Much has been written about the pandemic’s impact on Asian consumers: how they embraced new ways of shopping, as well as how retailers and consumer goods companies were forced to quickly adapt their business models.
Now, the focus has shifted to whether many of these patterns and preferences will endure once the pandemic abates and whether today’s geopolitical and macroeconomic instability will slow a full spending recovery.
The current phase is accompanied by no small amount of uncertainty and potential disruption. Recent infection spikes serve as a reminder that the world is not yet in the clear. Macroeconomic factors (such as rising inflation and an economic slowdown) and geopolitical disruptions (such as the war in Ukraine, which has resulted in a massive humanitarian and refugee crisis; soaring prices for essentials; a rotating energy policy; threatened food security; an intensifying race for critical materials, equipment, and commodities; and reconfigured global value chains and sourcing strategies, among others1) have added to the mixed outlook among consumers. Amid this uncertainty, one thing is clear: consumers are unlikely to fully return to their prepandemic behavior.
This article, based on the most recent McKinsey Consumer Pulse Survey across six Asian countries, as well as previous editions of the survey from the past two years, seeks to understand how Asian consumer preferences are being shaped by the latest disruptions and what companies can do to respond.2
Asian consumers are positive—for now
Despite ongoing challenges, most Asian consumers are feeling more optimistic about the future than those in Europe or the United States. Our survey found that Indian and Indonesian respondents are particularly upbeat about their countries’ economic rebound (Exhibit 1). In contrast, China has endured a recent surge of COVID-19 cases and ensuing lockdowns, contributing to a decline in consumer sentiment of 12 percentage points. Australia also experienced a significant drop in optimism. Japanese consumers, who are historically among the least optimistic consumers in Asia, saw their collective outlook darken slightly.
Rising consumer optimism is typically accompanied by higher spending. As such, Indian and Indonesian consumers lead the pack in willingness to spend: more than 50 percent intend to increase spending slightly or a lot across categories (Exhibit 2). Meanwhile, China and Japan had the lowest intent to increase spending.
However, inflation is starting to have a meaningful impact on the region. Across Asia, depending on the country, 30 to 65 percent of consumers who decreased their overall spending pointed to inflation as an important factor (Exhibit 3). To date, there is still positive momentum across Asia, with consumers—especially in India and Indonesia but also in South Korea—expressing an intent to purchase larger quantities, buy more premium goods, or both.
In essence, the desire to splurge after two years of the pandemic is higher than the impact of inflation and global uncertainty. This behavior is particularly pronounced for younger generations and high-income consumers (Exhibit 4). Australia had the greatest range among consumers by generation and income levels, while Chinese consumers largely share similar attitudes. However, with inflation on the rise, the tide may be turning.
Some pandemic-era consumer behaviors are likely permanent
A few consumer trends accelerated during the pandemic—notably, all things digital, health, safety and sustainability, and brand experimentation. Two years into the pandemic, these shifts appear permanent.
Enthusiastic embrace of omnichannel
Consumers have increased their digital activity across the board. In everything from online streaming and video chats to food delivery, consumers have become much more digitally savvy. They appear set on continuing this behavior: in many activities, at least 60 percent of respondents expressed the intent to continue engaging through digital channels after the pandemic abates (Exhibit 5). Japanese consumers have wholly embraced digital engagement across demographic groups. Meanwhile, India experienced spikes in online fitness, telemedicine, food delivery, and e-sports. Other countries were only slightly less enthusiastic.
Across the region, omnichannel appears here to stay. In China and South Korea, omnichannel purchases represent the majority of transactions in nearly every category (Exhibit 6). Japan is the clear outlier, with the bulk of consumers preferring in-store purchases over digital channels.
Eroding loyalty and higher brand experimentation
In the early days of the pandemic, lockdowns, economic disruption, and uncertainty led to an increase in brand switching. For example, 60 percent or more of Indian and Indonesian consumers have tried a different brand since the pandemic started (Exhibit 7). Consumers are continuing to seek greater variety. This trend gives new brands the opportunity to reach a wider set of consumers, while existing brands may have to reinvent their value propositions.
The reasons behind the increased experimentation provide hints for how companies can cater to these shoppers. For consumers who have tried a new brand since the start of the pandemic, value was the primary factor in the decision (Exhibit 8). Brands that are distinguished by quality and novelty also have drawn curious shoppers, particularly in India and Indonesia.
Purpose higher on the agenda
The pandemic has led consumers to focus more on health, safety, and sustainability, even in countries where these choices were historically considered a luxury. Sixty to 75 percent of Asian consumers said they would turn away from a brand if they were to get value from other options. Today, purpose (including sustainability) has become the number two reason why Indian consumers try a new brand.
How retailers and consumer goods companies can respond
How can retailers and consumer goods companies stay ahead of the factors shaping consumer preferences and gain a sustainable market advantage? Our analysis suggests executives should target four areas.
Systematically trim costs and increase resilience ahead of any headwinds
In the face of increasing uncertainty, taking a zero-based approach can help executives identify their organizations’ primary cost centers—typically, raw materials, logistics, and supply chain—and make strategic cutbacks without undermining operational performance. By starting with a cleansheet approach and developing a survival minimum, organizations can then iteratively reintroduce strategic priorities and value-adding activities to reach the optimal operating model.3
Further, now is a good time to ensure that supply chains, whose resilience increased as a result of the pandemic, can withstand other potential disruptions. Renewed lockdowns in China and the war in Ukraine have disrupted trade flows and present organizations with new challenges that will test the mettle of their pandemic improvements. Retailers and consumer goods companies alike need to raise their game further by achieving end-to-end transparency across their supply chain. Investments in technology, data, and analytics can help decision makers to be better informed. With these insights, a dedicated team can address short-term bottlenecks and help diversify suppliers in the longer term. Such measures can mitigate the impact of price increases, limit transportation costs, and reduce supply constraints in transport lanes.
Become a triple threat in digital
As consumers continue to embrace omnichannel shopping, retailers have a golden opportunity to deepen their engagement with consumers by meeting them where they are. For consumer goods companies, digital enables new modes of brand building and consumer engagement.
Both retailers and consumer goods companies should harness digital technologies in three ways. First, the growth of the digitally savvy homebody consumer requires retailers to digitalize the customer journey and provide an omnichannel experience that beats the competition. Consumer goods companies need to figure out new routes to the consumer.
Second, structural labor shortages, economic fallout from the pandemic, and rising inflation are pushing companies to digitalize their value chain. Organizations can reduce costs and improve efficiency by replacing unnecessarily manual tasks with automation.
Last, retailers and consumer goods companies will need to augment their workforce with digital capabilities. This effort involves not just enabling employees to continue their desired hybrid working style but also using data analytics at scale to improve decision making. High-priority areas include managing procurement costs through advanced analytics, optimizing the supply chain to reduce waste, and ensuring the right product at the right price is in the right place with the right promotional and marketing support.
The impact can be substantial. An Indian consumer goods company with more than 800,000 outlets used advanced analytics across its sales channels to increase sales revenues by more than 20 percent within a year. Digital engagement with consumers enables new business models such as retail media networks, which can make or break the route to profitability for retailers.
Reinvent customer loyalty through innovation and personalization
Consumer spending patterns will be shaped by a range of factors affecting the return of a country’s economy to prepandemic levels. Some Asian countries are still experiencing new spikes in infection, causing commodity price inflation that is already undercutting spending. Retailers and consumer goods companies must carefully monitor these trends and adjust accordingly to ensure that their products connect with different consumer segments.
As consumers continue to try new products and experiences, retailers and consumer goods companies should also be prepared to keep pace with this experimentation. Better customer segmentation can provide the insights needed to develop product offerings, recommendations, and promotions tailored to individual consumers. The line between marketing and sales continues to blur as sales becomes hyperpersonalized. Especially in more luxury categories, technological trends such as the metaverse are creating new opportunities to engage and customize offerings.
Make a meaningful pivot to sustainability
Purpose, including sustainability, is gaining traction. In Europe and the United States, companies have committed to bold targets for achieving net-zero emissions, incorporating sustainable plastics, and cutting water use for periods of time. Asia has historically lagged the rest of the world in these areas. With consumer preferences gradually transitioning to sustainable, natural, and organic alternatives, companies are starting to prioritize sustainability across the value chain, with an emphasis on limiting waste over the life cycle of goods from source to consumer. In several categories, such as luxury and apparel, the secondhand market is expanding, with increased interest from Asian consumers, especially younger ones.
Two recent McKinsey reports suggest that the industry should reimagine a world with smaller individual wardrobes, more focus on longer-life garments, and a flourishing resale and rental market.4 Over the next decade, much of the global warming likely to occur will result from emissions that have already been produced. At their most extreme, these events could be life-threatening. But climate change will also likely affect people’s wellbeing and livelihoods. For instance, chronic heat in some places—including parts of India, a critical region for cotton production—could make it unfeasible for employees to work outdoors or in rooms without air conditioning. Meanwhile, coastal and riverine flooding could threaten manufacturing sites in parts of Southeast Asia, such as Bangladesh and Vietnam. Disruptions could significantly affect supply chains and business continuity.
Therefore, in addition to accelerating action to decrease emissions, retailers and consumer goods companies need to integrate resilience against climate hazards into their plans. Now, rather than later, organizations will have to make some tough choices on where to invest—particularly when resources are scarce.
While consumers are much more optimistic now than they were during the height of the pandemic, companies need to closely monitor trends and developments to determine how net intent translates to actual spending in specific categories and at certain price points. In general, executives should seek to get ahead of uncertain times by radically reducing costs and freeing up resources to invest in consumers and in customer value propositions such as omnichannel experience, value delivery, and service enhancement through personalization. The variance in attitudes across the Asian region will require companies to customize their offerings by country. Retailers and consumer goods companies that are resilient enough to pivot to a digital core and enhance their personalization capabilities will be best positioned to retain relevance and market leadership.
