Consumers in China lead the global trade-up trend for packaged goods

16 April 2018 4 min. read

Since 2015, consumer sentiment has improved: over the past two years, consumers have increasingly felt better about their finances, making them more likely to ‘trade up’ to upscale consumer packaged goods brands and less likely to trade down. Though the trade-up trend is slightly stronger globally, there are vast differences at the country level, according to a recent McKinsey & Company survey. Notably, India, China, and Turkey have the highest trade-up rates, while Latin American and African countries have some of the highest trade down rates.  

Consumer finances have faced ups and downs in recent years. In the UK, real-wage decline has resulted in long-term negative consumer sentiment, while in many developing countries, strong economic growth has boosted pay. To better understand consumer sentiment, McKinsey & Company has released its latest ‘How are consumers feeling about their finances?’ report. The report is based on a global survey of 28,000 online respondents, whose background is predominantly younger, urban, and more affluent.Global sentimentThe survey found that consumers are somewhat more upbeat about their financial positions than they were the previous year – from a baseline of 100 in 2015, financial sentiment increased from 101 in 2016 to 103 in 2017. The improvement reflects improving global stability, the expansion of the middle-class in developing economies, and improving real-wage growth in developing economies.

The study also showed that customers are shifting their buying behaviors, with the mid-range product market in particularly falling to trade-ups and trade-downs. McKinsey finds that consumers are abandoning mid-level brands in the fast-moving-consumer-goods categories for either thriftier or more expensive brands. Trade-ups are slightly stronger than trade-downs, with an increase on the ‘Trade up’ index to 114 in 2017, and a slight decrease to 90 on the ‘Trade down’ index.Trade ups and downs by countryWhen respondents were asked whether they traded up or down, on average 12% said they traded up, while 10% said they traded down. However, individual countries differed considerably.

Chinese consumers were the most upbeat, with a net 18% saying that they traded up, followed by India, at a net 17%. Turkey showed a mixed-bag result, with 21% trading up and 13% trading down. Poland was almost evenly split, with 18% trading up, while 15% said that they traded down. In China, gains in consumer confidence have led to an increase in discretionary spending, fueling their high trade-up rate and drastically limiting the trade down rate.

Various developed countries, though, saw negative impacts outweigh positive ones. In the UK for instance, Brexit, inflation, higher debt, and poor wage growth have impacted consumer confidence, with a net 11% saying that they traded down. Australia too showed negative sentiment, with a net 5% saying that they traded down. Germany remains slightly upbeat, with a net 3% saying that they traded up, while the French came in at net neutral.

Brazilian consumers, caught in an economic recession, were much more likely to trade down. Consumers in Brazil, Kenya, Nigeria, South Africa, and Colombia had trade-down rates of 20% or higher, while having trade-up rates of no higher than 7%.US consumers food lifestyleFinally, the study shows that Western consumers are split on the appeal of natural, organic products. While in Western Europe there is still some growth in the category of natural, organic, and ‘local’ products, US consumers are less concerned with whether their food falls into those categories. Though many Americans said they’re eating healthier food, for them this means adhering to a particular ‘food lifestyle’ rather than eating organic strawberries or locally sourced turnips. 

Millennials are scattershot between ‘food lifestyle’ categories, with fairly similar distributions among many categories, including low-fat, gluten-free, low-carb, and dairy-free. Gen X-ers are particularly keen on dairy-free diets, while also being the most likely to adhere to a food lifestyle. Boomer are least likely to adhere to a specific food lifestyle, at 38%, though they are the most likely of all categories to be on a low-fat diet.