6 May 2009
The Mainland Hit Parade
|Shanghai tops the list of mainland consumer markets in total consumer retail sales|
Hong Kong's well-designed and high-quality branded goods are popular with residents in these cities. In addition to running their own stores, Hong Kong brands can also build extensive sales networks by establishing hundreds, even thousands, of outlets via franchising. Well-known foreign brands have already established a strong presence in large and medium-sized mainland cities, suggesting that consumers in these areas can now afford higher-quality consumer goods.
The Top 30
Generally, the cities chosen have the largest consumer-market, highest consumption power, most developed hinterlands and most extensive coverage of neighbouring cities. The 30 cities selected in the HKTDC report are: Shanghai, Beijing, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Chengdu, Hangzhou, Suzhou, Shenyang, Qingdao, Wuxi, Jinan, Changsha, Ningbo, Dalian, Zhengzhou, Foshan, Chongqing, Dongguan, Changzhou, Zibo, Jinhua, Shaoxing, Jiaxing, Zhongshan, Xiamen, Zhenjiang and Zhuhai.
The cities are located mainly in the three major economic regions, the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Rim. Both the PRD and YRD are home to a large number of affluent cities within a relatively small area and with a busy flow of people, goods and information exchange. Retail channels and supporting facilities are well established, facilitating the development of new markets.
The selections were initially drawn from the 50 mainland cities with the highest retail sales and consumption level. They were then ranked according to four indicators: GDP, total retail sales of consumer goods, population and passenger throughput (including all cities at the same level or lower level within a 200-kilometre radius).
|The dominance of mid-range domestic brands in the central mainland city of Wuhan makes it a promising market|
Making it in the PRD
The majority of the top-30 cities are concentrated in the YRD and PRD regions and more dispersed in other regions. The geographical distribution of cities is of great significance to the establishment of sales networks, arrangement of logistics and penetration and influence of brands. With that in mind, Hong Kong companies planning to devote their resources to the development of one region first should give priority to the YRD or PRD region.
It is worth noting that the PRD is a light industrial base with a large number of factories producing textiles, shoes and headgear, electronics, furniture, home appliances, household goods, stationery and toys, and watches and clocks. Many are competitive private enterprises. In fact, Guangdong province is among the regions with the greatest number of private enterprises in China. After years of growth, many mainland manufacturers have developed high-quality products. For example, electronics and technology in Shenzhen, electronics and textiles in Dongguan, and household appliances in Foshan are particularly popular. Some mainland brands that have achieved "well-known brand" status are perceived as mid- to high-end products by PRD consumers. In view of this, Hong Kong companies wishing to break into the PRD market must enhance the quality and characteristics of their products.
The Affluent YRD
Although the market size and depth of Nanjing, Hangzhou, Suzhou and Wuxi still lag behind those of Beijing, Shanghai and Guangzhou, growth has been rapid and their per-capita consumer spending is among the highest in the country. After years of wealth accumulation and economic development, the YRD has a high concentration of affluent cities, a number of them important consumption centres.
Transportation and people flow between the cities in the YRD region are busy, and retail channels and infrastructure are well-developed. Hence, once a product has established a foothold in Shanghai, it can easily break into the larger regional market. Hangzhou, a provincial capital and commercial centre of Zhejiang, has attracted many private enterprises from other provincial cities. Hence, Hangzhou, with its huge demand for high-end products and large number of international brand stores, has become a battleground for upmarket brands.
Bohai Rim Cities
Consumers in major cities such as Beijing and Tianjin no longer blindly buy Hong Kong brands. Since there are a great variety of brands available in Beijing, consumers can compare Hong Kong brands with foreign ones. While Hong Kong brands may still have an edge over Korean and Taiwanese brands, they may be less valued than European and American brands. Younger and wealthier consumers increasingly favour foreign brands. Which means that Hong Kong brands must have a clear positioning and the right market strategies to be competitive.
Dalian has the geographic advantages of a coastal city, attracting a great number of foreign traders, especially Japanese traders, and visitors. With a well-developed information network, its residents are widely exposed to the outside world, open-minded, and regarded as fashion trend pioneers. Many international brands have chosen Dalian as the entry point to the northeastern China market.
As for central and western China, since their economies picked up more recently, only the capital cities of the more affluent provinces are better developed. The provincial capitals of central and western China in the top-30 are generally the most mature markets of the province, outshining other cities of the same province in consumption power and commercial development. The coverage of these provincial capitals is very strong and attracts consumers from their own provinces as well as other provinces, creating a kind of cluster effect.
The economies of the six central provinces of Hubei, Hunan, Jiangxi, Shanxi, Anhui and Henan rely less on export and more on domestic consumption. The Central Government's policy of bolstering the development of the central region gives a further boost to the region's spending power. While there are big spenders in the provincial capitals of Wuhan, Zhengzhou and Changsha, the average spending power in these cities has yet to peak. This, coupled with the fact that the economy in the neighbouring cities is less developed, has resulted in the dominance of mid-range domestic brands in these cities. It also explains why not many luxury brands have set up specialty stores in central region cities. The central region is still not a market coveted by industry players.
While consumers of central and western China are less acquainted with Hong Kong, they have a good impression of Hong Kong brands, the pricing of which fits their consumption level. Hong Kong products with novel or fashionable design and a relatively higher performance-to-price ratio have, in fact, become their shopping preference.
For more details on the top-30 mainland consumer markets, please see the HKTDC Trade Watch: "Breaking into the Mainland Consumer Market - HKTDC's Top 30 Cities," which can be ordered at www.hktdc.com/bookshop.