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China’s rising cities   the next frontier
 

China’s rising cities the next frontier

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    China’s rising cities   the next frontier China’s rising cities the next frontier Presentation Transcript

    • <INSERT PRESENTATION TITLE>the China’s Rising Cities… next frontier Lynn Xu The Nielsen Company 1 Copyright © 2010 The Nielsen Company. Confidential and proprietary. Title of Presentation
    • Agenda1. The Growing Consumer Power of Lower Tier Cities2. How to Win These Consumers? 2 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • 1. The Growing Consumer Power of Lower Tier Cities 3 Title of PresentationCopyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Four Past and Current Drivers of Lower Tier Growth… 1. Massive Government infrastructure Investment Into The Hinterland 2. Private companies following the lead, increasing investment in the Center and West 3. Modern Trade grew 10 times in the growth9 years, expanding Infrastructure investment past (2004-2008) % consumptionNumber of enterprises above designated size YoY ,% opportunities in lower tier cities and towns Urban Rural 23 70 4. China’s quick Eastern Central & Western 134,224 recovery from recession makes the economy 21 60 confident. “Driving Domestic Demand” is the new Growth Model Modern Trade Store Count 19 115,415 50 99,237 17 Global Average US China 40 83,976 15 73,907 109 30 106 65,604 108 104 104 13 100 56,630 101 20 97 98 96 94 95 95 93 11 40,000 92 90 88 86 87 87 10 83 84 84 85 28,000 82 80 82 80 82 81 9 77 0 15,000 711,000 Electricity , Gas & Transport, Storage Inf ormation Water Total Water Production and Postal Serv ice Transmission, Conserv ancy , 5 and Supply Computer and Env ironment & 2000 2001 2003-2005 2003 2002 2004 2005 20062006-2008 2007 2008 2009 Projected Sof tware Utility Mgt 2010 1H 2007 2H 2007 1H 2008 2H 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q32010 Tier 1/2 Tier Source: China Statistical Yearbook, CICC Research Source: China Statistical Yearbook, CICC Research 3 Tier 4 Tier 5 Source: Nielsen RetailConsumer Confidence Survey Source: Nielsen Establishment Survey Consumer Confidence Index 4 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Explosive Growth in Urban Demand When Per Capita Annual Income Reaches RMB 6,000 Ownership of major durable consumer goods per 100 urban households in year end 1999 Urban household income appliance consumption exploded Color Television Set when incomes reached RMB 6000 Air Conditioner Refrigerator Computer RMB 7506 in today’s pricesSource: China Statistical Yearbook, CICC Research, Nielsen Research 5 Title of Presentation 5 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Tiers 3 and 4 Have Crossed Threshold Offering Ready Market for Modern Goods and Services 25,088 Estimated Annual Income Per Capita- 2009 17,333 Fridge Color TV 11,782 Computer Air conditioners 8,416 5,714 RMB 7506 RMB 1196 Food Basic Needs Tier 1 Tier 1 Tier22 Tier Tier33 Tier Tier44 Tier Tier 5 5 TierSource: GDR, ACMR, Nielsen Research 6 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • The Size of The Prize 161 million Tier 3 and 4 households are the next frontier Tier 5 169 million Households Tier 4 86 million Households Tier 3 75 million Households Tier 1 Tier 2 16 million 38 million Households Households 1 trillion 2 trillion 3 trillion 3 trillion 4 trillion Income Income Income Income Income Value Value Value Value ValueSource: GDR, ACMR, Nielsen Research 7 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Unmet Needs…Lower Tiers Account for 87% of Population but 64% Retail Sales City Tier Importance- 2009 (Nielsen Universe)Source: Nielsen Linx Retail Universe Master- 2009 8 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Rising Middle Class to Dominate But Don’t Forget Needs of Those at Top and Bottom Estimated Income Share By Tiers- 2009 22 17 14 8 Affluent > 117,000 RMB 30 36 41 Upper Middle 37 52,000- 116,999 RMB 61 Lower Middle 26,000-51,999 RMB 31 26 28 Bottom < 26,000 RMB 22 14Source: GDR, ACMR, Nielsen Research 9 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Improving the present and investing in the future Lower Tier What Are Your Lifetime’s Goals and Priorities? Upper Tier Improve my standard of living Lifestyle Build up my savings Savings Childrens education Education Improve my educational skills Increase income through investments in stocks/funds Income Growth Invest in health products and services Health Pay off debts/loansSource: Nielsen Consumer Survey-2010 10 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Lifestyle Drivers: Short Term Indulgence, TryNew Things, Upgrade How Do You Plan to Improve Living Standards? The next 12 months Buy New clothes Try Good quality food brands Tours/vacations Dining out/entertainment Upgrade household care products Mobile phone Try Good quality personal care products Lower Tier Home improvements Upper Tier 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95%Source: Nielsen Consumer Survey-2010 11 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Lifestyle Drivers: In Long Term, Big Budget Items Important... Upper Tiers More Ready For This to Improve Living Standards? How Do You Plan Private car House The Next Three Years… Jewelry Tours/vacations Fridge Home improvements Computer Lower Tier Color TV Upper Tier 35% 40% 45% 50% 55% 60%Source: Nielsen Consumer Survey-2010 12 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • If their aspirations andwants were to be sized,what would theopportunities look like? 13 Copyright © 2010 The Nielsen Company. Confidential and proprietary. Title of Presentation
    • Financial Products and Commercial Education could offer the highest potential given their strong commitment to savings and education Financial Services Education Health Opportunity Sizing (% Stating Goals x Estimated no of Households) Bank Savings Products 147 mn Commercial Education For Kids 129 mn Adult Education 118 mn Investment Products Million Households (Tiers 3 and 4) 89 mn 108 mn Health InsuranceSource: GDR, ACMR, Nielsen Research- 2010 14 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Fashion, FMCG and Dining industries will be the 3 immediate lifestyle drivers. Buying a car in the next 3 years tops the high spend list Opportunity Sizing (% Stating Goals x Estimated no of Households ) Fashion FMCG Leisure Cars Homes Jewelry Consumer Durables Home Improvement 85 mn Cars 147 mn Apparels 82 mn New Homes 129 mn FMCG Jewelry 77 mn Restaurants 105 mn 60-70 mn Brown and White Goods Vacation Packages 66 mn Computers 108 mn 61mn Toys 89 mn Mobile Phones 82 mn Home ImprovementSource: GDR, ACMR, Nielsen Research- 2010 15 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Implications: A vast and varied demand potential waits to be tapped “Straddling The Income Pyramid” is one strategy to follow Tiers 3 and 4 • Invest and innovate in a differentiated brand portfolio that covers bottom to top 22 mn HH Affluent Premium Brands • As consumers trade-up they will stay loyal to the brands they are familiar with 109 mn HH Value for Money Brands Rising Middle Class 30 mn HH Low Price/ Affordable Brands Bottom of The PyramidSource: GDR, ACMR, Nielsen Research- 2010 16 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • 2. How To Win These Consumers? 17 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Lower Tiers strongly Yet they want a work- value financial life balance success“Achieving Financial Success Is Important To Me” “We Must Have A Balance Between Work and Leisure” 39 40 32 40Agree somewhat 36 38 Agree somewhat 51 51 56 51 54 Strongly agree 48 Strongly agree Tier 1 and 2 Tier 3 Tier 4 Tier 1 and 2 Tier 3 Tier 4“I would like a Better lifestyle for myself/family than “ I like to Enjoy Time with Friends and Family”the previous generation” 26 26 21 31 Agree somewhatAgree somewhat 34 34 70 69 74 56 59 62 Strongly agree Strongly agree T ie r 1 a n d 2 Tie r 3 Tie r 4 Tier 1 and 2 Tier 3 Tier 4Source: Nielsen Consumer Survey-2010 18 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Family and They are less maintaining ‘face’ independent than are important Tiers 1 & 2 and seek social approval“ I must take care of my parents’ needs” “Moving to Different Places is Important to Improve Work and Life Opportunities” Agree somewhat 47 46 42 Agree somewhat 38 41 37 Strongly agree 32 34 38 22 Strongly agree 18 18 Tier 1 and 2 Tier 3 Tier 4 Tier 1 and 2 Tier 3 Tier 4 "I like to live life according to my own rules rather“It is Important to Keep Face Within Your Community” “ I like to live according to my own rules rather than worry about what society thinks" than worry about what society thinks” Agree somewhat 47 49 40 37 Agree somewhat 27 23 Strongly agree 28 28 20 16 13 13 Strongly agree Tier 1 and 2 Tier 3 Tier 4 Tier 1 and 2 Tier 3 Tier 4 Source: Nielsen Consumer Survey-2010 19 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Social vs. Individualism Driven to Succeed • Lower tiers are experiencing the pulls and pushes of a society in transition Tier 4 Tier4 • The social context is important to them in their journey to success Tier 1 Tier1 Tier 2 Tier2 Social Acceptance • Brand communication mustIndividualism incorporate social themes “Making life better for the family” Tier 3 Tier3 “Family and friend approval of brands bought” “Sharing the success of upgrading lifestyle with family” Relaxed/enjoy life 20 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • “Big Brands” matter more than “foreign” or “local”, even more strongly for lower tiers “Reputable Brand” Means…… Brands used by many people Brands with good after sales service International brands Visibility is key Brands people talk about Brands with a lot of advertising Lower Tier Brands advertised on TV/magazines Upper Tier Brands promoted by famous people Brands with high prices 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%Source: Nielsen Consumer Survey-2010 21 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • TV and local buzz are key purchase influencers. Internet is gaining importance Ranking of Information Sources As Purchase Influencers: Lower Tiers Home Mobiles Packaged Personal Appliances Foods Care TV Advertising 1 3 1 1 Friends and 2 1 2 2 Media Habits- Average Times Per Week Family Upper Lower 4 2 4 3 Tier Tier Internet Watch TV 5.48 5.5 4 4 5 5 Print Media Read Newspapers 4.84 3.89 In-Store 3 5 3 4 Display/ Read Magazines 2.81 2.9 brochures In-Store 6 6 5 6 StaffSource: Nielsen Consumer Survey-2010 22 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • A Brand on TV builds credibility. Lower degree ofshopping confidence than upper tiers makes them seekassurance through local and online buzz… TV Buzz Friends and Family Online Awareness Credibility Consideration Purchase Important “Product Quality Must Be Good for New if Manufacturer Can Afford TV” Brands Mere Presence on TV Sends A Strong Signal 23 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • While TV may be important now, higher Digital ROI and increasing internet penetration will open up new channel mix options Marketing ROI 2009- China Internet Penetration- China Million users 450 400 384 Trade 1.82 350 298 107 300 Rural internet Digital 2.86 users 250 85 210 200Outdoor 0.7 58 Urban internet 150 277 users 100 213 Print 1.37 152 50 0 TV 1.31 2007 2008 2009 Source: CNNIC Statistical Survey Source: Nielsen Global ROI Benchmark 2009 Report on Internet Development. January 2009 24 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • Opportunities to recruit younger rural internet users as future ambassadors for branded foods, beverages and digital products Profile of Key Users : Urban Rural Differences Age Education Income Occupation 29.7% 41.5% 27.4% 27.4% Below 19 yrs old High School RMB2001-3000 Students Urban Urban Urban Urban 41.1% 41.1% 32.3% 32.3% Below 19 yrs old Middle School Below RMB500 Students Rural Rural Rural RuralBase: All Urban/Rural Internet Users -2009Source: CNNIC Statistical Survey Report on Internet Development. January 2009 25 Title of Presentation Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • When they can up-trade, they will Value Share (%)- 2009 Premium Medium Mass Shampoo Biscuits Growth Rate (%) - 2010 vs. 2009 Tier 1 Tier 2 Tier 3 Tier 4 Tier 1 Tier 2 Tier 3 Tier 4 Premium 32 21 27 10 11 -21 24 38 Medium -14 -17 -17 -12 -2 0 2 -1 Mass -11 -4 -7 -2 -17 15 -20 -16Source: Nielsen Retail Index 26 Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • While FMCG Grocery Trade dominates the landscape, Modern Trade Productivity is 20x higher Store Count Share FMCG Sales Value Share Modern Trade Grocery Other Sales Share/Count Share Grocery Modern Modern/Grocery Tier 1 and 2 0.59 12.19 21 X Tier 3 cities 0.59 12.25 21 X Tier 4 Cities 0.67 14.64 22 XData Source: Nielsen Retail Establishment Survey 27 Channel Productivity Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • But… Lower tier cities are dispersed while modern tradegrows in clusters. To optimize distribution costs, firstsaturate lower tier cities around a retail hub. City Tier Footprint Modern Trade Footprint Modern Trade Development Index (based on Modern TradeCity Tier Count and City Size) Average City Index: 1Tier 1/2 Level 1 (>21)Tier 3 Level 2 (10-21)Tier 4-C Level 3 (3.3-10)Tier 4 D Level 4 (1-3.3)& below Level 5 (0.33-1) 28 Level 6 (0-0.33) Data Source: Nielsen Retail Establishment Copyright © 2010 The Nielsen Company. Confidential and proprietary. Survey, China Statistical Yearbook
    • Slide 1 6 segments of MT Stores count Nielsen estimates 14 Super and Growing Hubs based on Modern Trade and GDPdevelopment 9 Growing Super 2 6 Chongqing + Sichuan Shanghai 1 + Zhejiang+ Jiangsu + East Anhui 11 East Hubei + East Hunan 5 7 +North Jiangxi Beijing+Tianjin 2 12 + Hebei + East Shanxi 8 Henan 4 Center Jilin 3 Guangdong 8 9 + Center Heilongjiang 6 Modern Trade Development Index(based on Modern Trade Count and City Size) 4 Shandong 10 Fujian Average City Index: 1 1 11 Level 1 Xinjiang 5 13 Liaoning (>21): 7 Level 2 East (10-21) Qinghai + Center Gansu 12 Level 3 Ningxia(3.3-10) Shanxi + + South Level 4 (1-3.3) 10 13 East Yunnan + South Guizhou Level 5 (0.33-1) 3 29 14 Level 6 Guangxi (0-0.33 14Source: Nielsen Retail Measurement Confidential and proprietary. Copyright © 2010 The Nielsen Company.
    • Winning Tips For Lower Tiers…..1 Upper and Lower Tiers priority needs are not that different. The difference lies in exposure to products and services2 Build Communication Stories Around Social Themes to gain acceptance in lower tiers Foreign or Local brands matter less than Big Brands and3 Brands that deliver TV and Word Of Mouth are still important now but start4 investing in digital media5 When they can uptrade, they will6 Optimise FMCG Modern Trade Hubs As a ‘Go To Market’ Strategy 30 Title of Presentation Copyright © 2010 The Nielsen Company. Confidential and proprietary.
    • 31Copyright © 2010 The Nielsen Company. Confidential and proprietary.