Managing Director & Partner
From Insight to Action
China’s growing health and wellness market—which is expected to reach nearly $70 billion by 2020—presents an enormous opportunity for forward-looking companies. But to gain a share of this market, manufacturers must understand the unique characteristics of Chinese consumers and how best to reach and serve them.
Chinese consumers are increasingly health conscious, buying a wide variety of products to treat common ailments, boost their energy, and strengthen their immune systems. The reasons for this growing trend are many: rising incomes, the stress effects of urbanization, an aging population, and the country’s ongoing issues with food safety and quality. More and more, consumers are self-medicating with health supplements and over-the-counter (OTC) health treatments—even buying brand names and higher-quality products that are more expensive.
For manufacturers of health and wellness products, the Chinese consumer market is an increasingly attractive target. But before jumping in and committing valuable resources to secure a foothold, most companies are wrestling with a variety of strategic issues, such as which consumer segments to target, what products to offer, how city size affects consumer behavior, and which distribution channels to use.
To gain more insight into these issues and to better understand consumers’ behaviors and attitudes with regard to health and wellness products, The Boston Consulting Group’s Center for Consumer and Customer Insight (CCCI) surveyed 2,600 Chinese consumers from the middle and affluent classes who range in age from 18 to 65 and live in large, medium, and small cities across the country. (The middle class was defined as having an annual household income of at least RMB 75,000 in real 2010 RMB.) All the consumers who participated in the survey had in recent months purchased products in the vitamins, minerals, and supplements (VMS) segment, the OTC-treatments segment, or both.
Our analysis of the results of the consumer survey revealed nine key insights, which we distill here along with their implications to help guide companies as they develop strategies for capitalizing on this growing market.
Chinese consumers are the world’s most health conscious. Compared with consumers in Brazil, Russia, and India, as well as those in the developed economies of the United States, Western Europe, and Japan, Chinese consumers are very concerned about their health. According to our survey, 73 percent are willing to trade up and pay a premium for products deemed healthier. That percentage is 12 points higher than the global average. Besides aspiring to physical health and wellness, people in China want to be happy, look good, and have enough energy for an active lifestyle. In 2013, health care and nutrition products jumped to number 2 among 15 product categories in which Chinese consumers plan to spend more, up from number 11 in 2011. Rising incomes among China’s middle and affluent classes are driving this market shift. Earning an annual income of RMB 120,000 and crossing the threshold of the lower-affluent class is the inflection point for increased consumption of vitamins and supplements. (See Exhibit 1.) Between 2012 and 2020, we project solid growth for the OTC segment and even stronger growth for the VMS market. Estimated at $18 billion in 2012, the OTC segment should grow at a compound annual rate of about 8 percent. The VMS market, estimated to be $13 billion in 2012, is expected to grow even faster, with a projected CAGR of about 13 percent. Overall, the value of China’s retail health market is predicted to more than double, reaching $67 billion.
Many Chinese consumers report stress-related ailments—and seek to self-medicate. Almost half of the Chinese consumers we surveyed reported feeling subpar because of lifestyle factors, such as work pressures, family obligations, and long work hours. Common complaints were insomnia, fatigue, a lack of energy, obesity, and frequent illness. The incidence of these complaints is growing fast, especially among younger people. Thirty percent of respondents aged 18 to 24 reported lifestyle ailments, compared with only 18 percent of people over 40. Chinese consumers are looking not only for treatments but also for prevention through exercise, diet, VMS and OTC products, and total-wellness solutions. (See Exhibit 2.) As consumers become wealthier and more sophisticated, they are more likely to take VMS products and self-medicate. More than 60 percent of lower- and upper-affluent consumers said that “taking VMS and OTC products is effective and convenient.” When it comes to self-diagnosis and self-treatment, about one-third of consumers—mostly those with chronic problems such as indigestion—buy OTC products in advance to have at home.
Brands are powerful—and their reputation matters. As with other product categories in China, well-known brands of health and wellness products are considered safer and of higher quality than lesser-known brands—and big-name brands are preferred. Umbrella brands tend to confer credibility across their product portfolio. Company specialization is another key factor when choosing a brand. For VMS products, 53 percent of our respondents preferred the brands of companies in a specialized VMS field, while only 38 percent favored the brands of pharmaceutical companies. It’s critical for VMS brands to be in consumers’ preferred-brand pool. (See Exhibit 3.) About 85 percent of respondents have preferred brands in mind when buying VMS products, and 74 percent choose from that brand pool.
Chinese consumers in small cities have high health and wellness aspirations and some distinct characteristics. Chinese consumers in small cities are just as interested in health and wellness as those in big cities, ranking the category as their second highest for spending more in 2013. But consumers in small cities are less sophisticated and more easily influenced than their big-city counterparts and more focused on safety and functional benefits than on brand. (See Exhibit 4.) In large cities, consumers tend to compare product information on-site. In small cities, consumers are more receptive to in-store recommendations. These consumers are also considerably less likely than those in big cities to self-diagnose and self-medicate, to rely on word of mouth, and to have brands in mind when they shop.
The Internet isn’t an important purchasing channel for VMS and OTC products yet–but it’s fast emerging as one. China is a digital nation and will have twice as many people online as the United States and Japan combined by 2015. The Internet is a critical channel for information and sales in many product categories. The total number of online shoppers grew to 260 million in 2013, up from 180 million in 2011, and online sales already account for about 8 percent of total retail sales. But the Internet hasn’t yet become a major channel for consumer health products, and only 2 percent of these products—mostly those in the VMS segment—are bought online. Chinese consumers don’t trust the Internet for health and wellness information or purchases. (See Exhibit 5.)
Still, the online channel for consumer health products is developing quickly, as the government and industry players work to improve consumers’ confidence. The government has imposed stricter requirements for online vendors. And industry players have ramped up consumer education efforts, are working to improve product quality and distribution logistics, and are making certified pharmacists available for real-time consultations. The number of products available online is also growing quickly. The company JD.com—one of China’s largest e-tailers—offers more than 4,000 SKUs for health products.
What are the implications of our findings, and how can companies capitalize on China’s growing health and wellness market? On the basis of our research and experience in the field, we’ve distilled six strategies to capture market share.
Consumers in China’s fast-growing health and wellness market are seeking trusted brands and are willing to pay a premium for quality. To capitalize on this enormous opportunity, companies must act quickly, tailoring their portfolios, building their brands, leveraging their strengths, and effectively reaching out to targeted consumers. The time to put a stake in the ground is now—before the window of opportunity closes.
The authors would like to thank Jian Zhang, Hui Zhang, and Shukun Lin for their data analysis, Martha Craumer and Belinda Gallaugher for their help in developing and writing this report.