Asia may well hold the answer to the global economic recovery. A recent report by McKinsey expects the Asian consumer market to grow to $10 trillion by 2030. And this growth will also be dictated by rising diversity in consumption.
Three reasons are responsible for this growth and shift.
Household incomes in Asia are seeing significant growth. Notwithstanding the uneven economic recovery from COVID-19 in the region; in the coming decade Asia will be home to more than half (57%) of the global households in the upper-middle income and above categories. And one of every two completed consumer transactions globally, will likely be made by consumers in the region.
Exhibit 1: Asia’s consumers are likely to be at the forefront of global consumption growth in the next decade
Cities will drive the bulk of this consumption growth in Asia. By 2030, cities will contribute more than 85% of the consumption growth in the region. Two factors will contribute to this – urban consumers growing richer and the massive surge in urban population.
Exhibit 2: Cities still matter: The top 50 may account for ~40% of Asia’s urban consumption growth and the top 250 for ~75%
The norm of growing incomes leading to higher consumption may become redundant owing to changing consumer landscape and innovative business models. This means that income will not dictate consumption, resulting in more low-income groups being able to consume goods and services that were beyond their reach earlier.
Diversification in consuming class
In 2000, only 15% of Asia’s population were considered as the consuming class, having the ability to spend more than $11 a day. By 2030, this population is expected to balloon to 3 billion people or 70% of Asia’s overall population. Between 2000-2020, 80% of Asia’s consumption growth was driven by low-income tiers. But in the coming decade, 80% of that growth, may be driven by high-income consumers.
Exhibit 3: In the next decade, 80% of consumption growth may come from the top two tiers of the income pyramid
Rising trends in urban consumption
Other than growth in consumption, 10 key trends will emerge as major shifts in consumption patterns within Asia.
Exhibit 4: As Asia’s consumption landscape diversifies, 10 new angles of growth stand out
Average size of households is on a decline in Asia, particularly in China, where it has declined by almost 30%. The ‘singles economy’ is increasing demand for products such as LOVOT, Japan’s emotional robot, the sales of which has surged 15-fold amid the pandemic. This robot maintains its body temperature at about 37 degrees Celsius, asking for regular hugs.
More than 95% of Asian seniors aged 60 and above are expected to be online by 2030. Women’s inclusion in the region will be needed as their active participation in the economy can push consumption by 30% or $3 trillion in the coming decade.
Asian brands account for between 65 to 95% of the region’s consumer spending, but this may change in the coming years. Asians are now more open to the idea of owning second-hand goods than a new one. Also, this ownership is more towards owning digital goods, rather than physical.
Super apps will continue to provide an integrated digital ecosystem in view of changing consumer demands. Personalisation of products and services is imperative for Asian consumers, as more and more Asian individuals become open to the idea of divulging their personal data.
The idea of being eco-friendly in their purchases is high among Asian consumers. And it has become more prominent during COVID-19. A separate McKinsey survey conducted amid the pandemic revealed that about 80% of the surveyed respondents from China and India were willing to pay for sustainable packaging.
Changing consumption pattern
These trends coupled with new business models driven by new technologies will lead to fresh consumption patterns. One such example is the emergence of access curves in mobility, gaming and banking sectors. Countries with high incomes display a well-established S-curve in car ownership. Meaning high incomes lead to more car ownerships. Meanwhile, mobility solutions such as ride hailing is less dependent on high incomes and is also available for individuals with lesser income, who hitherto had never travelled in cars.
Exhibit 5: Access curves: new forms of ownership and business model innovation may unlock previously priced-out consumers
These new consumption patterns could lead to new consumption curves in different sectors. This is particularly true for the automotive sector, where the consumption pattern can shift by 65% of value, while the financial services sector could witness a shift between 15% to 25%. Additionally, the shifts seen in the emerging consumption trends will vary widely between the sectors.
Exhibit 6: Asia’s shifting consumption map and new growth angles could shift significant sector value to new curves
Looking ahead
Companies will need to actively start looking at their growth map and whether it aligns to the changing consumer needs. Companies will also need to factor in the ten growth angles to their consumer map.
For instance, companies in the automotive sector can look at implementing connectivity services, in-car entertainment and partner with local ecosystems and super apps. Large banks, meanwhile, can look at partnering with digital wallet providers in launching new products catering to new consumer segments.
Other than reworking the consumer map, companies will need to become more agile in their operations, innovate quickly, while empowering local decision makers and ensuring the company board comprises digital-savvy individuals.
Finally, governments and business investors will need to devise ways in coping with the disruptions and the long-term consumption behaviours that are to come, to remain relevant in a post-COVID world.
