23 Sept 2015
Qingdao: Profile of a Consumer Market
1. Economic Overview and Development Planning
Situated in the south of Shandong peninsula, Qingdao is an important base for manufacturing, high-tech industries and modern services in Shandong province and even the whole of China. In recent years, great efforts have been made by Qingdao to build a high-end industry cluster in a move to develop the city into an advanced manufacturing industry base, a new and high-tech industry base, a modern services base, as well as a regional economic centre, an international shipping centre in Northeast Asia, and a national marine research hub in order to maintain a brisk yet stable pace of socio-economic development.
Qingdao’s GDP in 2014 was up 8.0% from a year earlier to Rmb869.2 billion, representing a per capita GDP of Rmb96,524. Of this, secondary industries accounted for 44.6% while tertiary industries accounted for 51.2%.
In recent years, Qingdao has been working hard to establish ten 100-billion-yuan industry chains in home appliances, petrochemicals, garments, food, machinery and equipment, rubber, automobiles, rail transport equipment, ship and marine engineering as well as electronic information. In 2014, the output value of these 10 industry chains grew 10.2% and accounted for 75.3% of the output value of all industries above a designated scale. The total output value of industries above a designated scale in the city amounted to Rmb1,676.1 billion, with the output value of high-tech industries growing 16.7% and accounting for 40.7% of total industrial output. Meanwhile, output value of new strategic industries above a designated scale grew 20.2% to Rmb301.9 billion, accounting for 18.0% of total industrial output. Currently, a host of new industry systems are beginning to take shape in Qingdao, including new materials, biotechnology, high-end equipment manufacturing, new energy sources, energy conservation and environmental protection, as well as new generation information technology and new energy vehicles.
As China’s centre in marine research and education, Qingdao has the highest overall capability in marine technology innovations. Besides being home to 30% of the nation’s marine research institutions, it also draws in 40% of the nation’s high-calibre marine researchers/academics and undertakes 50% of the nation’s key marine research projects. The National Laboratory for Marine Science and Technology and the National Deep Sea Center are examples of key marine projects in the city. In 2014, the total value of Qingdao’s marine production was Rmb175.1 billion, accounting for 20.2% of city’s GDP.
According to Outline of Building Qingdao into an International Trading Centre (2013-2020), Qingdao plans to become an international trading centre in Northeast Asia. With this aim in mind, it will implement the ‘Five-Point Action Plan’ of ‘Spearheading Development through E-commerce’, ‘Upgrading Development through International Trade in Goods’, ‘Making Breakthroughs in Development through International Entrepot Trade’, ‘Expediting Development through International Trade in Services’ and ‘Integrative Development of Domestic and Foreign Trade’. At present, Qingdao ranks among the world’s top 10 ports and managed a throughput of 470 million tons in 2014. By 2020, it is expected that the value of Qingdao’s e-commerce transactions will exceed Rmb1 trillion, the total value of international trade will reach US$150 billion and the share of international entrepot trade will rise to around 45% of all international trade in the city.
Qingdao devotes great efforts to developing modern services, such as finance, logistics, tourism, convention and exhibition, technology and information services. The goal is to accelerate the pace of forming an industrial structure centring around the service economy. In fact, it is amoung the first pilot cities in the country for integrated services reform. At the same time, Qingdao is a city with the most complete range of financial services and the highest concentration of foreign banks in Shandong province. Currently, it is an experimental zone carrying out comprehensive reform in wealth management finance. Qingdao will intensify efforts in the reform and innovation of its financial system so as to set up a financial cluster and an internationally oriented wealth management centre.
Moreover, Qingdao has nurtured a number of world-renowned brands including. Haier, Hisense and Binary Star. Tsingtao Brewery has the longest history in China’s beer production. It accounts for over half of China’s total beer exports and, according to China’s Top 500 Most Valuable Brands issued in 2015, Qingdao Beer is the first beer brand in China with value of more than Rmb100 billion. Qingdao has 82 well-known Chinese trademarks accredited by the State Administration for Industry and Commerce, and has been awarded the titles of ‘Brand Capital of China’ and ‘China’s Top 10 Brand Cities’.
Tourism is an important economic activity in Qingdao. In 2014 Qingdao played host to almost 68.4 million domestic and foreign tourists and total tourist receipts amounted to Rmb106.1 billion, up 15.0%. According to Qingdao Tourism Overall Planning (2013-2020), efforts will be focused on developing the areas surrounding the coastal resort area and eco-tourism areas around the Dagu River with a view to stimulating the integrated development of tourism with other industries. Meanwhile, tourism facilities will be upgraded comprehensively to turn Qingdao into an international coastal resort city. The rise in tourist numbers will, no doubt, keep the local consumer market buoyant.
In keeping with the national ‘Belt and Road’ initiative, Qingdao is positioning itself as a ‘key node along the economic corridor of the new Eurasian continental bridge’ and ‘pivot for the maritime cooperation strategy’. As such, it will strive to serve as four functional carriers, namely a two-way bridgehead for economic opening-up, a hub for economic and trade cooperation, a platform for East Asian maritime cooperation, and a base for comprehensive security services. Also, in countries along the Belt and Road, it will step up efforts in promoting two-way investment and trade cooperation, identify partner cities for economic cooperation, launch a slew of key projects in two-way investment and trade, and set up a number of economic and trade cooperation parks overseas. Qingdao will strive to expand trade with countries along the Belt and Road to a value of US$50 billion within five years.
2. Qingdao’s Consumer Market
2.1 Growth in Retail Sales
Qingdao’s retail sales have been rising steadily in the last few years. In 2014, the city’s retail sales of consumer goods grew 12.6% over the previous year to Rmb326.9 billion. During the year, retail sales of cars amounted to Rmb33.61 billion (+10.4%); petrol and petrol products, Rmb17.57 billion (+8.2%); grain, oil, food, beverage, tobacco and wine, Rmb14.51 billion (+13.1%); daily-use articles, Rmb3.49 billion (+14.3%); cosmetics, Rmb2.11 billion (+7.6%).
A comparison between 2004 and 2014 figures reveals that ownership per 100 urban households at year end for basic home appliances, such as shower, hot water heater, washing machine and refrigerator, was relatively stable, indicating that basic home appliances are already popular among Qingdao households. It is worth noting that there is a distinct upward trend in the ownership of high-tech products, an indication that Qingdao homes are getting more modernised. The ownership of computers and mobile phones per 100 households has increased several fold in recent years. Moreover, within the decade, the ownership of cars among Qingdao households has multiplied 17 times.
2.2 Per Capita Disposable Income and Consumption Expenditure
In 2014, per capita disposable income of urban residents in Qingdao grew 8.7% from a year earlier to Rmb38,294 and per capita consumption expenditure was Rmb24,016, an increase of 8.9%.
3. Characteristics of Qingdao’s Consumer Market
3.1 Population Structure
At 2014 year-end, the permanent population of Qingdao stood at 9.04 million.
According to China’s sixth census, there were 2.8 million households in the city in 2010, with an average of 2.79 members in each household, 0.18 persons fewer than the 2.97 persons in 2000. Of the city’s permanent population, 50.4% were male and 49.6% were female. In terms of age distribution, people aged 0-14 accounted for 13.4% of the total population, those aged 15-64 accounted for 76.3%, while those aged 65 and above accounted for 10.3%. Compared with the population census conducted in 2000, the share of people aged 0-14 in total population dropped 3.7%, those aged 15-64 rose 2.8%, while those aged 65 and above climbed 0.9%.
Where education level is concerned, 14.9% of the permanent population have received education at university/tertiary levels or above, 55.7% have received high school education, and the rest have reached primary school level or below.
3.2 Characteristics of Consumers
In recent years, as an important coastal port city in the north of China and a world-renowned tourist city, Qingdao’s urban economic structure has been undergoing adjustments alongside urban development. What is more, there have been changes in the habits and pattern of consumption of its residents.
Online consumption expands at breakneck pace
The breakneck pace of online consumption growth is a major change in the attitudes and habits of Qingdao residents in recent years. According to statistical data from Alipay, a third-party online payment platform launched by Alibaba, as of 2014, per capita expenditure on online shopping of Qingdao residents ranked 28th among Chinese cities and 1st among Shandong cities. Moreover, the increase is not limited to consumption on Taobao: in the last two years, the use of online shopping via agents and mobile phone payments by Qingdao residents has been growing rapidly, so much so that, particularly for cosmetics from Japan and Korea, as well as daily-use articles, online shopping has already become an important consumption category for young white-collar workers in Qingdao. What is more, the municipal government of Qingdao is also encouraging and developing the Internet economy and has set the objectives that, by 2020, the total value of the city’s e-commerce transactions would exceed Rmb1 trillion while online retailing will account for more than 12% of total retail sales of consumer goods.
Rise in consumption of peripheral counties and cities
Under the city’s ‘axle and belt’ development strategy targeted at extending its reach to three peripheral counties and cities, rapid development was realised both in the west coast urban areas and north coast urban areas. The west coast urban areas primarily consist of the former administrative district of Huangdao and Jiaonan City, whereas the north coast urban areas mainly comprise Chengyang District, Jiaozhou City and Jimo City. And this has stimulated a corresponding rapid rise in consumption by residents in peripheral counties and cities.
Customer data statistics of the last few years from upmarket department stores, such as Hisense Plaza and Sunshine Department Store, reveals that the number of high-end consumers from counties and cities including Jimo, Chengyang, Jiaozhou and the west coast areas (formerly Huangdao and Jiaonan) has increased two- to three-fold since 2012, and these consumers are mainly entrepreneurs, section heads of companies and owners of private companies in the 35-45 age group. The key consumption areas for these residents in peripheral counties and cities include home decoration, cars and mobile phones as well as medical and healthcare spending.
Rapid growth in elderly consumption
Though young white-collar workers remain the main constituents among local consumer groups, Qingdao’s middle-age and elderly consumer groups have been growing rapidly in recent years, as evidenced in their consumption expenditure in tourism, health products and food. Older adults from Qingdao are mostly concerned with practicality, habits, convenience and service. Once they have identified products and brands they like they will stick with them, and will often buy a product after seeing it advertised, even though the price may be a bit steep. As far as places of consumption are concerned, other than traditional markets, the older consumers also tend to shop in small grocery stores near their homes; in supermarkets like Carrefour and RT-Mart where a complete range of products are available; in comprehensive department stores such as Liqun and Likelai; as well as in specialised stores and various types of product fairs.
Increasing spending on culture and tourism
In recent years, in addition to spending on their daily food and clothing, Qingdao residents are spending increasingly more on culture and tourism. As long as they have the economic means, Qingdao residents will arrange several trips a year to take family members to see the world. At the same time, tourism authorities and travel agencies are also guiding and stimulating their tourism spending continuously. For example, HNA Group’s Easy Go travel supermarket and Wanda Group’s Wanda International Travel Service have set up outlets in shopping malls with high traffic. In addition, the annual Lunar New Year celebration event ‘Friendly Shandong’ and the ‘discount month’ organised by Shandong Tourism Administration are stimulating the outbound travel spending of Qingdao residents.
4. Profiles of Qingdao’s Major Commercial Districts
All along, Qingdao’s commercial activities have been concentrated in the four commercial districts of Zhongshan Road, Taidong, Eastern and Licun. But in recent years, emerging smaller commercial districts based on urban complexes have been taking shape outside these four districts. It began with Mykal Department Store and CBD Wanda, then came Zendai Plaza and the recently launched MixC in Eastern. These urban complexes boast not only larger areas and offer more types of consumption, they also manage to attract different consumer groups with their unique styles.
Qingdao’s high-end commercial centres are concentrated in Eastern. The five commercial centres of Sunshine Department Store, Mykal, Hisense Plaza and Marina City constitute the core area of the traditional commercial district of Eastern and also bring about huge customer traffic. In recent years, high-end retailing in Eastern has flourished. The three-storey Hisense Plaza completed an additional fourth floor in 2012. Phase II of the newly added fifth floor had its soft opening in May 2015. This allows the addition of some 300 tier-one domestic and foreign brands, a 6,800-sqm themed dining and leisure zone, a 2,100-sqm children’s play area, as well as the conversion of some stores of top international labels, including Louis Vuitton and Burberry into double-storey units.
The western side of the traditional Eastern commercial district used to be comparatively quiet, but since April 2014, with the opening of Tsingtao Centre at the junction of Xianggang Middle Road and Shandong Road, numerous major brands in fashion, household products and restaurants have been attracted to the area. Just 500 metres away, the HNA IMC Center is newly opened for business, home to the French Pavilion and stores such as Aston Martin, one of the world’s top sports car brands. On 1st of May this year, MixC Qingdao also opened for business at the junction of Xianggang Middle Road and Shandong Road, said to be the largest MixC in China, with the largest number of stores and the most complete range of businesses.
Among the four traditional commercial districts, Taidong has never seen any lack of popularity. Converging towards Taidong Liqun and Wal-Mart at its centre are home appliance stores including Suning, Gome and Five Star; the specialised stores of domestic and foreign brands including Nike, Adidas and Septwolves; and a host of smaller stores, as well as the largest night market in Qingdao. So, even though commercial facilities in Taidong may look a bit worn out, for the common people of Qingdao, young and middle-age consumers as well as residents from the surrounding areas, it is still the top choice for strolling about and shopping.
Meanwhile, a number of large commercial structures are undergoing development or renovation in Taidong. At present, the renovation projects on Renhe Road and at Taidong Post Office as well as a number of large shopping centres east of Weihai Road and north of Taidong 1st Road will be completed in the next two years successively. This will greatly increase the commercial space and development potential of Taidong.
Licang commercial district has undergone great changes in recent years. Most activities in the traditional Licun Commercial District are seen around the three local department stores of Weekly, Beifang Guomao (北方國貿) and Likelai, as well as the century-old Licun Market. It is the top choice of locals as well as suburban residents wanting to do shopping.
In recent years, with the successive completion of large commercial complexes, including Licang Wanda Plaza, Rock City, Licang Inzone Plaza and Licang Powerlong Plaza, local commercial formats and consumption fashions have been greatly enriched. Located at the very centre of the traditional Licang commercial district, Rock City is an important place for residents around Licang and migrant workers in Licang seeking leisure activities or wanting to do shopping. Immediately next to Rock City is Licang Inzone Plaza, which attracts a large number of people from Jinan and Dongying living in Qingdao on the strength of the influence of Inzone Mall to go and spend money there. Licang Wanda Plaza on Heilongjiang Road is the third Wanda Plaza in Shandong after Taidong Wanda Plaza and CBD Wanda Plaza. It is also a new commercial centre outside of the core areas of Licang commercial district. With a floor space of some 200,000 sqm, it houses a multitude of business formats, including department stores, cinemas, karaoke bars, hypermarkets, amusement game centres, restaurants, home appliance stores, indoor leisure shopping areas as well as a food street.
This used to be the largest and busiest of Qingdao’s top four commercial districts, but with the moving away of the municipal government and the shifting of the city centre eastwards, it has turned into a commercial district mostly frequented by tourists and students. Currently, there are still department stores, such as Parkson and Guohuo (國貨), but other than old shops such as Shengxifu hats shop, Chunhelou restaurant and Tianzhen Photography, most of the specialised shops here are now replaced by tourist souvenir shops and restaurants.
As an emerging commercial district in Qingdao, Laoshan’s layout is concentrated to the south, north and west. The southern segment is around the intersection of Xianggang East Road and Hai’er Road and is home to Leader Plaza, Lotte Mart and numerous scattered stores. It is also the spot from which the Laoshan commercial district first emerged and customers are mostly residents of Laoshan and those living in the neighbourhoods of Taidong and Xizhen. According to planning, projects such as Parkson Group’s Parkson Shopping Centre and Liqun Group’s Liqun Laoshan International Shopping Centre will be located here.
The northern segment is located around the intersection of Shenzhen Road and Liaoyang East Road and has transportation advantages, thanks to the G20 high-speed rail, bus terminal at the East Railway Station, and the underground and urban trunk roads in its vicinity. In the next two years, Liaoyang Yuedong Road Shopping Centre and Peking University Resource Plaza will be built. Also on the drawing board are Wal-Mart and Ikea. The western segment is centred on Zendai Plaza, opened for business in 2012. Also located here are CP Lotus at Fushanhou, the recently opened Huanan Lehuo City (南華樂活城), the Old-fashioned Cultural City as well as Yile Plaza near Tong’an Road.
In terms of market positioning, the southern segment of Laoshan commercial district is designated as a high-end district for trendy retailing; the northern segment is still at a nascent stage of development, but will be home to mostly branded household goods and warehouse-style malls; the western segment will be dominated by supermarkets.
Other emerging or smaller commercial districts
Currently this district is far from comparable to the four traditional commercial districts described above. At the moment, its only main feature is Wanda Plaza on Yanji Road and its customers are mostly residents in the neighbourhood and some middle-aged and young consumers from elsewhere. But in this designated central business district in Qingdao, construction of Zhuoyue Building (卓越大廈), Xingshang Building (興商大廈) and Caifu Centre (財富中心) will be successively completed here by the end of this year or in next year.
This district is formed by Sifang Liqun, Fangzhongyuan commercial street and Haiyun’an (Haiyun Nunnery) Plaza. Fangzhongyuan and Haiyun’an, in particular, are the venue for the annual ‘Sugar Ball Fair’ (糖球會) that has many Qingdao residents flocking here. The actual commercial centre, however, is composed of Liqun Sifang shopping plaza and Mosaic (mall) across the street. Its customers are mostly residents in the neighbourhood.
Shuangshan is actually one of the sites for reconstructing village areas within Qingdao municipality and also a hot location for a new municipality centre. This area will essentially be composed of newly built large residential communities. As Heda Central Plaza is expected to be opened for business in the coming October while CapitaMall and Maxvalu supermarket are coming on stream next year, an all-new business axis along the underground rail is taking shape.
Chengyang district is traditionally Qingdao’s gateway to the northern areas. Because of its considerable distance to the heart of the city, there used to be a general lack of business facilities. Nowadays, as the population density in the district has grown substantially, the business climate has become increasingly strong. Meanwhile, the traditional straightforward business format has diversified into branded discounters, high-end specialised stores and medium to high-end department stores in the form of large shopping malls, such as Liqun, Wal-Mart, RT-Mart and Zhonglian Plaza (中聯廣場). Chengyang is now an area in northern China with the highest concentration of Korean companies, so much so that Korean stores, Korean photography shops and Korean bars are common sights.
West Coast Suburb
Since Huangdao and Jiaonan on the western side of Qingdao were given approval last year from the State to form a new West Coast District, a lot of large commercial complexes under construction can be found in the district on top of the existing supermarkets and department stores, including Changjiang Liqun, Aeon, Mykal, Ruitai Liqun and Metro. As a result, commercial facilities here are gradually improving as the district gets ever more popular.