumers areenjoying a feeling of “post-COVID emotional relief” as they
continue to spend. (See Exhibit 4.)

3

Exhibit 4 - Consumers Are Looking for Value in CPG Products andEmotional Relief from Paying for Services and Experiences
Monthly Consumer Price Index for the whole year 20231(compared to the same month of the previous year)
Same month of the previous year = 100
105
Other goods and services

100

Education and entertainment
Clothing and footwear
Medicine and medical services
Housing and rent relatedHome goods and services
CPI
Food, tobacco and alcohol95

Sources: National Bureau of Statistics of China; WIND; BCG analysis.
1
China’s CPI is rotated every five years in the base period. After each base period rotation, the survey catalog, representative specifications and survey points are adjusted; the CPI for the 2020 base period was compiled and published in the current round since January 2021.

Breaking Out with New Products
Against this backdrop, the number of new fast-moving
products released in 2023 increased significantly comparedwith previous years. Although the uptake of private (new)brands accelerated considerably, increasing by nearly 50%
over the previous year, more than 90% of the uptake wasstill from CPG brands. This was particularly prominent inpersonal care and household products. We believe that thisgoes beyond the efforts of brand companies to broaden
their price bands or to conform to segmented consumer
needs. It also reveals the use of product updates to create
brand momentum and refresh prices and the attempt toresist price pressures on dated products. (See Exhibit 5.)
Riding Favorable Trends
The faster-growing sectors in 2023 generally rode trends infunctional or emotional benefits and prices, as demandedby consumers. They include long-running consumer mega
trends and the emerging ones post-COVID.
In terms of fashion and luxury, BCG made a multi-segment
growth forecast in early 2023. While we believe the relative
momentum when comparing across segments still holds, thegrowth rates for mid end was showing signs of tapering inthe second half of 2023. (See Exhibit 6.)4

Winners in 2023 were the ones who took advantage of
persistent trends over recent years. For example, after the
rapid adoption of urban light outdoor activities (playing
frisbee, camping, biking, etc.), popular during COVID, consumers have also developed interest in, and affinity for,more hard-core categories (skiing, hiking, etc.). Camping,biking, hiking, and water sports saw a surge of 150%–400%
in mentions on Xiaohongshu in 2023. The continued development of the sports community has made outdoors an
integral part of consumer lifestyle and social expression.
The maturing sector has also grown, with a price band that
now includes affordable luxury—despite the availability ofcheaper versions. In outdoor apparel, for example, as “newChinese aesthetics” continue to win over consumers, highend clothing lines are going mainstream by lending design
elements to everyday wear, which consumers are embracing.
On the channel side, in the first half of 2023, sales at outlets nationwide exceeded RMB 130 billion, reaching 62% of
the previous year’s full-year level. As of Q3 2023, sales atoutlets grew on average 26.3% year-on-year and consumer
traffic increased on average by nearly 35% year-on-year, asignificant increase over the same period in 2022. All three
top outlet brands achieved a threefold increase in consumer traffic and sales performance over the average apparelluxury market growth rates. Some brands are consideringoffering specific product lines via outlets, rather than justusing them as a channel for clearing inventories.

CHINA CONSUMER MARKET QUARTERLY WATCH Q1 2024 ISSUE

Exhibit 5 - In 2023, the Number of New FMCG Product Launches
Significantly Increased, Mainly from Brand Companies
The number of FMCG products launched in
2023 increased by 16% compared to 2022
2023 new launch quantity1(by subcategory2)+3%

Private brand accounted for 21.4% of the overall
new product launch increment
2023 FMCG new product launches(by brand company/by private brand)+16%

22,766
20,275

19,291

20,226 19,602
52%

60%

58%

60%

59%

+3,16423/22
YOY
Food &
beverage+3%
18,572 17,589 18,645 17,825

42%

36%

35%

38%

37%

4%

4%

5%

4%

6%

2019

2020

2021

2022

2023

Beauty &personal
care

+32%

Householdsupplies+57%

20,123 By brand company

1,703

1,702

1,581

1,777

2,643

2019

2020

2021

2022

2023

+866
By private brandSources: GNPD; Globaldata; BCG analysis.
1

New products exclude re-listing items, but include new packaging, new formulation, etc.

The FMCG categories are divided into three subcategories, namely food and beverage, personal care and beauty, and household products. Household products include hygienic cleaning, household cleaning, air freshness and other subcategories. Personal care and beauty products include feminine care, skincare, beauty and cavity cleaning.
2

Exhibit 6 - Market Opportunities Across China’s Apparel Segments
Size of China’s clothing market in 2022: RMB 1.5 trillion1
Scale

Business

LeisureCommuteLuxury8%Classic luxury~RMB 120 billion (8%)

Light luxury
2%

Aﬀordable luxury and fashion~RMB 30 billion (2%)
Commuter women’s clothing~RMB 90 billion (6%)

W
Mid tohigh end
20%

M

Business men’s clothing~RMB 40 billion (3%)

Casual men’s clothing~RMB 15 billion (1%)

Aﬀordable clothing~RMB 750 billion (50%)

Mass
70%

Top sports~RMB 8 billion (<1%)

Casual women’s clothing~RMB 60 billion (4%)

Stylized fashion~RMB 30 billion (2%)

UniSport2Mid-range andpremium sports~RMB 70 billion (5%)

Premium brands, sports
brands, and casual stylebrands are growth leaders
Mass sports~RMB 60 billion (4%)

Private brand~RMB 240 billion (15%)
Lead:
2018–2021 Growth rate > 10%

Smooth:Growth rate 3%–10%Slow:
Growth rate <3%Sources: Euromonitor; Expert interviews; BCG analysis.
1
Only counting men’s and women’s clothing, no children’s clothing (RMB 0.24 trillion) and underwear (RMB 0.24 trillion). In 2022, the overall size of
China’s clothing market was about RMB 2 trillion.
2

Only sportswear, not shoes and equipment.

BOSTON CONSULTING GROUP

5

We believe that the driving force behind outlets’ rise is notjust prices, but also the appeal of the offline service experience when consumers are looking for fun and emotionalrelief. In this regard, travel retail, Hainan duty-free retail,and innovative shopping centers may also lead the packwith new growth opportunities. Restaurant and food services will receive dividends too.

For the apparel industry, companies were in de-stocking
mode in 2023. Companies need to pick a high-speed
track—be it an exploding product category or a molded
and amplified scenario—and think about the right end-toend brand image, store image, and merchandise accordingly. In 2024, companies need to continue working on agile
supply chains, better merchandising, and improved inventory management.

Outlook and Call to Action

For the restaurant industry, there is great opportunity infootprint expansion and associated product and service
models (O2O, RTC, etc.). High-quality expansion poses achallenge to companies’ operating models and capabilities. There are also considerable opportunities for continuous cost reductions in operations, not only in terms of raw
material sourcing and people efficiency but also in technology and capability solutions, such as efficient content
customization and distribution on the store side with thehelp of generative AI.

Across industries, the theme for this year and beyond willbe “achieving excellence in complexity.” But the focus will
be different for each sector.
CPG and grocery retail are facing headwinds. Productpower and merchandising are becoming increasingly
important. Between innovation and cost, companies mustown at least one advantage in order to be competitive.
Revenue management is also critical, meaning bettermodels and tools are needed to optimize brands, newproducts, portfolios, prices, promotions, and trade levers.
Companies can no longer count on high-certainty traditional business cycles and sheet-based planning. Practices
such as the annual JBP and broadstroke resource allocations between headquarters and regions may require
examination and transformation.

The year 2024 promises to be one of fast tracks and few
service stops. Capability upgrades will have to happen ascompanies strive to transform and improve. We are eager
to be a thought and solution partner to companies on thisjourney.

For fashion and luxury and restaurant services, brand andproduct innovation and originality will continue to beprominent, putting higher demands on insights into mega
trends and micro trends, the optimization of the brandportfolio, and the collaborative development of products
and content.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q1 2024 ISSUE

About the Authors
China Consumer Market Quarterly Watch is authored by BCG’s Consumer practice in Greater China. The team is grateful forthe valuable insights and advice provided by the following experts.
Veronique Yang is a managing director and senior partner in BCG’s Shanghai office. She is the leader of BCG’s
Consumer practice in Greater China, and also the leader ofthe fashion and luxury sector in Asia Pacific.

Allen Zhang is a managing director and partner in BCG’s
Shanghai office. He is the leader of BCG’s retail sector in
Greater China, and the leader of BCG’s AI topic in Greater
China.

Cinthia Chen is a managing director and partner in BCG’s
Hong Kong office. She is the leader of BCG’s Center for
Customer Insight in Greater China.

Thomas Zou is a managing director and partner in BCG’s
Shanghai office. He is a core leader of BCG’s Consumer
practice in Greater China.

For Further Contact

Acknowledgments

If you would like to discuss this report, please contact theauthors.

The team would also like to thank Yunling Zhou, Hui
Zhang, Jocelyn Dong, and Wei Zhang for their contributions
to this article.

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