Much has been made of the controversial “consumption downgrade” theme across China as households have dialled back on spending after several years of negative wealth effects and slowing wage growth. We won’t tackle this issue in this report, but the general sentiment still appears to be leaning towards caution, which is in line with what the economic data indicates as well.
In our reports this year, we have often discussed the “eat, drink, and play” theme, which has outperformed the wider consumption environment. These categories are typically the most resilient during a downturn in consumption, as households tend to cut other areas of discretionary spending before these categories are impacted. Retail sales data from this year shows this theme has continuously outperformed headline growth numbers since the second half of 2023.
Will this outperformance continue? Momentum in these categories has slowed somewhat in the past several months. More consumers appear to be gravitating toward higher value-for-money options. Our anecdotal observations and discussions with locals were that business appeared quite robust in low-end as well as mid-end dining options, but tables were relatively easier to obtain at the higher-end restaurants compared to a year ago. Many restaurant chains appeared to be leaning into this trend with various promotions in order to attract and retain customers.
Similar to the patterns we observe on a day-to-day basis in southern China, in a small sample size, restaurants, bars, and supermarkets appeared to account for the bulk of foot traffic in the shopping malls and districts that we visited, while other physical retailers appeared to see very limited traffic.
In a vacuum, the sluggish activity at traditional retailers would likely overstate the decline of consumption; a quick look at the swarms of delivery drivers across the cities showed that e-commerce continues to boom and very much confirms the picture painted by robust e-commerce data such as the China Federation of Logistics and Purchasing’s e-commerce logistics index, which has seen growth move past pre-Covid levels this year. This performance, despite an overall moderation of online retail sales, suggests that e-commerce volume continues to boom, but consumers may be gravitating towards lower-cost options.
