Small cities fuel rising consumption binge

Therefore, less pressure from mortgage and living costs, as well as more free time for their families, social activities and online and offline entertainment, provide county-level markets the required momentum to expand their consumer base, he added.

With adequate disposable incomes, consumers in these areas are increasingly turning to better products and brands, which has spurred a growing number of consumer goods firms to position themselves in these markets, according to industry analysts and company executives.

Cafe chain Starbucks announced a significant development strategy in China last September, aiming to run 9,000 stores by 2025, with its Co-CEO of China Molly Liu stressing that the company cherishes not only the more than 300 prefecture-level cities across the country, but also the almost 3,000 county-level markets.

In Xingyi, a small county in the Qianxinan Bouyei and Miao autonomous prefecture of Guizhou province, Starbucks opened its first store in late April. Prior to its opening, a WeChat group set up by the store manager attracted 500 people to join, said Tian Chenyang, a 28-year-old local.

As the local populace was intrigued by the freshness of the product offerings and eager to emulate their peers in larger cities, the store had already generated a buzz when construction first started at the beginning of the year, Tian said.

On the first day of business, numerous customers waited in long lines for a cup of coffee at an average price of 35 yuan, while local brands typically sell for less than half that, Tian said, adding that they were also eager to share their opinions and selfies on the lifestyle-sharing platform Xiaohongshu.

People in counties and county-level cities have often yearned for sophisticated and diversified lifestyles presented on short-video platforms like Douyin and Kuaishou. They are willing to pay for such products and services that offer them similar experiences, said Chen Siyu, senior consultant of the county economy research center of CCID Consulting.

Retail chains that are new to county-level markets will likely find receptive audiences if they possess strong brands, good management and sound execution capabilities despite their relatively higher but affordable pricing structures, Chen said.

To date, some 33 percent of the more than 6,800 Starbucks outlets in the nation are currently located in smaller markets, according to Canyan Data.

The big-name brands that once were exclusive to major cities have now made their way down to county-level markets over the past few years due to lower levels of product penetration and improved accessibility to the market, said Yi Shaohua, a researcher at the National Academy of Economic Strategy under the Chinese Academy of Social Sciences.

In the past, brands looking to reach Chinese consumers have typically been focused on cosmopolitan consumers in the country's first- and second-tier cities. However, over the past few years, consumption growth in such cities has slowed as the market has become oversaturated and mature shoppers are overwhelmed with choices, Yi said.

A McKinsey study expects smaller markets, particularly county-level markets, to account for more than 66 percent of China's individual consumption growth by 2030.

As a result of changing consumer landscapes and ongoing consumption upgrades, an eager and ready consumer base in these county-level markets bodes well for strong expansion potential for businesses, Yi added.

There is also evidence of such a phenomenon in the entertainment industry, as 391 theaters opened in the first half, with 150 — or 38.4 percent of the total — being in counties, according to data from the China Movie Database.

While consumer sentiment may be weaker across the country at present, the long-term outlook for China's consumer sector remains attractive. In particular, China's counties and county-level cities, numbering in the hundreds, are stepping up to fuel the growth engine that once relied heavily on megacities, Yi said.