China Consumer Market Quarterly Watch Q2 2024 Issue

Domestic Fast Lanes and Business
Globalization
Foreword

The Macroeconomic Context

China Consumer Market Quarterly Watch is a BCG content
series in which we provide forward-looking consumer andindustry insights for businesses. In the first issue, we analyzed the annual growth themes of China’s consumer
industry and the changes that have taken place in four
consumer sectors in 2023. In this issue, we examine
emerging trends for the first quarter of 2024 and zero in onstrong growth opportunities in brand globalization and therestaurant sector.

On April 16, 2024, the National Bureau of Statistics ofChina released a report showing macroeconomic data for
the first quarter of 2024, which reveals that GDP increased
by 5.3% year-on-year, a rate that is 0.4 percentage points
higher than the average forecast of eight well-known
research institutions. (See Exhibit 1.)

Exhibit 1 - GDP Grew by 5.3% Year-On-Year in Q1 2024, Higher Than the
Average Projected by Eight Research Institutions
Constant GDP price accumulated by quarters, year-on-year %
20

10

8.1

6.1

5.2

0

Upper range of forecasts

3.0

2.3

5.3
Actual oﬃcial data
Lower range of forecasts

2019

2020

2021

2023

2022

2024Q1

-10
6.2%

6.0%

8.3%

5.2%

Forecast
5.2% 4.9% average

Sources: National Bureau of Statistics of China; Choice; Literature research.
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 the first quarter of 2019 to the first quarter of
2024.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q2 2024 ISSUE

Total retail sales of consumer goods in the first quarter
were up 4.7% year-on-year. Based on 2019 (pre-COVID)
absolute value, the first-quarter retail consumption trended
positively compared with figures of past years, in tandemwith the growth of per capita disposable income and per
capita consumption expenditure. It should be noted thatthe consumption economy grew more each month inJanuary and February than it did in March. In the case ofmerchandise retail sales growth, it averaged 4.6% year-onyear in January and February combined, while in March, itfell to 2.7%. (See Exhibit 2.)
Growth rates were still uneven across sectors. Service
sectors such as restaurants and travel grew much fasterthan did physical goods sectors such as fast-moving consumer goods (FMCG), fashion and luxury, and household
appliances and electronics. However, the growth gaps
narrowed in the first quarter of 2024. (See Exhibit 3.)
The national Consumer Price Index (CPI) was flat in thefirst quarter and remained inside the deflationary risk
zone, while key real estate indicators stayed at their post2019 lows.
Second-quarter data is expected to show the ongoing trendof growth and recovery for key underlying economic factors.

China’s most important policy-shaping event in the firstquarter of 2024 was the holding of the “Two Sessions” (theannual meetings of China’s National People’s Congress
and the National Committee of the Chinese People’s
Political Consultative Conference). In this year’s Two Sessions, the Chinese government announced the economic
growth target for 2024: achieving an annual GDP growthrate of “around 5%” (accompanied by a 3% increase in
consumer prices). It is worth noting that this figure isslightly higher than the average 4.9% forecasted by theeight well-known research institutions, and the official
expectation of an increase in consumer prices is also
above both the historical low of 0.2% for 2023 and the
deflationary risk zone.
China’s 2024 government work report makes 21 references
to “consumption” and nine references to “export” and“foreign trade,” which in total is more than twice that of“real estate” and other categories. In our view, while thisspeaks to the government’s determination to maintaineconomic stability and boost the national economy, it also
reveals both the government’s strategic intent in terms ofimportant growth engines and possible policy directions—
namely, the development of “new quality productive forces”
and the creation of new business models and new markets.

Exhibit 2 - 2024 Q1 Total Retail Sales, Per Capita Consumption Expenditure,and Per Capita Disposable Income All Trended Up
Year-on-year changes in key economic indicators with 2019 numbers as the base; quarterly numbers are cumulative within the same year
Index, based on 100
200

150

100

Disposable
incomeper capita
Consumption
expenditure
per capita
Total retail
sales
Sales ofcommercial
housing50

02020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 2023Q4 2024Q1

Sources: National Bureau of Statistics of China; BCG analysis.
Note: The data covers the first quarter of 2019 to the first quarter of 2024; calculation method: normalize the four key economic indicators for the
first quarter of 2020–2024 on the basis of the cumulative absolute value of the current quarter of 2019. For example, in the first quarter of 2019, thecumulative absolute value of retail sales was RMB 9.8 trillion; in the first quarter of 2020, the cumulative absolute value of total retail sales was RMB
7.9 trillion, with 2019 as the quarterly base. If the index is 100, then the total retail sales index for the first quarter of 2020 was 7.9/9.8*100 = 80.6.
Three other categories of economic indicators are calculated in the same way.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q2 2024 ISSUE

Exhibit 3 - Growth Uneven Across Sectors, Favoring Services over Products
Accumulated value for the year
(see note for units)

Products¹

Services5

FMCG²2024Q12023

10,934

Fashionand luxury³

2024Q12023

4,690

Householdappliances andelectronics4

2024Q1
2023

4,162

Restaurants

2024Q12023

13,445

Domestic
travel2024Q12023

16,311

International
travel2024Q1
2023

2024Q1 year-onyear growth2023 year-on-year
growth6

5.5%

2.4%

0.4%

8.7%

6.9%

1.4%

10.8%

20.4%

29%

136%

530%

1461%

39,103

17,40517,04952,89059,052
1,412
2,906

Sources: National Bureau of Statistics of China; Civil Aviation Administration of China; BCG analysis.
1

The absolute value of the retail product is RMB 100 million, above the limit.

2

FMCG covers grain, oil, food, beverage, tobacco and alcohol, cosmetics, and household items.

3

Fashion and luxury cover clothing, footwear and headgear, knitting and weaving, and gold and silver jewelry.

4Household appliances and electronics cover household electrical appliances, audio-visual equipment, furniture, and communication equipment.

5

Under the category of services, the unit of food and beverage revenue is RMB 100 million, the domestic and international travel unit is 10,000 people.

6

The absolute value and year-on-year growth rate in 2023 is slightly different from the previous issue. The data in this issue is based on the annual
data analysis of 2023 January to December, while the data in the first issue is the statistical analysis of data up to November 2023.

While there has been much discussion regarding the “uncertainty” of the market in the first quarter, we believe thatthe next step for businesses is to consider building theirown sense of certainty and direction for renewal andgrowth. Over the past year, we have distilled a wealth of
insights from globalization projects with our Chinese consumer company clients. In the first issue, we also covered
the fast-growing restaurant sector in China’s consumption
recovery. We will closely examine these two topics in thefollowing chapters.

Consumer Market Observations
Chinese Consumer Brands Go Global
In recent years, brand globalization has again become ahot topic for enterprises seeking growth and development.
The annual foreign direct investment (FDI) of enterprises
across all industries has reached historical highs since2021. As of 2022, China’s net direct outbound investment
flows have accounted for 10% of the world’s total FDI. (SeeExhibit 4.)

BOSTON CONSULTING GROUP

Take, for example, the more than 800 listed A-share Chinesecompanies that continuously disclosed overseas revenues
from 2019 to 2023. Except for during the pandemic in 2020,
the growth in overseas revenues was the same as or significantly higher than the overall revenue growth.
During the most recent Two Sessions, many referenceswere made to the idea of going global with digital economy
propositions and regional trade, with the Chinese government stressing the trade cooperation among the Belt andRoad Initiative and the Regional Comprehensive Economic
Partnership (RCEP) countries. It was also pointed out that,in addition to the traditional developed markets, companies
should look to the Middle East and Latin America. Additionally, emerging markets such as Africa and the South
Pacific have yet to be tapped.
To this end, BCG’s Consumer teams have assisted clientsin a variety of consumer sectors (fast-moving, durable,
alcohol) and ambition destinations (Europe, North America,
Africa, Latin America, South America, etc.) over the last two
years, looking in-depth into both the needs and wants andthe dos and don’ts for the next round of globalization.

3

Exhibit 4 - China’s Industrywide Enterprises’ Annual Foreign Investment
Went on Historical Highs Starting in 2021
China’s industrywide foreign direct investment (US$ billions), 2019–2023

150

117.12100-9.8%

132.94145.19

3.3%

9.2%

2020

2021

146.5

147.85

0.9%

0.9%

2022

2023

50

0

2019

Annual industrywide foreign direct investment

Sources: China’s Ministry of Commerce; BCG analysis.

Strategy—For Companies at Different Stages of
Globalization

Information—From General Knowledge to FineGrained Insights

Companies have cast their nets more widely when looking
at overseas markets this time, with consideration given to
medium-developed and developing markets, including
those supported by national initiatives such as the Beltand Road Initiative. While some are looking to build new
businesses from scratch, others are looking to expand theirfootprints or move to higher per capita GDP markets.

Compared with a decade ago, Chinese companies now
have access to more developed markets, regardless of theirsize. In developed markets, categories, channels, pricebands, and propositions are more finely segmented. Companies are now seeking knowledge beyond simple market
size and entry rules; they desire fine-grained information,and on this basis, make decisions on product development,
supply chains, channels, and sales and marketing. Take
consumer durables and home improvement retail industry
as an example: BCG has helped companies scan online
and offline market segments for opportunities with big
data, with the category trees extending down to the sixth orseventh layer, branching out to almost 10,000 subcategories. This effort has helped companies navigate a vast
number of opportunities with precision guidance andmake practical business choices with confidence. (SeeExhibit 5.)

This means domestic corporations need to embody a truly
multinational mindset, grounding local market insights in a
coherent multi-market strategy. Take liquor as an example:
BCG teams based in China and destination markets havecarried out comprehensive research, looking into the economic and legal viability, as well as cultural and lifestyleaspects of drinking before making market selections.
Further, the markets are prioritized based on their strategic
importance in the global drinking-culture context. In thehousehold cleaning category, we have mobilized our seniorindustry teams around the globe to analyze purchasing
criteria and product features that are important to customers of each country. Then decisions are made about what
to centralize versus decentralize in terms of strategy andproduct development between markets.

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CHINA CONSUMER MARKET QUARTERLY WATCH Q2 2024 ISSUE

Exhibit 5 - Fine-Grained Insights to Navigate Category Opportunities
Durables category I
Durables category II……………………x……………………x

6th or 7th degree
quantitativede-average ofopportunities foreach category—
zeroing in on theright subopportunities……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x……………………x

Source: BCG case vignette.

Resources—From Lone Voyager to Global
Partnerships
Chinese companies are enjoying greater brand recognitionin this wave of globalization efforts than did the first explorers ten years ago. More of these companies also speak
the same business language as that of counterparts overseas. As a result, developing partnerships and alliances ison the mind of leading Chinese firms that want to expedite
market entries. We encourage companies to be more
open-minded in setting up conversations. Sometimes thismeans approaching competitors and constructing two-way
market partners in which there is synergy; other times, itmeans negotiating and implementing operational partnerships, agreeing on distribution and marketing cooperation
deals. These companies should also not overlook coconstruction and value-creation opportunities when it
comes to globalization.

The Restaurant Sector Ups Its Game
Since the start of the post-COVID consumption recovery,
the growth rate of the restaurant sector has been significantly faster than that of physical goods. In the first quarterof 2024, national restaurant services revenue was RMB
1.35 trillion, up 10.8% year-on-year, and total retail sales ofconsumer goods increased by 6.1% over the same period.
Although the year-on-year growth rate of the restaurant
sector in March fell from 12.5% (combined January andFebruary average) to 6.9%, compared with retail sales, it
still has an advantage of more than 4 percentage points.
Throughout the past year, we have found that the growth of
the restaurant sector has not been due to price increases,
nor is it the result of a simple increase in the number ofoutlets. Analysis shows that growth in 2023 mainly camefrom an increase in the number of restaurant tickets (nearly
15% year-on-year) and the party size per ticket (6%) asgatherings came back, while the number of outlets grew by
only 3%. These trends are also evidenced by the decline inper capita spend and the increase in the table turnoverrate mentioned in the 2023 results of leading listed companies. (See Exhibit 6.)
Thanks to strategy and operational excellence, the relative
market shares of the top three in restaurant and beverageand snack subsectors increased by 2% and 4%, respectively, in the pool of top ten in 2023. (See Exhibit 7.)

BOSTON CONSULTING GROUP

5

Exhibit 6 - Restaurant Sector Grew Mainly due to the Increase in the
Number of Tickets and Party Size Since COVID Abated
No. of outlets: 10,000

1,200

No. of tickets: 1 billion+14.9%

200+3.1%

Consumption per capita

1.5x

1.5x
+6.0%

1,000

150
1.0x

800
600

Size of party per ticket

926

898

100

142

1x

1.4%

1.06x

0.986x

2022

2023

160
0.5x

400

1x

1.0x

0.5x

50

200
0

139

143

2022

2023

0

Restaurants

26

32

2022

2023

+25.9%

0.0x

2022

0.0x

2023

Drinks and snacks eateries

Sources: Euromonitor; Red meal big data; BCG analysis.

Exhibit 7 - Market Leaders Further Consolidated Shares in This Growth
SprintTop 3/Top 10 in drinks andsnacks eateries

Top 3/Top 10 in restaurants
80%
65%

67%

2% relative
share gain

60%

80%

60%
45%

40%

40%

4% relative
share gain

20%

0%

49%

2022

2023

20%

0%

2022

2023

Sources: Euromonitor; BCG analysis.

6

CHINA CONSUMER MARKET QUARTERLY WATCH Q2 2024 ISSUEWe believe that the best in the business have completed acomprehensive strategic and operational upgrade within
the last three years. This is reflected in format rationalization, the addition of micro-dining occasions, the expansionof price bands, increased operational efficiency, and improved
capital efficiency (through new franchise programs).
At the outlet level, productivity is again a central concern.
Low-productivity outlets are being replaced by smaller ormore location-specialized formats. With modular kitchen
designs, high-efficiency outlets can be tailored to get into
the nooks and crannies of metropolitan areas with highretail density, while in lower-tier markets, menus are simplified and customized to local tastes. At the same time,malls and commercial complexes remain an importantchannel for restaurant chains, as in recent years, more andmore companies have directed their attention to community
restaurants, which often have simpler and more functional
décor and lower cost bases. (See Exhibit 8.)
Market forerunners continue to explore retail possibilities
for growth. For example, a Chinese restaurant leader featuring regional delicacies opened an official flagship store
in Tmall back in 2021. Its initial product offerings included
dishes such as fatty beef stew and spicy chicken. Later, its
restaurant flagship product, boiled spicy fish fillets, wasmade available in a self-heating product form for online
sales. Another product that is co-branded with an offline
club store was also launched online. Both were instant hitswith consumers.
Others continue to find value through digitalization. For
example, an international fast-food restaurant chain used
AI-enabled solutions to help managers better their operations, saving them six hours of weekly workforce schedulingtime while improving inventory data accuracy by 30%.
The added capabilities have gone far beyond the traditional
capability requirements of the restaurant industry. To somedegree, they are asking restaurant operators to learn fromFMCG companies in marketing and retail operations. How
many will pass that threshold and unlock more growth
remain to be seen.

Coming Up Next
We invite those in the industry who are interested in the
topics explored in this issue to contact us for a more in-depth
discussion. In the next issue, we will return to the theme oftransforming core businesses and discuss strategies for net
revenue management and cost optimization.

Exhibit 8 - Five Levers for Competitive Restaurant Operations

Store
formatDiningoccasions

Price
bands

Operationaleﬃciency

Capitaleﬃciency

Format agility• Modular high-tieroutlets in high-density
locales: community
outlets, takeaway
outlets, etc.

Addition of microdining occasions• Late night snack,afternoon tea

Digital customer
operations• Private domain for
activation

Sports occasions• Healthy light food

Lower price band andcustomer acquisition• Use new products tobreak through theoriginal price barriers
and attract new
consumer groups

Renewed franchise
programs• Finer format
segmentation
matching market andfranchise capabilities

Party occasions• Family dining,
camping, self-catering,and more

Creation of sub-brands• Focus on value formoney or explore
high-end markets• Customized lower-tieroutlets
Optimal network• Close ineﬃcient
outlets• Explore business andcommunity-based
outlets

BOSTON CONSULTING GROUP

• GenAI-enabledmarketing and VOC
operational improvements
Intelligent operations• Digital assisted
workforce scheduling• Digital operational
empowerment• Go-deep eﬀort inlower-tier cities toincrease scale• Smart replenishment

7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.
Josh Ding is a managing director and partner in BCG’s
Hong Kong office. He is the leader of both BCG’s consumer
products sector in Asia Pacific and the Technology andDigital Advantage practice in Greater China.

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

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

Veronique Yang is a managing director and senior partner
in BCG’s Shanghai office. She is the leader of BCG’s
Consumer practice in Great China, and also the leader ofthe fashion and luxury sector in Asia Pacific.

For Further Contact

Acknowledgments

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

The team would also like to thank Yunling Zhou, Ying Jin,
Jiaqi Wang, and Hui Zhang for their contributions to thisarticle.

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