Analyzing China’s Consumer Behavior

Goldman Sachs Research has developed a four-dimension framework to analyze China's consumer recovery, focusing on government policies, consumer demand, industry supply, and digital strategies.

• The framework categorizes market recovery paths into four shapes based on sector resilience:

  • V-shaped recovery observed in beverage and fast food chains.
  • U-shaped recovery identified for Chinese spirits and sportswear.
  • Limited impact sectors include food.
  • L-shaped paths noted for apparel manufacturers and Hong Kong retail companies.

• Key data points tracked to monitor recovery progress include:

  • Parcel delivery growth and online sales volumes during initial store closures.
  • Production resumption rates to assess supply chain disruption.
  • Store reopening progress and subsequent improvements in store productivity (e.g., table turns and same-store sales).
  • Air traffic data, which currently lags behind other consumption categories; domestic travel showed improvement during recent long holidays, while regional and international travel remain sluggish.

• Current retail trends include:

  • Pent-up demand and repatriation: Luxury and cosmetics consumption has shifted from overseas markets back to domestic channels due to travel restrictions.
  • Health consciousness: Significant sales growth in health foods and vitamin supplements, alongside a consumer shift toward higher-quality dining and increased sports participation.
  • Divergent recovery patterns:
    • High-end markets are outperforming mass-market and low-end segments.
    • Southern and eastern regions are recovering faster than the northern region.
    • Younger demographics are returning to consumption sooner than family-oriented customers.

• Notable shifts in corporate sentiment occurred between March and May:

  • March focus was on cost management and inventory digestion.
  • April saw a pivot toward new product launches to address consumer desire for fresh ideas despite price sensitivity.
  • By May, discussions shifted to price increases and discount reductions, driven by strong recovery trends and healthier inventory levels.

• Future expectations include:

  • Reversal of stay-at-home trends: Growth rates for instant noodles and small home appliances may decelerate.
  • Continuing structural trends:
    • Sustained health consciousness.
    • Ongoing premiumization as consumers prioritize quality products and services.
    • Industry consolidation as smaller players are squeezed out.
  • Strategic investments: Leading companies are strengthening competitive landscapes through supply chain, distribution, and digital network investments.

• Identified risks include the potential for continued social distancing to negatively impact specific companies' revenue, productivity, and cost structures.