Asia is already the world’s consumption growth engine and is likely to reinforce that position over the next decade. Disregarding Asia’s consumer markets would mean missing half the global consumption story. Asia’s consumer markets are not only a story of scale, but also one of diversity and shifting preferences and behavior caused by powerful demographic, social, and economic forces. To thrive in these markets, businesses and investors will need to get to know and learn how to serve distinct types of consumers, including Japanese Instagrannies, Indonesian Generation Z gamers, Indian small shop owners, and Chinese lifestyle-indulging millennials, to name just a few.
Asian consumers are expected to account for half of global consumption growth in the next decade, offering a $10 trillion opportunity (exhibit). 1 1. McKinsey’s Global Growth Model simulations show a range of 45 to 50 percent of global consumption growth coming from Asia over the next decade, but growth outcomes will depend on the shape of the recovery from the pandemic and other macroeconomic factors in different geographies. We largely used McKinsey’s baseline scenario, which assumes that Asia’s long-term growth trajectory is not materially affected by the pandemic; this is consistent with a ten-year consensus of views formed before the pandemic by multiple institutions, including the Economist Intelligence Unit, the International Monetary Fund, Oxford Economics, and IHS Markit. Globally, one of every two upper-middle-income and above households is expected to be in Asia, and one of every two transactions to be made by consumers in the region. Strong prospects for consumption in the region reflect falling rates of poverty and rising incomes and spending power. The number of households below the middle class with limited discretionary consumption power is expected to fall by 60 percent. 2 2. Upper-middle income is defined as having annual household income of more than $22,000 in 2005 international dollars (purchasing power parity). A household with limited discretionary consumption power is defined as having household income of less than $8,000, roughly equivalent to a single person with disposable income of $10 a day at 2005 purchasing power parity. This threshold is broadly consistent with the work of others, including Surjit S. Bhalla, Second among equals: The middle class kingdoms of India and China, Peterson Institute for International Economics, Washington, DC, 2007; and Homi Kharas, The unprecedented expansion of the global middle class: An update, Global Economy & Development working paper 100, The Brookings Institution, February 2017, brookings.edu.
Powerful demographic forces are reshaping consumer behavior and causing large shifts in consumption patterns in Asia. Four demographic trends stand out.
Across Asia, the average size of households is shrinking. One-third of households in Advanced Asia and more than 15 percent of households in China are already single-person ones. In India and Frontier Asia, average household size has declined by about 15 percent over the past 20 years.
The smaller household size has implications for businesses serving Asian consumer markets. For instance, there could be an expanding opportunity in catering to the “lonely economy” and the need for new forms of companionship. One trend that has already resulted from individuals living alone is that ownership of pets is soaring across Asia—by 60 percent in South Korea over the past ten years. 6 6. 2019 National Consciousness Survey on Animal Protection, Ministry of Agriculture, Food and Rural, and Korea Agency of Education, Promotion and Information Service in Food, Agriculture, Forestry and Fisheries, November 2019. The type of products and services experiencing rising demand could include smaller portions in packaged food, food delivery at home, and may even lead to shifts in urbanization patterns as demand for more single-unit housing increases. This demographic shift is propelling growth in certain leisure categories, with demand rising for digital entertainment, solo dining, and solo travel. The “self-care” market is growing strongly as consumers increasingly focus on mental health and healthy lifestyle choices.
Seniors, defined as individuals over age 60, are expected to drive two-thirds of growth in Advanced Asia and one-third of consumption growth for the entire region. Companies recognize and understand the aging of the region, but the nature of senior consumption is changing. Most notably, the older generation is increasingly happy to consume online, a new phenomenon. In Japan and South Korea, more than 90 percent of seniors are expected to be online by 2030, while the share in China is expected to exceed two-thirds.
This shift calls for businesses to reassess how they serve these consumers. Companies likely will need to adjust their online presence and reconsider the size of their current physical footprint. Another important nuance that companies need to assess is the enormous variation in the purchasing power of Asian seniors. Around 70 million seniors, mostly in Advanced Asia and parts of China, display relatively high incomes and will drive consumption growth in categories such as health, housing (including specialized assisted-living facilities) and leisure. However, around 165 million seniors, mostly in India, Frontier and Emerging Asia and in parts of China, may live on less than $11 a day. 7 7. 2011 international dollars. They may require government and society’s assistance to fulfil their basic needs.
Digital natives—those born between 1980 and 2012, including members of Generation Z and millennials—are expected to drive Asia’s consumption over the coming decade. 8 8. Digital natives are defined as individuals born between 1980 and 2012. Millennials include individuals born between 1980 and 1995, and members of Generation Z between 1995 and 2012. They account for over one-third of Asia’s population consumption. McKinsey research on Generation Z in Asia found that 20 to 30 percent of this generation spends more than six hours a day on their mobile phones, voraciously consuming video content. They are eager for new experiences and twice as likely to buy brands that set them apart than Generation X. More than 70 percent of them are very confident of meeting their financial goals. 9 9. The only country where this generation is distinctly less optimistic is in Japan. See Aimee Kim, Paul McInerney, Thomas Rüdiger Smith, and Naomi Yamakawa, “What makes Asia-Pacific’s Generation Z different?,” June 2020.
Driven by such optimism, many digital natives are expanding their consumption, enabled by easy access to digital platforms—and borrowing. In China, digital natives already take out more consumer loans than any other generation, leading to one of every two indebted consumers being younger than 30. This debt is driving additional online consumption in categories such as apparel and durable goods. 10 10. China’s youth debt report, Nielsen, 2019, dx2025.com; Research report on Chinese residents’ leverage ratio and household consumer credit issues, Southwestern University of Finance and Economics and Ant Financial, 199IT, March 2020, 199it.com; and Credit consumption survey: Half of the post-90s generation, nearly 30 percent of the population uses loans to support loans, Rong360, August 2018, rong360.com. Some signs of financial stress are emerging in economies such as China where 30 percent of new debt taken out by digital natives is being used to “recycle” previous debt, and in Thailand and Singapore. A continuation of increased spending by digital natives will depend on whether they can pay for debt with rising incomes, and whether credit remains available.
Three types of economic empowerment of women can unlock significant new consumption power. The first is new opportunities for women to generate income through higher labor participation, which has increased by two to six percentage points in Advanced and Emerging Asia over the past decade. 11 11. Measured as the female-to-male labor-force participation rate; based on International Labour Organisation data. Second is a shift by women into higher-income occupations. Third is increased digital and financial inclusion. In India and Frontier Asia, for instance, the gender gap in access to the mobile internet has narrowed by 16 percentage points since 2017 as 78 million more women have come online. 12 12. The mobile gender gap report 2020, GSM Association, 2020. Despite some progress, substantive gender gaps remain that may have been widened by the COVID-19 pandemic that affected women disproportionately in many countries.
If women’s economic empowerment were to play out to its full potential, this could deliver as much as one-fifth additional consumption growth in Asia. In 2018, MGI research found that advancing women’s equality in Asia–Pacific could add $4.5 trillion a year to collective GDP. This could equate to as much as $2.2 trillion in additional consumption over the next decade. 13 13. Specifically, an additional 23 percent of consumption growth on top of $9.5 trillion anticipated. Women would have more to spend on categories, including having fun (entertainment, eating out, travel), caring for the family, catering to health, and even image.
As these major forces coincide with accelerating technological change in Asia, new forms of consumer behavior may emerge. Several shifts or discontinuities that are already emerging could become more prominent factors in the region’s consumption:
Consumers across Asia are changing the way they shop, nest, and move—in fact, most parts of their lives. Companies serving these markets will need to understand these consumers and adjust their business models. But which companies will be the rising stars of the next decade, and what new strategies and capabilities will best enable them to adapt to the changing Asian consumer landscape and capture the next decade of growth opportunities? The forthcoming MGI research paper will discuss these questions.
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