Asia’s consumers blaze new trails to growth
by Oliver Tonby, Chairman, McKinsey Asia
Asia — home to more than half the world’s population and a fast-growing middle class –represents a ten trillion-dollar consumption growth opportunity. Beyond the sheer scale, the trends reshaping consumerism in Asia are likely to have global influence.
How well businesses understand and meet these increasingly diverse and changing needs of Asian consumers will determine their success. A new article from McKinsey Global Institute set out to understand this shifting consumer landscape, and the strategies businesses will need to adapt to it.
The opportunity is clear: Asia’s consumers are expected to account for half of global consumption growth in the next decade. Globally, one of every two households in the upper-middle income and above is expected to be in Asia. In the region as a whole, poverty is falling and incomes and spending power are rising. But there are challenges to this positive outlook, notably inequality and climate disruption.
Consumer-driven businesses ignore Asia at their peril. Conversely, those looking to thrive in these markets need a deep understanding of Asia’s consumers. While Asia has always been a diverse region, our new report suggests that diversity is increasingly important as demographic, social, and economic forces dramatically reshape Asian consumerism.
Four such trends stand out. First, a rising generation of digital natives will drive Asia’s consumption over the coming decade. Digital natives already account for a third of Asia’s population. They are eager for new experiences and twice as likely to buy new brands than Generation X. However, many digital natives are resorting to debt to fuel their consumption, raising questions about whether their spending is sustainable.
Second, shrinking household size puts the ‘lonely economy’ in focus. Single-person households already make up 15 to 35 percent in Asia’s advanced economies and China. This demographic shift is propelling growth in certain products — think smaller portions of packaged food, and food delivery at home — in leisure categories like digital entertainment, solo dining and solo travel, and in the self-care market.
Third, seniors (those over 60) are driving growth across the region. They are expected to account for one-third of consumption growth in Asia and are increasingly comfortable online. This shift calls for businesses to reassess how they serve these consumers, while also taking into account that the purchasing power of Asian seniors varies enormously within the region.
The fourth key trend is the potential for Asia’s economically empowered women to boost growth. In 2018, MGI research found that advancing women’s equality in Asia Pacific could add $4.5 trillion a year to collective GDP in 2025. Unfortunately, progress towards narrowing gender gaps has been slow, and the COVID-19 pandemic has set women back in many countries.
These demographic, social, and economic forces — combined with technological innovation — are driving new, different, sometimes surprising consumer patterns. From Japanese Insta-grannies to Indonesian Generation Z gamers, Indian small shop owners, Chinese lifestyle-indulging millennials, and everyone in between, trailblazing consumers across Asia are dramatically changing the way they live, shop, move, and relax. Key consumer trends identified in our report include:
A more responsible consumer. Consumers concerned about sustainability and the risk of climate change are increasingly willing to pay for more sustainable alternative products. In some cases, in this regard, they are matching or even ahead of their western counterparts.
A ‘big convergence’ of brands into superapps as consumers turn to cross-border superapps for convenience and personalization. Asia’s superapps have successfully expanded their user bases (with more than 80 percent penetration in South Korea and China), and the aspects of consumers’ lives covered, from social media to healthcare and mobility.
Changing notions of ownership are emerging as consumers switch to an asset-light life and the sharing economy. The renting and subscription economies are gaining traction. Consumers are also embracing second-hand ownership and shifting towards ownership of digital, rather than physical goods and services.
The segment of one is coming into focus as Asian consumers increasingly demand personalization, even more so than their western counterparts, and display relatively high willingness to share their data to achieve it. Consumers expect personalized offers, interactions, and communication but also personalized experiences in stores.
Asian brands on the rise. In consumer-packaged goods, local players still dominate with a market share of more than 60 percent. However, Asian regional players have grown three percentage points faster than the market over the past five years. Given this, businesses serving Asian consumer markets need to hone their understanding of local tastes, and tailor their offerings to them.
These and other emerging consumer patterns will reshape the corporate landscape. Companies that understand these and other consumer trends, and their underlying drivers, can position themselves to capture the next decade of growth opportunities and reap the rewards.
