China Innovation: Chinese Consumption Upgrade’s Lean in

06:25

Chinese consumers and the upgrade of their consumption demands represent great potential for China's development and a new engine to drive the country's economy, the world's second-largest.

After this year's Singles' Day on November 11, Chinese e-commerce giant Alibaba announced its sales extravaganza hit 25.4 billion U.S. dollars, smashing its own record from last year and cementing the event as the world's biggest shopping spree.

Many considered it as a signal that Chinese shoppers are continuing to hunt for premium goods and extending the consumption upgrade trend.

While consumption upgrade has brought tons of surprises and reshaped different industries in many ways, consumers are not only looking for an upgrade in quality but also efficiency, and that brings golden opportunities for many startup companies as well as investors.

Efficiency Upgrade: a time-and-manpower-saving leap

From the first and second industrial revolution to the Internet revolution, every time mankind had a major leap in science and technology, it led to a move forward in efficiency upgrade. Consumption upgrade is boosting efficiency for consumers and enterprises alike.

In the retail business, unmanned supermarkets become a trend that can reach the goal: less time for consumers, less manpower for retailers.

BingoBox is a startup that has joined the wave of unmanned supermarkets in China.

According to the company's CEO Chen Zilin, unmanned supermarkets are shops that replace cashiers with technology.

For shoppers, an unmanned supermarket provides a chance to buy more in less time.

Equipped with smart cameras, AI technology can recognize customers' faces as well as items they are likely to buy. Visitors can just use mobile phones to pay their bill. No talking to staff, no long queues.

Meanwhile, sellers can reduce the cost of hiring employees and use advanced technology to make the whole process more intelligent.

“In fact, 40 stores can be looked after by one cashier, as a back-end customer service representative, at the same time by using technology. In general, it is a way to reduce costs and increase efficiency for retailers,” Chen said.

The booming development of AI research and application provides the base to make the traditional shops unmanned and intelligentized. According to Wang Liangqi, the VP of innovation center of BingoBox, they use AI to identify the commodities with products classification and inspection technology.

To prevent theft of unguarded shops, the company uses motion recognition.

Big data is also key for unmanned supermarkets, which need the support of tools able to analyze a large amount of information to make sense of underlying patterns and understand their meaning.

It is crucial to monitor the sales and storage information of all the unmanned supermarkets. Big data can also analyze user behavior to recommend products accordingly.

On the front end, AI usually collects data from the user, then transfers it to the data center platform. In the back-end systems, big data analysis provide a solution to the manager.

“Our marginal cost is low, the operating cost for each store is only 100 yuan per month”, Chen said.

Quality Upgrade: better products &more loyalty in brands

With the development of consumption upgrade, Chinese consumers are also willing to pay for high-quality products. More brands are increasingly establishing their own brand culture, reinforcing loyalty to their identity and vision.

Chinese people, mostly youths, spent over one trillion yuan overseas, and their tastes are developing faster than companies' imagination.

SmartMi produces and sells a series of popular home appliances.

According to CEO Su Jun, the origin of the modern concept of aesthetics is consumption upgrade.

There are several keywords, with the first being “simplicity”, and the second “usability”.

A smart home can anticipate people's surrounding conditions with a bevy of devices and control the devices automatically, letting all the machines know what the others are doing.

SmartMi, as an important component of Xiaomi smart home, gives customers lower prices but better quality.

“We build trending goods. A business model without trending goods will not work for us. Sales of the Millet air purifier exceeded five million units. If we didn't reach this sales volume, and instead sold 10,000 per year, the price would still have been 3,000 yuan, then consumers' purchasing power will exceed expectations, and can re-spread and diffuse like a virus. The business scale increases quickly,” Su said.

Top investors are placing bets on China's consumption upgrade

China's economy experienced a surging growth for decades. At the same time with the growth of GDP and income levels, Chinese customers said goodbye to times when material goods were in short supply. When the per capita GDP increases, consumption upgrade ensues.

The per capita GDP is an important target when we discuss consumption upgrade. When per capita GDP reaches 8,000 U.S. dollars, the business domain witnesses some magical changes.

According to Hans Tung, the managing partner of GGV Capital, when the Chinese economy grows to a certain extent, many economic segments appear. This is also an opportunity for consumption upgrade.

“When we started to invest in China, per capita GDP was about only 2,000 U.S. dollars, but it is over 9,000 dollars now. It has increased four times, which provides opportunities for new consumers in about the last two decades,” Hans said.

Growing up in an era of rapid economic and social development, mass consumption is relatively uniform. When the growth slows down, the segmentation of consumer needs appears. The demand of consumers is becoming increasingly diverse.

While many see the rise of companies like Pinduoduo as a result of the consumption degrading, Tung sees it in another way. “Pinduoduo has grown rapidly in the past three years. Many see it as a representative of consumption downgrade. I don't think so. I think it is only an angle from first-tier cities to third and fourth-tier cities. In fact, I think this phenomenon reflects the rising of the consumption in third and fourth-tier cities, and online shopping has never been higher,” Hans said.

Consumption upgrade brings endless possibilities

Hans thinks that the consumption upgrade is a long-term trend in China. At the same time, consumption in China will lead global trends.

“We are optimistic about the future of China. In the future, China will have many investment opportunities for at least twenty years." Tung added.

With the booming buying energy and continuous innovative models, consumption upgrade is a notable emerging theme, and no matter who you might be, you couldn't afford to miss out on a huge market with a population of nearly 1.4 billion and a 400-million-strong middle class.

Director：Zhou Yiqiu

Editor：Zhou Yiqiu, Wu Chutian

Filmed by: Huang Yichang, Geng Zhibin, Sun Yibo, Zuo Yue

Animation&Special Effects: Pan Yongzhe, Zhang Tao

Producer：Wen Yaru

Chief Editor：Wang Dewei

Supervisor：Zhang Shilei