Chinese consumer confidence down 1 point in Q1
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E-mail China.org.cn, May 22, 2015
Chinese Consumer Confidence indexed at 106 -- a decline of one index point from the previous quarterand five index points from Q1 of last year, according to a new study by Nielsen. Global Consumer Confidenceincreased one index point in Q1 to 97, while China ranks the 9th among the 60 countries and regions measured in the Nielsen's Consumer Confidence Index. In the first quarter of 2015, Chinese consumers' perception about employment and personal finance both decreased by 3 percentage points to 69% and 64% respectively. Meanwhile, the willingness to spend showed an overall increase of 2 percentage points to 44%.
"Despite the slight decline in overall consumer confidence, Chinese consumers' willingness to spend is seeing a recovery compared to Q4 last year, especially among lower-tier consumers," said Oliver Rust, Managing Director of Nielsen China. "With the increasing disposable income ofChinese consumers, the low Consumer Price Index, and the continued rapid development of e-commerce, there is a significant potential of consumer spending yet to be unleashed."
China's Eastern region, despite a decline of two percentage points, reported the highest index of 115 points, followed by the Southern region (107, -5 points) and Northern region (105, -5 points). Although the Western region lagged behind the other regions at 97 (+3 points), it has shown a recovery from the previous quarter's slight decline. The Westis the only region that has seen an increase.
The Nielsen consumer confidence index measures perceptions of local job prospects, personal finances and immediate spending intentions. Consumer confidence levels above and below a baseline of 100 indicates degrees of optimism and pessimism, respectively.
The Story of Emerging Small City Consumption
The Consumer Confidence Index remained stable at 109 points in Tier 3 cities and increased by 1 point in Tier 4 to 107 compared with previous quarter.
In particular, when looking at the key indicators behind Nielsen's consumer confidence, the immediate spending intentions in the following 12-month period jumped 8 percentage points to 50% among Tier 4 consumers.
"It's great news to see such a big rebound of spending intention amongst Tier 4 consumers. These smaller cities, numbered at around 1,600 according to Nielsen, are telling an impressive consumer story that is vitally important for China's consumption-driven economy in the years to come," said Rust. "What we find in our research is that these small Tier 4 cities are leading themomentum for overall FMCG growth in China."
During the Chinese New Year period in 2015, FMCG sales in these cities combined to take up 21.2% of overall sales nationwide, compared with 20.7% in Q1 2014. Compared to other tier cities, the FMCG year-on-year growth in Tier 4 cities also leads the ring with a growth rate of 11% in Q1 this year, followed by 7% in Tier 2 cities, 5% in Tier 3 cities and 4% in Tier 1 cities.
Small as these cities are, they are now a key driving force of the Chinese economy. These small cities, if combined, account for 40% of the national population, 42% of GDP, 35% of the retail sales and 21.2% of the FMCG sales in China. One of the key drivers behind this increase is attributed to the growth of specialty and small format stores that are more active in small cities.
With skin moisturizer for example, small specialty cosmetic stores offer a total of more than 8,600 different SKUs across the country (much more than the approximately 6,000 SKUs offered in hypermarkets), while half of them are sold only in cosmetic stores.
Besides offering a diverse assortment of products, specialty stores also enjoy more pricing flexibility compared with hypermarkets, which have prices more closely controlled by manufacturers. For infant milk formula, Nielsen's findings show that top selling products contribute 41% of sales within hypermarkets, while those same products often have a lower price in baby stores as owners can more freely offer promotions.
"Pricing flexibility, wide assortment, and frequent promotions are key reasons that specialty stores are attractive. Local consumers are always searching affordable prices and high-quality products as they strive for a middle class lifestyle,"said Rust.
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