From Asia Financial, December 20:
‘Cheaper The Better’ Calls Harden China Deflation Battle
Growing demand for cheaper products and services and the advent of a new breed of discount stores is threatening to embed deflation more permanently into the Chinese economy
Steep price cuts and bargain hunts are becoming the new norm in China, threatening to tighten the hold of deflation on the world’s second largest economy.
Falling income growth and record-high youth unemployment are pushing the average Chinese consumer to buy fewer and cheaper products and services, which, in turn, is forcing retailers in the country to offer lower-priced alternatives.
And the fierce competition to draw the attention of thrifty Chinese consumers is reshaping the country’s retail landscape.
The pursuit of “value of money” among consumers “is reversing years of trading up across almost every category,” said Mark Tanner, founder of Shanghai-based marketing agency China Skinny.
Discounting and the roll-out of cheaper products has led to a fall in the average selling price for several product categories, including supplements, dairy, skin care and cosmetics, he added.
These trends suggest an increasing risk that recent deflationary trends could soon become more permanently entrenched in the Chinese economy.
Advent of discount stores
The climate has also given rise to a new breed of discount stores, a relatively new phenomenon for China, which, in turn, is pushing larger rivals to announce big price cuts.Lingshi Henmang is a six-year-old snack brand with the slogan “The People’s Snack”. Its products are cheaper than supermarkets and it plans to expand to 10,000 stores in 2025 from 4,000 currently, according to the Changsha-based company.
In a statement released by its public relations representative, Lingshi Henmang said the expansion was a result of strong demand.
“The market has undergone significant changes in the past three years due to the epidemic, and consumers are becoming more rational in their purchasing decisions,” the statement said.
Bestore, China’s biggest snack brand, in November fought back by cutting prices on average by 22% on 300 products, with the largest at 45%, in its biggest reductions ever.,,,
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