Zentrale Erkenntnisse
- Der wachsende Wohlstand führt zu einem raschen Anstieg der Nachfrage nach Premium-Produkten
- Außer Acht gelassene Lower-Tier-Städte dürften für den nächsten Wachstumsschub im Konsumbereich sorgen
- Unternehmen mit Fokus auf diese unterversorgten Konsumenten könnten florieren und damit Chancen für Anleger darstellen, die kaum jemand auf dem Schirm hat
- Overlooked lower-tier cities represent the next leg of consumer growth
- Companies focusing on these underserved customers could flourish, creating under-the-radar opportunities for investors
- Companies focusing on these underserved customers could flourish, creating under-the-radar opportunities for investors
Allerdings sind wir langfristig orientierte Investoren. Wir wollen wissen, wie sich der chinesische Konsumsektor entwickeln wird, nachdem die Rabattschilder abgehängt wurden. Aus dieser Perspektive heraus betrachtet, rückt ein Wort besonders in den Vordergrund: Anspruch. In ganz China steigen der Wohlstand und das verfügbare Einkommen. Der wachsende Wohlstand beflügelt das Wachstum in Bereichen wie Reisen, Lebensmittel und Getränke sowie Verbraucherelektronik. Und nirgends mehr als in den oftmals außer Acht gelassenen kleineren Städten. Diese stellen schnell wachsende Märkte mit einer rasant anwachsenden Verbraucherschicht dar.
Kleine Städte, große Ambitionen
Angaben von UBS zufolge leben rund 70% der chinesischen Bevölkerung von 1,4 Milliarden Menschen in kleineren oder sogenannten „Lower Tier“-Städten.1 Davon nennen über 330 Millionen Tier-3-Städte (siehe Grafik) ihr Zuhause. Zum Vergleich: Dies entspricht beinahe der gesamten Bevölkerung der USA.Lower-tier but high ambition
According to UBS, around 70% of China’s 1.4 billion people live in smaller or ‘lower-tier’ cities.1 Of these, more than 330 million inhabit Tier-3 cities (see chart). For context, this is just shy of the population of the United States.
City tiers description
| Tier 1 | Beijing, Shanghai, Guangzhou and Shenzhen |
| Tier 2 | Cities with GDP of Rmb750bn/US$100bn or more, such as Xiamen. |
| Tier 3 | Cities with GDP of Rmb250-750bn/US$35-100bn. They include less-developed provincial capitals, such as Urumqi and Lanzhou in western China. |
| Tier 4+ | Cities with GDP of less than Rmb250bn/US$35bn, such as Panjin, Sanya and Lijiang |
Many smaller cities are expanding. UBS noted that over 80% of Tier-3 cities reported population growth between 2010 and 2020. Labour inflows continue, thanks to ongoing government policy initiatives designed to promote mobility. The allure of the ‘big city’ also appears to be waning in the wake of the Covid pandemic.
Meanwhile, China as a whole is seeking to transition from an ‘old’ to a more ‘modern’ economy. Many lower-tier cities are shifting their industrial focus, as a result. Infrastructure and transportation systems are improving to accommodate this move. This is attracting many tech firms in areas like electric vehicle battery manufacturing, solar, and semiconductors.
Consumers in lower-tier cities increasingly want and demand the same quality of life as their big-city peers
At the same time, incomes in Tier-3 cities continue to rise. True, wages still trail Tier-1 cities like Beijing and Shanghai. However, rents and property prices are lower in smaller cities, freeing up more disposable cash to spend. Importantly, consumers in lower-tier cities increasingly want and demand the same quality of life as their big-city peers. For companies able to cater to this market, the rewards are clear.
How does this look in practice?
One name to highlight is Proya, which researches and markets beauty and personal care products. Cosmetics is a competitive industry, with numerous international players vying for the attention of China’s consumers. However, many of these industry giants only target Tier-1 and Tier-2 cities. They do so through traditional channels, such as department stores and cosmetics boutiques. Penetration into smaller cities is often weak. This creates opportunities for companies like Proya. It targets younger consumer groups in lower-tier cities with good-value products. It does so through both physical and online channels. Proya’s sales strategies focus on continual product upgrades and innovation, including key opinion-maker marketing and rapid online updates.
Unsurprisingly, the growth of e-commerce has been a big driver of Proya’s sales in recent years. It also managed lockdown-related supply-chain disruptions better than most. Thanks to good brand momentum, an expanded product mix, and ongoing investment in research and development, we believe the next few years potentially look promising for Proya.
Taking to the skies
Tourism Group Duty Free (CTG) sells duty- and tax-free goods, such as wine, perfume, cosmetics, fashion and accessories, watches, food and more. Covid-related disruptions and travel restrictions have hurt the company. Nonetheless, it remains the dominant player in this space. Government measures designed to repatriate spending to onshore markets have favoured CTG. This, and strong procurement practices and prime store locations, gives it a monopoly in many markets, including in lower-tier cities.
The company continues to expand, including its new Haikou Port duty-free complex. Government policy remains supportive. So barring another aggressive Covid wave, we think CTG could be in a good position as travel restrictions ease further in 2023.
Cin-cin!
And then there’s Kweichow Moutai. It produces and markets Moutai (a version of baijiu, a distilled Chinese liquor) and other spirits. The company is one of the premier names in the prestige segment. Like Champagne, Moutai can only be produced in its birthplace – Moutai Town. In 1951, it was named a national liquor. Ever since, it’s been the drink of choice at state banquets (President Nixon was a big fan) and national celebrations. Moutai is now one of the most profitable spirit brands in the world. In 2021, Moutai contributed 26% to global spirits profits with less than 1% volume share.2
The company will continue to target its core ultra-premium baijiu market. However, it also aims to strengthen its products across price ranges to cater for demand further down the income scale. For example, it recently launched a Rmb399 100ml Moutai, an innovative way to reach potential customers. Management plans to further optimise the brand portfolio to reach a wider market, including those in lower-tier cities.
A note of caution
Current economic conditions are challenging. While China’s third-quarter GDP of 3.9% year-on-year beat estimates, overall indicators point to the need for further fiscal and monetary easing measures. Nonetheless, we expect consumer demand to remain broadly in place.
Government policies could play a role here. During Covid, policymakers sought to boost consumption by rolling back restrictions on things like car and property sales. They also offered tax breaks and subsidies for environmentally friendly products. Similar measures could be forthcoming in 2023.
Final thoughts…
We believe that the long-term outlook for China’s consumer sector remains buoyant. Furthermore, government measures aimed at modernising the country’s economy should ultimately boost citizens’ spending power – especially within lower-tier cities. Companies targeting these affluent customers should increasingly feel the benefits at the checkout.
You can find out more about our China capabilities here.
Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.
- UBS, October 2022
- Kweichow Moutai, 2022