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CONFIDENTIAL

RESEARCH Annual Chinese outbound tourism report | April 2016

Broadening horizons The well-heeled Chinese tourist wants more than shopping from their holiday

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APR 2016 | Annual Chinese outbound tourism report

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Contents Chapter 1 Introduction Key findings.................................................................................................................................................................................... 4

Chapter 2 Travellers, travel agencies and trips Overview of respondents .......................................................................................................................................................5 Traveller survey profile.............................................................................................................................................................5 Travel agency survey profile.................................................................................................................................................6 Trip characteristics......................................................................................................................................................................6 Enticements to travel................................................................................................................................................................ 8 Outlook............................................................................................................................................................................................ 10

Chapter 3 Destination trends Key destination findings in 2016.......................................................................................................................................12 Short haul.......................................................................................................................................................................................13 Long haul........................................................................................................................................................................................15 Emerging destination trends...............................................................................................................................................17

Chapter 4 Travel booking and planning Key travel booking and planning trends......................................................................................................................19 DIY vs travel agencies.............................................................................................................................................................19 Flight and hotel booking........................................................................................................................................................21 Travel planning and research.............................................................................................................................................23

Chapter 5 Travel spending Key travel spending trends.................................................................................................................................................25 Spending breakdown..............................................................................................................................................................25 www.ftconfidentialresearch.com


APR 2016 | Annual Chinese outbound tourism report

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Chapter 6 Shopping Key shopping trends...............................................................................................................................................................29 Shopping spending per trip ...............................................................................................................................................29

Chapter 7 Products and brands purchased Key product and brand trends..........................................................................................................................................36 Luxury fashion ...........................................................................................................................................................................36 Jewellery and watches........................................................................................................................................................... 37 Cosmetics......................................................................................................................................................................................39 Consumer electronics............................................................................................................................................................ 40 Alcohol.............................................................................................................................................................................................43

Chapter 8 Accommodation, services and activities Accommodation.........................................................................................................................................................................45 Food and entertainment.......................................................................................................................................................46 Activities........................................................................................................................................................................................47 Cruises............................................................................................................................................................................................ 48

Chapter 9 Appendix Methodology................................................................................................................................................................................49

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Chapter 1 | introduction

1. Introduction The Chinese outbound tourism wave shows no sign of breaking. More Chinese are headed abroad and overall spending continues to surge. But there are important shifts within this story, with profound implications for the global economy. FT Confidential Research’s latest annual outbound tourism report, based on a survey of 1,318 Chinese travellers and 37 travel agencies nationwide, identifies key recent changes in travel patterns and spending habits among Chinese travellers, examines the driving forces behind them and assesses the likely implications for global tourism, as well as for service and consumer sector participants.

Key findings

• The overall number of Chinese citizens travelling abroad and the amount they spend continues to grow. We estimate that Chinese travellers took 80.9m outbound trips in 2015, while total spending rose 5% to Rmb2.1tn ($323bn). • However, growth is increasingly being driven by first-time tourists, with individual travellers making fewer overseas trips per year and spending less per trip than in the past. Travellers took an average of 1.76 outbound trips last year, down from 1.92 in our previous survey, and spent Rmb25,782, down from Rmb26,230. • Most travel agencies said broader economic conditions had little or no impact on outbound travel bookings. Instead, a lack of paid holiday entitlement continues to drag on trip frequency and duration, while spending habits are changing as travel experiences mature, cost differentials narrow and more channels open up to buy overseas goods from home. •

Our latest survey results found a clear shift in spending patterns away from shopping towards accommodation, food and entertainment. Combined spending on these items outstripped the amount spent on shopping for the first time since our annual surveys began in 2013.

Spending is increasingly being driven by under-25s, over-50s and travellers from lowertier cities. Outbound tourists from second-tier cities are now spending more at the shops on each trip than their first-tier city counterparts, while younger travellers are spending big on accommodation, entertainment and services.

• Although six of the ten most visited destinations over the past year were in Asia, Western Europe accounted for five of the top ten destinations that Chinese travellers plan to visit in the coming year. • Chinese visitors to major European destinations continue to spend far more than those to other regions, including North America, with France topping the list. However, even among visitors to France, spending fell in line with broader trends. • Despite lower per-capita spending on luxury goods, leading Western luxury brands, including Chanel and Rolex, continue to lead the way. South Korean and Japanese brands are increasing their share of the fast-growing cosmetics market. •

Although trips and spending per person are likely to remain subdued in 2016, China’s outbound tourism boom is here to stay. Incomes are still rising and a massive number of locals have yet to take the plunge, with mainland tourists taking just 47.3m trips outside Greater China in 2015, a meagre figure given a population of nearly 1.4bn. n n n www.ftconfidentialresearch.com


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Chapter 2 | travellers, travel agencies and trips

2. Travellers, travel agencies and trips Overview of respondents

To gauge the state of China’s outbound tourism industry, FT Confidential Research conducts annual surveys of both travellers and travel agencies nationwide. FT Confidential Research surveyed 1,318 Chinese citizens across ten first- and secondtier cities in late February 2016, all of whom had taken at least one foreign trip over the past 12 months. In addition, we surveyed 37 travel agencies in 12 cities nationwide (see note).

Traveller survey profile

Respondents to our survey of travellers were overwhelmingly white-collar professionals, aged between 25 and 40.

ANNUAL HOUSEHOLD INCOME (Rmb)

2.5 3.2 5.5

10.3

%

17.2

30.5

23.3

100k-150k

150k-200k

200k-250k

250k-300k

300k-350k

350k-400k

400k-450k

Over 450k

MIDDLE/SENIOR

MANAGER 38.4%

CERTIFICATES HELD BY TRAVELLERS (%)

20

40

60

80

Under 20: 0.4%

CIVIL SERVANT

6.4%

Passport Driver’s licence Property ownership certificate Shopping mall membership Marriage certificate Hong Kong/Macau travel permit Vehicle licence Taiwan travel permit VIP club membership Golf club membership 0

RETIRED 0.9%

7.4

STUDENT: 2.0%

OTHER: 1.4%

RESPONDENTS’ OCCUPATIONS

OFFICE 48.3%

WORKER BLUE-COLLAR WORKER: 2.6%

100

AGE GROUP 25-29:

30-34:

23.9%

29.0%

35-39:

40 and over:

20.9%

19.6%

20-24: 6.3%

Note: Traveller respondents were drawn from the following cities: Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Changsha, Chengdu, Hangzhou, Shenyang and Wuhan. Travel agencies were located in the following cities: Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Chengdu, Taiyuan, Huizhou, Changzhou, Linfen, Deyang and Neijiang.

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Chapter 2 | travellers, travel agencies and trips

Travel agency agency Travel customer breakdown customer breakdown People born in the 1980s 1970s 1960s

More than one-third (38.5%) described their professional status as “middle or senior management”. Over half reported annual household incomes of between Rmb100,000 and Rmb200,000 ($15,390-30,780). However, our survey cohort also included a sizeable number of high-income respondents – 18.7% said their annual household income was in excess of Rmb300,000. In the background questions of the survey, we also asked respondents about the various certifications and memberships they hold, giving us a glimpse into their lifestyle and broader consumption patterns.

21.6% 67.6%

Q: Which generation are the largest proportion of your clients? Source: FT Confidential Research travel agency survey

The results showed the extent to which car and property ownership are virtual conditions of entry to China’s white-collar middle class. 89% of respondents hold a driving licence, while 86% have a property ownership certificate. Over 80% of respondents were married.

Travel agency survey profile

While our traveller survey was predominantly focused on wealthier, white-collar respondents, the results of our survey of travel agencies nationwide provide insights into how and where less-affluent travellers venture abroad. Less confident travellers, in particular those that have never travelled abroad were more likely to book trips through travel agencies. Travel agencies we spoke to said that the largest proportion of their customers were born in the 1980s, with 21.6% saying that those born in the 1970s were their most common type of customer. None reported that those born in the 1990s were frequent customers, reflecting the strong preference of younger travellers to book trips themselves rather than through travel agencies.

Trip characteristics

Frequency of travel Our analysis of official tourism data suggests that the overall number of Chinese citizens travelling abroad continues to grow. The number of outbound trips by Chinese travellers (one-day trips to Hong Kong and Macau are factored out) grew by 5% YoY to 80.9m in 2015, while our analysis of official inbound tourism data found that the top 16 travel destinations among Chinese tourists received a combined 65m Chinese visitors in 2015, up 10% YoY.

1. Growth in outbound business reported by travel agencies Increased over 30%

Increased 10-30%

Increase less than 10%

Stayed the same

100 80 % of respondents

10.8%

60 40 20 0

2015

2016

Q: How has your outbound travel business changed over the past 12 months? Source: FT Confidential Research outbound travel agency survey www.ftconfidentialresearch.com


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Chapter 2 | travellers, travel agencies and trips

% of respondents Some impact No impact

54.1

54.1

45.9

45.9

Economic Exchange slowdown rate Q: What impact has China’s economic slowdown/exchange rate had on outbound travel? Source: FT Confidential Research travel agency survey

This overall growth picture was borne out by our travel agency survey. 97.3% of travel agency managers with whom we spoke said overseas bookings had increased over the past year, up from 87.5% in our last survey in February 2015 (see chart 1). Almost a quarter of surveyed agencies said business had increased by over 30%, with not one agency we spoke to reporting a decline. However, even as the overall outbound tourism sector continues to grow, our traveller survey found that some are making fewer overseas trips per year than in the past. Almost half (47.4%) of travellers polled said they had taken one foreign trip over the past 12 months, compared with 38.3% in our previous survey, while just 16.1% had taken three or more trips. In our previous survey, 22% said they had taken three or more trips over the previous 12 months (see chart 2). This contributed to a fall in the average number of outbound trips taken by respondents over the past year to 1.76, down from 1.92 in our previous survey and 1.97 in 2014. This decline was seen across income strata within this group, with the wealthiest having taken 2.2 outbound trips, on average, in the past 12 months, down from 2.3 previously. The number of foreign trips taken by travellers with lower-middle and upper-middle incomes fell 4.6% and 8.6%, respectively. This suggests that the continued growth of China’s outbound tourism sector is increasingly being driven by first-time tourists rather than by additional trips taken by more experienced overseas travellers. Reasons for making fewer trips Although slowing economic growth and exchange rate fluctuations likely have something to do with this trend, our surveys provide little clear evidence that this is a major factor. When asked whether slowing economic growth has had an impact on their outbound business, none of the travel agencies we surveyed reported a big impact, with over half (54.1%) saying broader economic conditions had had no impact. The results were similar when asked about the impact of exchange rate fluctuations; none perceived a big impact, while more than half cited no impact whatsoever. Meanwhile, none of the travellers we interviewed face-to-face mentioned that they had changed or cut

2. Number of outbound trips over past 12 months One

Two

Three

Four or more

100 80 % of respondents

Economic impact on outbound travel

60 40 20 0

2013

2014

2015

2016

Q: How many outbound trips have you taken in the past 12 months? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 2 | travellers, travel agencies and trips

3. When did you take your most recent overseas trip? % of respondents 7.4%

2.0%

7.7%

25.7%

Annual leave Chinese New Year National Day holiday

11.9%

Child’s winter or summer holiday Other public holiday

20.9%

24.4%

New Year’s Day Other

Source: FT Confidential Research traveller survey

back on their travel plans because of broader economic concerns. While the cost of foreign travel likely prevents many Chinese people from making more than two outbound trips a year, stiff competition – both within the travel agency sector and online – has also helped to keep the price of travel down. The majority of agencies reported no change or a fall in the cost of their outbound tours and trips over the past 12 months. Cost alone therefore does not explain why travellers are cutting back on their number of trips. Instead, a lack of paid holiday entitlement continues to drag on growth in Chinese outbound tourism. Annual leave entitlements in China remain paltry – according to official paid leave regulations, workers with less than ten years of employment are only entitled to five days of paid leave in addition to public holidays, rising to ten for those with 10-20 years of employment and 15 days for those with over 20 years of work experience. This means that many travellers have to take overseas trips during national holidays – when demand and prices both spike. Over half of travellers said they took their most recent trip during the Chinese New Year, New Year’s Day (January 1) or National Day (October 1-7) holidays (see chart 3).

Respondents taking trip as annual leave % of respondents 2013

38.0

2014

31.4

2015

29.3

2016

25.7

Q: When did you take your most recent overseas trip? Source: FT Confidential Research traveller survey

Furthermore, with economic conditions uncertain and the white-collar job market increasingly competitive, travellers seem increasingly reluctant to take – or their bosses are increasingly reluctant to grant – paid leave in order to make foreign trips. The proportion of respondents in our annual surveys who said they took annual leave for their most recent trip has fallen sequentially every year since we ran our first in 2013. A lack of paid holiday also means that most overseas trips taken are a week or less in duration (see chart 4). Just 34.4% of travellers surveyed spent more than seven days on their most recent overseas trip. The results of our travel agency survey corroborated this finding. 56.8% of agencies said their most popular trip length was 4-6 days.

Enticements to travel

Our traveller survey results suggest that more Chinese are travelling overseas for holidays, rather than specifically for business or shopping trips. The vast majority of our respondents (80.8%) said that their most recent international trip www.ftconfidentialresearch.com


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Chapter 2 | travellers, travel agencies and trips

4. Duration of most recent overseas trip % of respondents 8.0%

4.7%

2.2%

8.6% 1 day

More Chinese are travelling overseas for holidays, rather than specifically for business or shopping trips

2-3 days 4-7 days

21.6%

8-10 days 10-14 days More than 14 days 54.8% Q: How long was your most recent overseas trip? Source: FT Confidential Research traveller survey

5. Primary purpose of most recent overseas trip % of respondents 0.4% 1.4% 4.6% 12.7%

Vacation Shopping Business Visiting relatives or friends Other 80.8%

Q: What was the primary purpose of your most recent overseas trip? Source: FT Confidential Research traveller survey

6. Factors encouraging overseas travel Very important

Important

Neutral

Not important

Not important at all

Rising disposable income Easier to get visas Improved international travel links Low quality of domestic tourism Rmb appreciation Travel agencies offering more attractive destinations 0

20

40 60 % of respondents

80

100

Q: How important were the following factors in encouraging you to travel overseas? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


Chapter 2 | travellers, travel agencies and trips

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Traveller profile | US

fei xijia, 38

Occupation: Fund manager Annual income (personal): Over Rmb300k City of residence: Beijing Recent country visited: US

Fei Xijia is a serial traveller, both for work and pleasure: in 2015 alone, he visited Europe, Japan and the US. His most recent trip was a nineday package tour to the US west

coast, bought directly via Tuniu’s mobile app. The whole package, encompassing return flights with Air China, internal transfers between San Francisco, Los Angeles and Las Vegas, and high-end accommodation including two nights in a JW Marriott hotel, cost just Rmb9,000 ($1,385). That did not mean that the overall cost of the holiday for Mr Fei or most of his 100 fellow travellers was cheap, however. He estimates that he spent Rmb60,000 on shopping at outlet malls and discount stores while in the US. Mr Fei and many of his fellow travellers have honed their overseas shopping techniques to a fine art. “When we enter a store, we head straight to the ‘on sale’ area, grab whatever’s in our size and buy it. We

don’t waste time trying things on,” he explained. Mr Fei is a fan of designer brands, spending over Rmb20,000 on Armani clothes and accessories alone while in the US, including an Rmb8,000 suit and a Rmb6,000 coat. He was particularly pleased with “bargains” such as a $600 Tumi suitcase and a $150 Coach man bag. “I left Beijing empty-handed, but when I returned, I had three new suitcases filled with a whole new wardrobe,” he added. But while Mr Fei is clearly proud of his purchasing prowess, he is far more discreet about showing off his trophy purchases on social media, restricting his photo posts to sights and scenery.

was primarily for vacation purposes (see chart 5). Although all survey respondents did at least some shopping on their most recent trip, just 12.7% cited shopping as the primary purpose of their trip. This was down from 15% in our previous survey and in line with the broader discernible shift in priorities – from shopping to experience – among travellers surveyed this year.

Ease of getting a visa % of respondents Easier More difficult 0.5%

No change

20.9%

78.6%

Q: Compared with your previous outbound travel experience, how difficult was it to obtain a visa for your most recent trip? Source: FT Confidential Research traveller survey

In terms of the factors enticing them to travel abroad, “rising disposable income” was the most important motivation for respondents, cited as “very important” by 55% of travellers surveyed. Ease of getting a visa was also a significant enticement to travel, with 47.6% saying this was “very important”, and a further 42.2% saying this was an “important factor” in encouraging them to travel overseas (see chart 6). Many countries have eased visa requirements for Chinese visitors in recent years, a trend that has not gone unnoticed by both travellers and travel agencies. 78.6% of travellers said that getting a visa for their most recent overseas trip was easier than for their previous trip. The overwhelming majority (over 80%) of visitors to most South-east Asian countries said the visa process was getting easier, as did 81.1% of visitors to the US. By contrast, the proportion of visitors to many major European countries saying that the visa procedure had become easier was lower – 70.9% of visitors to France and 66.7% of visitors to Britain, for example – suggesting that complicated visa application procedures may still be dragging on Chinese visitor numbers to Western Europe.

Outlook

Looking forward, although most travellers expected to make at least one overseas trip over the next 12 months, there appears greater uncertainty among respondents to our latest survey than in previous years about foreign travel plans. www.ftconfidentialresearch.com


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Chapter 2 | travellers, travel agencies and trips

7. Planned number of outbound trips over next 12 months 2015

2016

40

% of respondents

35 30 25 20 15 10 5 0

One

Two

Three

Four or more

Not sure

Q: How many outbound trips do you plan to take in the next 12 months? Source: FT Confidential Research traveller survey

90.8% of respondents to our traveller survey said they planned to travel abroad again next year, with a further 8.8% unsure of their travel plans; less than 1% said they definitely were not planning a trip.

Travel agencies’ outbound outlook Increase more than 30% Increase 11-30% Increase 0-10% Stay the same 5.4%

24.3%

43.2% 27.0%

Q: How do you expect your outbound travel business to change in the coming 12 months? Source: FT Confidential Research traveller survey

However, among those considering an overseas trip next year, 11.4% were unsure how many trips they planned to take, compared with 7.6% in our previous survey (see chart 7). Furthermore, the average number of trips that respondents planned to take in the coming year was also slightly lower: 1.78, compared to 1.89 in our previous survey. While one should be cautious about reading too much into respondents’ plans and intentions, this nevertheless indicates that the number of foreign trips among the existing cohort of Chinese overseas travellers is most likely to, at best, broadly plateau this year. This suggests that future growth will continue to be driven by first-time travellers – and the good news is that the potential pool of would-be travellers is enormous. Even assuming that one outbound trip were equal to one traveller – the 80.9m outbound trips taken last year was equivalent to less than 6% of the population. Given that the average number of trips recorded in our survey of existing travellers from higher-tier cities was 1.76, the actual proportion of the overall population that travelled abroad last year was lower than this. Travel agencies, therefore, remained upbeat about the future growth of their outbound business. 94.6% of agencies we spoke to said they expect their overseas travel business to improve in the coming 12 months, with over half expecting outbound bookings to increase by more than 10%. None expected this segment of their business to decline. n n n

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Chapter 3 | destination trends

3. Destination trends Key destination findings in 2016

Our latest traveller survey highlighted the enduring popularity of short-haul East and Southeast Asian, as well as long-haul European, destinations among Chinese outbound travellers. Asia remained the number one choice for Chinese tourists. Six of the ten most popular destinations visited within the past 12 months were in Asia, rising to eight of the top ten destinations visited on respondents’ most recent trip – though many of these trips were taken during winter, traditionally low season for European tourism. Western Europe continued to hold a strong allure for Chinese tourists, however, accounting for five of the top ten destinations that travellers planned to visit in the coming year (see chart 1).

1. Most popular overseas destinations among travellers surveyed % of respondents Which overseas destinations have you ever visited?

Which overseas destinations have you visited in the past 12 months?

Hong Kong

Hong Kong

Macau

Japan

South Korea

South Korea

Japan

Macau

Thailand

Taiwan

Taiwan

Thailand

France

France

Singapore

Germany

UK

UK

Germany

US 0

20

40 %

60

80

0

France

Japan

Japan

South Korea

South Korea

Thailand

Germany

Macau

UK

Taiwan

Italy

Germany

Hong Kong

France

Switzerland

Malaysia

Thailand

Singapore

Taiwan 10

15 %

30

40

50

Which overseas destinations do you plan to visit in the next 12 months?

Hong Kong

5

20 %

Which overseas destinations did you visit on your most recent trip?

0

10

20

25

30

0

5

10 %

15

20

Note: Multiple-choice questions with no limit on possible answers. European destinations in dark blue Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 3 | destination trends

Short haul

Japan, Taiwan benefit as Mers hits Korea trips While these broad geographic trends remained similar to previous surveys, there were notable shifts in terms of the popularity of short-haul Asian destinations.

26.6% Of respondents had visited South Korea over the past 12 months, lower than in our 2015 survey (34.0%)

The proportion of respondents who had visited South Korea over the past 12 months in our latest survey (26.6%) was significantly lower than in our previous survey (34.0%). This was almost certainly due to the deadly outbreak of Middle East Respiratory Syndrome (Mers) in the country last summer, which resulted in the widespread closure of public attractions and prompted many travellers to stay away during the peak summer months. This was borne out by official Korea Tourism Organisation (KTO) statistics showing a 2.3% YoY decline in Chinese arrivals in 2015 as a whole. Neighbouring east Asian destinations Japan and Taiwan were the biggest beneficiaries of this slump in visits to Korea. Japan climbed two spots to become the second most popular destination for Chinese travellers over the past 12 months, and one spot to become the second most visited destination on respondents’ most recent trip (see chart 2). 20.4% of respondents had visited Japan on their most recent foreign trip, up from 14.3% in our previous survey. Japan was also the most popular destination in our travel agency survey. 83% of surveyed agencies listed Japan among the three most popular outbound destinations over the past year. As well as travellers opting for Japan over Korea due to health concerns, its growing popularity was bolstered by a relaxation of visa rules, after Tokyo began issuing five-year multiple-entry visas to Chinese tourists last year. Over 90% of survey respondents who visited Japan on their most recent trip cited the ease of getting a visa as an “important” or “very important” factor influencing their trip. Historical tensions between the two countries have also increasingly been outweighed by Japan’s reputation for a clean environment, breathtaking scenery and high-quality goods.

2. Most popular destinations among travellers Which overseas destinations have you visited in the past 12 months? 2016

2015

Which overseas destinations do you plan to visit in the next 12 months? 2016

2015

France

1

France

1

Hong Kong

1

Hong Kong

1

2

South Korea

2

Japan

2

Japan

2

Japan

3

Macau

3

South Korea

3

South Korea

3

South Korea

4

Japan

4

Macau

4

Hong Kong

4

Germany

5

Thailand

5

Taiwan

5

Germany

5

UK

6

France

6

Thailand

6

Italy

6

Italy

7

Singapore

7

France

7

UK

7

Hong Kong

8

UK

8

Germany

8

Taiwan

8

Switzerland

9

Germany

9

UK

9

Thailand

9

Thailand

10

US

10

US

10

Switzerland

10

Taiwan

Note: Multiple-choice questions with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 3 | destination trends

Traveller profile | Japan

su yuanyuan, 27

Occupation: Graduate student Annual income: Not disclosed City of residence: Beijing Recent country visited: Japan

Su Yuanyuan, a Master’s student at Peking University, interned at a private equity firm last summer and was invited by the company on a mid-year celebratory trip to Japan. The company covered the Rmb6,000/person ($923) cost of the five-day, four-night return cruise from Tianjin to Fukuoka in August 2015, which included a day of sightseeing and shopping in the southern Japanese city. Ms Su bought around Rmb4,000 worth of goods, mostly medical products and cosmetics. Around half of these were bought for others. She did not visit duty-free stores,

as she was able to find everything she wanted in regular stores and the depreciation of the yen against the renminbi made purchases affordable. Although Ms Su is only due to graduate this summer, she is an active stock market investor and has amassed returns of around Rmb300k in recent years, despite recent stock market falls. Also, her family owns several properties in Beijing, so she has plenty of disposable income to allocate to travelling. She plans to visit Taiwan this summer – but unlike her Japan trip, her emphasis this time will be on food and accommodation, not shopping.

These factors combined helped more than double Chinese visits to 5m in 2015, according to official Japanese tourism statistics. A relaxation of entry requirements and an easing of political tensions also likely contributed to a significant increase in the popularity of Taiwan as a destination for mainland Chinese tourists. 16.5% of respondents said they had visited Taiwan over the past 12 months, up from just 7.1% in our previous survey, with 8.4% visiting on their most recent trip, up 5.5pp from our previous survey. Official Taiwan tourism data found that the number of mainland visitors hit a record high in 1H15, and was likely boosted further by Taipei’s decision in August 2015 to raise the daily cap on the number of mainland Chinese tourists allowed into Taiwan under the Free Independent Travel programme, which enables mainland residents to visit the country independently. Hong Kong continues to suffer The popularity of Hong Kong as a tourism destination for mainland Chinese continued to suffer last year, according to our survey. Although it remained the most visited destination over the past 12 months and on respondents’ most recent trip, the proportion of respondents visiting the Special Administrative Region fell 2.1pp and 0.8pp, in these respective categories, compared with our previous survey. Official statistics also showed a YoY decline in mainland visitors to Hong Kong last year, a trend that, if anything, is accelerating, with mainland visitor numbers down 10% YoY during the recent Chinese New Year holiday. Ongoing political tension and widely publicised anti-mainland protests and sentiment are seemingly continuing to deter mainland tourists from visiting Hong Kong. However, shifting preferences among mainland travellers are also likely contributing to this trend. Hong Kong’s appeal has been largely built on its status as a shopping mecca. Yet a combination of changing tourist priorities and narrowing price differentials with the www.ftconfidentialresearch.com


15

Chapter 3 | destination trends

mainland are eroding both the importance of shopping as a factor influencing outbound tourism (see chapters 5 and 6) and Hong Kong’s specific appeal on this front. Moreover, with 70% of travellers we surveyed having already visited Hong Kong in the past, travellers are seemingly keen to explore new destinations. Thai tourism rebounds Thailand has been another winner in attracting Chinese visitors over the past year, helped by the stabilisation of the political situation in the country following the military coup in 2014. 10.2% of our survey respondents said their last trip had been to Thailand, up from 7.8% in 2015. Over the previous 12 months, 15.6% of respondents had visited the country, up from 13.1% in our previous survey. Official data shows Chinese visits to the country surging 71% to 7.9m last year. Residents from China’s first-tier cities, generally the nation’s wealthiest, accounted for 74% of its visitors to Thailand last year, according to the Tourism Authority of Thailand. But the authority also said that visitor numbers were rising most rapidly in less-developed provinces like Liaoning and Hubei. Our travel agency survey provides further evidence of Thailand’s broad appeal, with 73% of respondents citing it as one of their three most popular destinations over the past 12 months (see chart 3). The Chinese slowdown has triggered considerable anxiety in global markets over the past year. But the rise of Chinese outbound tourism also reflects significant shifts in the domestic economy that are having a meaningful positive impact on growth in some popular destinations. The Thai economy grew 2.8% last year, but by no more than 0.6% if official tourism revenues are stripped out. Tourists from China made up 26% of total tourists to Thailand last year versus just 0.9% in 2011.

Long haul

Europe remains long-haul favourite Short-haul Asian destinations continued to dominate the list of most visited countries, but, when it came to long-haul trips, Western Europe remained the number one region for

3. Most popular destinations booked by travel agencies 100 80 % of respondents

60 40 20

ce Fr an

ia M

ala

ys

US

Au str ali a

po re ga

ive

s

Sin

ald M

ng

Ko ng

an Ho

Ta iw

Ko re a

d

ut h

an So

Th ail

pa

n

0 Ja

Thailand has been another winner in attracting Chinese visitors over the past year, helped by the stabilisation of the political situation

Q: What were the three top overseas destinations booked by your customers over the past 12 months? Note: Multiple-choice question with a maximum of three possible answers Source: FT Confidential Research travel agency survey www.ftconfidentialresearch.com


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Chapter 3 | destination trends

Chinese tourists – and the region that most readily captures their imaginations. Three European countries – France, Germany and the UK – feature in the top ten most visited countries over the past 12 months, according to our traveller survey, while France and Germany also feature in the top ten most recently visited countries. The fact that the majority of these trips were taken during the winter months, low season for Europe’s tourism industries, likely negatively impacted on the ranking of other European nations.

France remains the dream France remained the number-one European destination, both in our surveys and according to official statistics. 17.9% of respondents said they planned to visit France in the next 12 months, boosted by further relaxations in visa application procedures and improved flight connections. Its mix of history, culture, attractions and shopping continues to be an alluring combination, borne out by the fact that it remains not only the destination that the largest proportion of respondents plan to visit in 2015 but also the overwhelming dream holiday destination of choice for Chinese travellers – a third of all respondents cited it as such in our latest survey, up from 31.6% in our previous survey. This was particularly true among female respondents – 36.4% cited it as their dream destination, compared with 30.4% of males. There have been suggestions that the terrorist attacks in Paris last November could potentially deter Chinese visitors in 2016. French media has reported a fall in the number of visa applications by Chinese nationals during the first two months of 2016, although the data underlying these reports has not been publicly released. Meanwhile, Yu Dunde, CEO of Chinese online tour package specialist Tuniu (TOUR:Nasdaq), said during an investor conference in February that the Paris attacks had affected trips to “some popular destinations,” without specifying.

4. Dream destinations among travellers 35 30 25 20 15 10 5 d lan Ice

Sw

ed

en

ds lan er th

Ne

ce

nm ar k De

itz Sw

Gr ee

er lan

d

ly Ita

y an rm Ge

UK

ce

0 Fr an

Of respondents said they planned to visit France in the next 12 months

% of respondents

17.9%

The continued desirability of Europe as a destination for Chinese tourists is highlighted by the fact that five of the top ten destinations that respondents planned to visit in the coming year are in Europe – France (17.9%), Germany (13%), the UK (12.3%), Italy (10.3%) and Switzerland (8.4%). And in terms of dream destinations, Europe dominates the entire top ten (see chart 4).

Q: What are your dream holiday destinations? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


17

Chapter 3 | destination trends

However, our survey, conducted in late February 2016, well after the attacks, suggested that France remains a highly desirable holiday destination for Chinese tourists and that any direct negative impact is likely to be short-lived.

The fact that the UK is not part of the Schengen area likely continues to hold back Chinese visitor numbers

Visa difficulties continue to weigh on British visits In comparison with its cross-Channel neighbour, Britain continued to attract far fewer Chinese tourists – a reality supported by our survey results. 6.8% of respondents to our traveller survey said they had visited the UK during the past 12 months, 2pp lower than the 8.8% that had visited France. Meanwhile, Britain ranked twelfth in terms of most recently visited destination, and also lagged behind France in terms of destinations that respondents plan to visit in the coming year. The fact that the UK is not part of the Schengen area likely continues to limit Chinese visitor numbers. Recent pilots and visa relaxations have achieved some results. According to Visit Britain, visits from China were up 37% YoY during the first nine months of 2015, albeit to just 214,000, well below the number of visitors to France and several other major Schengen-area countries. Tellingly, despite recent initiatives, just 66.7% of visitors to Britain surveyed said that the visa application procedure was getting easier, significantly lower than the 78.6% of overall travellers who felt such procedures were becoming more straightforward, the 70.9% of visitors to France and the 73% of those who went to Australia. Despite ongoing visa difficulties, Britain continued to exert a strong hold over the Chinese imagination. 22.2% of travellers listed it as one of their dream holiday destinations in our latest survey, up from 19.3% in our previous survey and ranking it second behind France. US still not seen as desirable holiday destination The US continued to lag behind major European destinations in our surveys, both in terms of recent and planned visits. 6.8% of respondents had made a trip to the US over the past year, down slightly from 7% in our previous survey, with just 2.8% having visited the country on their most recent trip. Moreover, just 56.8% of visitors to the US in our survey said the primary purpose of their visit was for a vacation, far and away the lowest proportion among visitors to major destinations, with 18.9% visiting friends or relatives and 16.2% travelling to the US on business. Over 80% of visitors to France, Britain, Germany, Australia, Singapore, Japan, South Korea and Taiwan, by contrast, said the primary purpose of their trip was for a holiday. This suggests that the US has more to do to convince Chinese travellers of its appeal as a vacation destination. The US only ranked 17th in terms of dream holiday destinations in our survey, chosen by just 5.6% of respondents, ranking it behind destinations including Iceland, Norway and Austria. There are at least signs that recent visa reforms for Chinese applicants are being acknowledged. 81% of visitors to the US surveyed said visa procedures had become easier, a higher proportion than for the UK and key Schengen-area countries.

Emerging destination trends

Life’s a beach In terms of lesser-known destinations, both of our surveys point to the Maldives – and tropical island destinations in general – as gaining in popularity among Chinese tourists. 3.2% of travellers surveyed said they had visited the Maldives in the past 12 months, with 4.9% planning to do so in the coming year. www.ftconfidentialresearch.com


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Chapter 3 | destination trends

73%

Of travel agents identified island breaks as an emerging trend among outbound travel bookers

Travel agencies reported even stronger demand for bookings to the Indian Ocean island nation – 13.5% surveyed listed it among their three most popular destinations over the past year – likely reflecting the fact that visitors to the country often tend to book all-inclusive flight and accommodation packages, and therefore book through travel agencies. 73% of agents in general identified island breaks as an emerging trend among outbound travel bookers, with the Maldives the most popular island destination, ahead of Bali and Phuket. The emergence of this trend generally suggests that the long-held stereotype that Chinese tourists tend not to favour beach destinations is being rapidly challenged. The great outdoors The fact that Europe continued to dominate the top ten dream destinations is unlikely to come as a surprise. However, a closer analysis of the list of European nations comprising the top ten this year highlights another emerging destination trend: an increasing preference for destinations renowned for their natural, clean environments. Switzerland, Sweden and Iceland all made the top ten this year, while New Zealand, Norway and Austria, destinations similarly favoured for their natural scenery and outdoor activities, also ranked highly. At a time when domestic awareness of, and concern about, air pollution and China’s poor natural environment has never been higher, this appears to point to a growing desire to visit destinations that offer clean air, natural beauty and outdoor activities among Chinese tourists. This seems to tally with the growing popularity of outdoor activities among respondents to our traveller survey (see chapter 8). n n n

Traveller profile | Maldives

Austin Liu, 29

Occupation: Bond trader Annual income (personal): Rmb500,000 City of residence: Beijing Recent country visited: Maldives

Austin Liu chose the Maldives as the destination for his first overseas trip – a romantic break with his girlfriend in August 2015. He bought the five-day, fournight package at a four-star resort

on the Ctrip mobile app. It was a special offer, costing Rmb7,000/ person ($1,077) including flights, though Mr Liu paid an extra Rmb1,000/person to upgrade to half board; the basic package only included breakfast. The couple took a night flight from Beijing to Male. As he could pay with his Chinese credit card at the resort, Mr Liu only bought $200 in foreign currency at the airport. The couple spent most of their time at the resort relaxing on the beach or snorkeling, using masks bought on Taobao prior to departure. Their half-board package meant that they only spent an additional $200 on occasional lunches and one special dinner at a Thai restaurant. They did not spend much at

the duty-free shops in Male airport, as they researched the comparative price of luxury goods there and realised they were not that cheap. Their only purchase was a $20 oil from Body Shop that is not sold in mainland China. But after landing in Beijing, Mr Liu’s girlfriend spent around Rmb2,000 on Estée Lauder and Guerlain make-up and cosmetics at the Sunrise dutyfree store in Arrivals. “She was so excited, saying that she saved around 40% on the cost of buying those products domestically,” he recalled. The couple loved their first overseas trip so much that they are planning another one in 2016, with Japan or Western Europe the most likely destinations.

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Chapter 4 | travel booking and planning

OTAs mentioned: n Ctrip n Tuniu n Qunar n eLong n Priceline Group n Lvmama n Qyer n Tripadvisor

4. Travel booking and planning Key travel booking and planning trends

Planning and booking trips is a major part of the overseas travel experience, and Chinese travellers now have a growing array of both online and offline resources to draw on. The results of our latest survey of 1,318 outbound Chinese travellers suggest a marked generational and income divide in terms of how travellers arrange and book their travel: while younger and wealthier travellers are more confident in arranging their trips themselves, many older and lower-income travellers rely on travel agencies. Regardless of how they book their trips, almost all travellers do at least some research about their trips online prior to departure, with travel review websites the most common source of information.

DIY vs travel agencies

The younger and richer a Chinese traveller is, the more likely they are to plan and book travel independently. Older travellers still tend to turn to travel agencies (both online and offline) for their travel arrangements. When asked how they arranged and booked their trips, over half (52.9%) of respondents under the age of 30, and of those in first-tier cities or with annual household incomes of Rmb200,000 ($30,680) and above said they arranged and booked their holidays themselves (see chart 1). In contrast, more than half of over-30s and those living in

1. How did you arrange your most recent trip? % of respondents Self-arranged

Through a tour group or agency

By a company or organisation

Age group 4.1%

4.0%

6.6% 37.2%

43.2%

52.9%

45.7% 50.2%

Under 30

30-39

40 and above 56.2%

Annual household income 4.1%

3.7%

9.5%

40.5%

Rmb

43.6%

55.4% 200k or less

Rmb 200-350k

52.7%

37.2%

Rmb

53.4%

Over 350k

Source: FT Confidential Research traveller survey

www.ftconfidentialresearch.com


20

Chapter 4 | travel booking and planning

second-tier cities and those with annual household incomes below Rmb200,000 booked with a tour group or travel agency.

49.2%

Of respondents booked tours or made bookings through agencies

In fact, despite – or perhaps because of – the ever-growing array of online travel planning and booking resources available, our annual surveys found a resurgence in the proportion of respondents booking tours or booking through travel agencies. Whereas in previous surveys, the overall proportion of respondents arranging and booking all aspects of their trips themselves was higher than those booking tours or through agencies, our 2016 survey found that 49.2% of respondents booked tours or through agencies, compared to 46.9% who arranged trips themselves. There are a number of factors behind this trend. Whereas Chinese tour groups and travel agencies have traditionally had a bad reputation – many cheaper package tours in particular used to be notorious for spending the majority of their time taking tourists to shops where they were pressured into making purchases – amendments to the tourism law since 2013 have greatly improved trust in tours and agencies. Among other things, the amendments banned agencies from including compulsory shopping trips in their itineraries, meaning that tourists are now more confident that booking a holiday through an agency will not see them traipse endlessly around shops. In addition, some travel agencies have adapted to changing market conditions by introducing so-called semi-DIY travel packages. These include flights and accommodation but enable travellers to plan their own daytime itineraries, enabling a degree of customisation but without the stress of finding flights and accommodation. On a similar note, online travel agencies (OTAs) such as Ctrip (CTRP:Nasdaq) now offer a range of customisable, mix-and-match tour packages, enabling travellers to choose from a range of accommodation options and activities offered as part of an overall package.

Traveller profile | Malaysia

yang yang, 32

Occupation: Tech company employee Annual income (household): Rmb500,000 City of residence: Nanjing Recent country visited: Malaysia

As an employee at an internet company, it should not come as a surprise that 32-year-old Yang Yang

organised and booked his entire family summer holiday online. Mr Yang found a five-day, fournight package at a Club Med resort in Malaysia on Taobao for Rmb10,000 ($1,540) – working out at just over Rmb800 per person per night for Mr Yang, his wife and seven-year-old son. Separately, he booked two nights in a hotel in Kuala Lumpur for Rmb800/ night on eLong. He also arranged visas via an agency on Taobao for Rmb800. After looking at flights with traditional airlines on Ctrip, he booked directly with low-cost carrier Air Asia, paying Rmb5,000 in total for return flights from Nanjing to Kuala Lumpur, as well as an extra Rmb2,000 for luggage and in-flight meals. He paid Rmb1,500 for internal flights from

Kuala Lumpur to the airport nearest their resort, booked on Qunar. Club Med had plenty of activities for their son, who made friends from all over the world. The fact that staff at the resort spoke Mandarin made communication easy. Their hotel in Kuala Lumpur, meanwhile, was “the equivalent of a five-star hotel in China”. Before flying home, the Yangs bought gifts for friends and relatives, as well as a Rmb500 Swatch watch for their son from the KLCC shopping mall in the Malaysian capital. They did not go overboard on shopping, however. “Most of the goods on sale in Kuala Lumpur could also be found back home,” Mr Yang explained.

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21

Chapter 4 | travel booking and planning

Ctrip said bookings of customised package tours through its website and mobile app surged 400% YoY during the recent Chinese New Year holiday.

Flight and hotel booking

Third party vs direct bookings Among those travellers who continued to arrange their flights and accommodation themselves, most still turned to third-party travel booking and price comparison sites. However, their dominance is being eroded, with airlines and hotels expanding and improving their direct booking services. When asked how they book international flights, 54.3% of respondents in our latest survey said they used travel booking websites such as Ctrip and Qunar (QUNR:Nasdaq), down 3.6pp from our previous survey. In contrast, there was a 1.5pp increase in the proportion of respondents booking air tickets via airlines’ official websites to 54.2% (see chart 2). This reflects efforts by major airlines to reduce their reliance on third-party agencies and booking sites and improve their online service offerings. Major Chinese airlines have invested heavily in improving their direct online ticket booking platforms in recent years, while some have withdrawn their flights from online vertical search engines such as Qunar, instead offering promotions and enticements for travellers who book directly via their websites. The declining popularity of online travel booking sites also may have something to do with a number of widely reported instances of invalid tickets being sold by smaller online agencies, which has dented consumer trust. A similar trend was discernible in terms of accommodation booking, although third-party sites continued to hold a significant advantage. 63% of respondents to our latest survey said they usually book overseas accommodation via third-party websites, down 5.5pp YoY.

2. Which online channels do you use to book international flights and accommodation? Travel booking websites 60

Official airline or hotel websites

International flights

70

40 30 20 10 0

Overseas accommodation

60

50 % of respondents

YoY rise in customised package tour bookings via Ctrip’s website and mobile app during the Chinese New Year holiday

% of respondents

400%

Specialist online discount package-tour operators such as Tuniu have also gained significantly in popularity. These enable travellers to browse and book packages and package tours online, often at a significant discount, combining online choice and convenience with the certainty of knowing that accommodation and travel decisions will be handled by the tour organiser. Tuniu’s sales revenue grew 129.4% last year, with the company reporting particularly strong demand from lower-tier cities.

50 40 30 20 10

2015

2016

0

2015

2016

Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


22

Chapter 4 | travel booking and planning

In contrast, 44.9% book directly through hotel websites, up 1pp YoY.

The popularity of Qunar and eLong fell in our latest survey

The sheer volume of overseas accommodation options – in comparison to the smaller number of airlines offering international flights – likely explains why third-party sites continue to hold a more significant advantage in accommodation booking than for flights. Most popular flight and accommodation booking websites While all third-party sites face a challenge from direct bookings, Ctrip appears to be weathering the storm far better than most rivals. Ctrip remained the dominant third-party booking site for both flights and accommodation – and in fact is consolidating its advantage over its rivals, both in terms of market share and directly, via acquiring stakes in them. In mid-2015, Ctrip bought a 37.6% equity stake in rival OTA eLong (LONG:Nasdaq), while in October it announced a merger with its closest rival and main competitor Qunar, which operates as a vertical travel search engine. With Ctrip already holding minority stakes in Tuniu and Tongcheng, its influence over China’s third-party travel booking market is extensive – and growing. This was reflected in our survey results (see chart 3). 74.6% of respondents said they used Ctrip to book international flights, up 4.9pp from our previous survey. After the merger with Qunar, Ctrip indicated that it would focus more on higher-margin services aimed at higher-income consumers. Our latest survey results found that the main drivers of growth for Ctrip’s flight booking service came from middle- and higherincome consumer groups. 79% of respondents with annual household income between Rmb200,000 and Rmb350,000 used Ctrip to book international flights, up 10.5pp YoY, while 68% of those with incomes above Rmb350,000 use the site to book flights, up 8.7pp YoY. By contrast, both Qunar and eLong saw their popularity fall in our latest survey. The proportion of respondents booking international flights via Qunar fell 3.8pp YoY to 35.2%, while eLong’s popularity fell 1.7pp to 13.4%.

3. Most popular websites for booking overseas flights and accommodation Flights Ctrip Qunar Tuniu Taobao Travel Elong Lvmama Expedia TripAdvisor Kuxun Lvping 0

10 20 30 40 50 60 70 80 % of respondents

2015

2016

Ctrip Qunar Tuniu Elong Taobao Travel Booking.com Agoda Lvmama TripAdvisor Expedia 0

Accommodation

10

20 30 40 50 % of respondents

60

70

Q: Which of the following websites do you usually use to book international accommodation? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


23

Chapter 4 | travel booking and planning

Ctrip faces slightly stiffer competition in the accommodation booking market. 64.6% of respondents said they use it to book accommodation overseas, down 1.7pp YoY.

11.8%

Of respondents said they booked overseas accommodation via Booking.com, up 4pp YoY

Qunar and eLong’s popularity also declined – by 4.9pp and 3.2pp, respectively, leaving both trailing well behind the market leader. However, the popularity of Booking.com, owned by US-headquartered Priceline Group (PCLN:Nasdaq), among Chinese hotel bookers continued to increase. 11.8% of respondents said they reserved overseas accommodation via Booking. com, up 4pp YoY. It was particularly popular among respondents in first-tier cities and those with annual household incomes above Rmb350,000. In addition to airlines and hotel groups that are investing heavily in their direct booking platforms, Ctrip also faces a growing challenge from online package tour specialists Tuniu and Lvmama – although to some extent it has insulated itself from this threat by investing $15m in Tuniu in late 2014. Both Tuniu and Lvmama gained in our latest survey. 22.2% said they used Tuniu to book international flights, up 4.4pp YoY, while 21.6% used it to book accommodation, up 3.4pp. There were also YoY increases in the proportion of respondents using Lvmama, although its share was significantly lower than Tuniu’s – 8% used it to book flights, while 8.4% used it to book accommodation. Nevertheless, these gains were consistent with the higher proportion of travellers booking package tours rather than DIY trips in this year’s survey, pointing to a growing preference for competitively priced, semi-customisable package tours. This trend was particularly evident in second-tier cities and among lower-income travellers.

Travel planning and research

Regardless of the type of trip and how they booked it, almost all travellers planned and researched aspects of their trip online prior to departure. Looking up information about transportation at their destination is still the priority for many travellers – 38.5% said this was the most important information to seek before travelling, unchanged from last year. However, in line with broader spending and experience trends captured by our latest surveys, a greater proportion of travellers (34.8%, vs 31.6% in 2015) said they are now

4. What is the most important information to seek before travelling? 2015

2016

Transport at destination Local attractions at destination Shopping and dining Travel itineraries Accommodation Visa requirements International transport Other 0

5

10

15

20 25 % of respondents

30

35

40

Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


24

Chapter 4 | travel booking and planning

seeking information about attractions at their destination, while the proportion seeking shopping and dining info fell 3.5pp to 30.3% (see chart 4). In terms of the sites used to access this information, our latest survey identified some significant shifts.

A greater proportion of travellers are now seeking information about attractions at their destination

Travel review websites such as Qyer and TripAdvisor (TRIP:Nasdaq) are becoming the dominant sources of information for Chinese travellers, who value the user reviews from other tourists that these sites offer when planning their trips. 71.5% of respondents said they use travel review sites to find outbound travel information, up 8.7pp YoY (see chart 5). Other information sources that present themselves as relatively impartial are also increasingly favoured. 44.7% of respondents said they used travel portal or news sites such as Sina or Sohu, up 14.2pp YoY – these sites offer travel news and features. In contrast, there was a marked decline in the popularity of official travel agency and local attraction websites, likely as these are not seen as providing impartial information. The proportion using official travel agency sites to seek information about overseas destinations fell particularly sharply – down 16.7pp YoY to 39.0%. This suggests that even though a sizeable proportion of Chinese travellers book overseas trips through travel agencies, they are researching tours and destinations thoroughly – and using third-party sites perceived to be impartial – before booking or departure. n n n

5. Which types of websites do you use to find outbound travel information? 2015

2016

Travel review websites (e.g. TripAdvisor) Travel booking websites (e.g. Ctrip) Travel portal/news sites (e.g. Sina, Sohu) Vertical travel search websites (e.g. Qunar) Official travel agency websites Official local attraction websites 0

10

20

30

40

50

60

70

80

% of respondents Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey

www.ftconfidentialresearch.com


25

Chapter 5 | travel spending

Outbound trip average total spend Rmb (000s)

5. Travel spending Key travel spending trends

27.9

26.1 25.8

2013 2014 2015 2016 Q: How much did you spend on your most recent overseas trip? Source: FT Confidential Research traveller survey

There is also a growing divide between younger and older travellers, who are spending more than in the past, and those born in the 1970s and 1980s, who are becoming more selective in terms of spending. Visitors to Europe continue to spend far more than those to other regions, including North America. While travellers are spending less per trip, the growing number of Chinese venturing overseas – many for the first time – continued to drive an estimated 2.9% overall increase in Chinese outbound tourism spend in 2015.

Spending breakdown

Spending slowdown led by high-income travellers Respondents to our latest survey of travellers spent an average of Rmb25,782 ($3,953) on their most recent outbound trip, down from Rmb26,230 in 2015 and Rmb27,921 in 2014. Total average spending has in fact declined sequentially every year since we started our annual surveys in 2013. This decline in average spending was primarily due to a significant reduction in spending by higher-income travellers. Respondents with annual household incomes of over Rmb350,000 spent an average of Rmb37,360 on their most recent trip, down sharply from an average spend of Rmb48,022 by respondents in this cohort in our previous survey. Middle-income travellers (with annual household incomes between Rmb200,000 and Rmb350,000) reported broadly stable spending – up 1.1% YoY – while average spending among respondents with incomes below Rmb200,000 actually increased 13% YoY (see chart 1).

1. Spending breakdown by annual household income 2014

2015

2016

60 50 Rmb (000s)

28.9

Our latest survey results show that Chinese travellers continue to spend less per overseas trip than in the past. However, closer analysis reveals that this is due to a further scaling back in shopping spending, with tourists redirecting funds to accommodation, food, entertainment and services. Travellers, in other words, are placing an increasing value on experience while on overseas trips, and are allocating less money, and emphasis, to shopping.

40 30 20 10 0

Rmb200k or less

Rmb200k-350k

Over Rmb350k

Q: How much did you spend on your most recent overseas trip? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


26

Chapter 5 | travel spending

From shopping to experience While it may be tempting to view this as a sign that wealthy Chinese travellers in particular are simply tightening their belts while abroad in light of growing economic uncertainty at home, a closer look at the spending breakdown suggests that a more fundamental behavioural shift is occurring. As overseas travel becomes more common and the price differential for luxury goods in particular between mainland China and many overseas markets is becoming less pronounced (see chapter 6), travellers are spending less on shopping, more on services and experiences. Overall average spending on shopping fell 6.9% YoY to Rmb10,265, but this decline was 10% among higher-income travellers. By contrast, average combined per-trip spending on food, accommodation and entertainment rose to Rmb10,734, up from Rmb9,021 – the first time since our surveys began that combined spending on these categories has outstripped the amount spent on shopping. Growth in spending on food and entertainment was particularly pronounced – reported average spending on these two categories rose 41.2% and 20% YoY, respectively (see chart 2). Older and younger travellers spend more There was also a divergence in spending patterns among different generations of travellers, with both older and younger respondents spending more than in previous years, and those born in the 1970s and 1980s cutting back on shopping spending in particular. Respondents born in the 1990s spent an average of Rmb24,887 on their most recent trip, 21.2% higher than the Rmb19,599 recorded by post-90s respondents in our previous survey. Spending was higher across all categories, with a particularly large increase in food and entertainment spending (see chart 3). A similar trend was discernible among respondents born prior to 1970. Average spending by this cohort increased 17.1% YoY, with spending once again higher across all categories. By contrast, respondents born in the 1970s and 1980s recorded overall declines in spending – of 3.4% and 7.3% YoY, respectively. This was primarily due to lower spending on shopping, although those born in the 1970s also spent less on accommodation and transportation.

2. Average spending on key categories per trip 2013

2014

2015

2016

15 12 Rmb (000s)

Travellers are spending less on shopping, more on services and experiences

9 6 3 0

Shopping

Accommodation

Transportation

Food

Entertainment

Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


27

Chapter 5 | travel spending

3. Spending breakdown by different generations Overall and by key category 2015

Shopping Food 12

2016

25

10

20

8

Rmb (000s)

Visitors to Western Europe spent significantly more on average than those to all other major long-haul destinations

Rmb (000s)

30

15 10

Transportation

6 4 2

5 0

Accommodation Entertainment

1990s

1980s 1970s Decade of birth

1960s

0

1990s

1980s 1970s Decade of birth

1960s

Q: How much did you spend on your most recent overseas trip? Source: FT Confidential Research traveller survey

Notably, all generations reported higher spending on food and entertainment, in line with the broader emphasis on travel experiences discernible from this year’s survey results. Spending by destination As in previous years, Chinese visitors to major Western European destinations continued to report higher spending than those visiting other destinations both long- and short-haul. Respondents who visited France on their most recent trip spent an average of Rmb57,156, including Rmb20,491 on shopping, the highest shopping spend among visitors to any

4. Average spending by visitors to key destinations

35.7 US

49.6 UK

57.2 France

40.4 Germany

ASIA AND AUSTRALASIA

EUROPE

NORTH AMERICA

Rmb (000s)

25.8

S. Korea

22.5 Macau 22.4 HK

29.4 Japan

27.0 Taiwan

19.7

Thailand

23.8

Singapore

30.2 Australia Q: How much did you spend on your most recent overseas trip? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


28

Chapter 5 | travel spending

major destinations (see chart 4). Even among Chinese visitors to France, however, the overall emphasis on experience over shopping was evident: shopping spending was 6.8% lower than among travellers to France polled in our previous survey, while spending on entertainment and food increased by double digits. Visitors to the UK and Germany also spent significantly more on average than those to all other major long-haul destinations, including the US; visitors to the latter spent over Rmb10,000 less, on average, than those to the UK, for example. This is likely in part because a lower proportion of respondents who visited the US on their most recent trip did so for vacation purposes (see chapter 3). Spending on food and accommodation was far lower among US visitors than among those travelling to major European destinations, likely due to the fact that a greater proportion travelled for business or were there to visit friends and relatives. Spending on shopping fell YoY among visitors to almost all key travel destinations, while travellers spent more on food, entertainment and accommodation, in line with the broader headline trends in our survey results. Note: The number of genuine outbound trips we are using for our estimate this year is lower than the official National Administration of Tourism figure of 120m outbound trips in 2015. This is because we have excluded one-day trips to Hong Kong and Macau made by residents of neighbouring cities holding annual Hong Kong and Macau multi-entry permits. These are almost exclusively shopping-only trips and we therefore do not believe that these are indicative of genuine outbound traveller spending or trends.

Total estimated Chinese travel spending Despite lower average spending and fewer trips per person, we estimate that continued growth in the overall number of Chinese travelling overseas continued to support an overall increase in outbound tourism spending last year. Based on our analysis of both Chinese outbound tourism departure data and arrival tourism data released by destination countries, we estimate that mainland Chinese travellers made a total of 80.9m genuine outbound trips in 2015, up from 77.3m in 2014, an increase of 4.6% (see note). Based on the reported average spending in key destinations in our survey, we estimate that Chinese travellers spent a total of Rmb2.1tn ($323bn) overseas last year, up from Rmb2tn in 2014 (see chart 5). n n n

5. Number of trips, average and total spending by Chinese outbound travellers Destination No. of No. of Avg. per Avg. per Total spending Total spending outbound trips outbound trips capita spending capita spending in 2014 in 2015 in 2014 (m) in 2015 (m) in 2014 (Rmb) in 2015 (Rmb) (Rmb bn) (Rmb bn) Hong Kong 20.0 18.0 19,529 22,380 390.6 402.7 Macau 9.7 9.2 29,567 22,544 286.8 208.1 South Korea 6.1 6.0 25,006 25,777 152.5 154.1 France 2.2 3.3 52,233 57,156 114.9 186.1 US 2.0 2.6 43,322 35,651 86.6 91.3 Thailand 4.6 7.9 18,933 19,714 87.7 156.3 Taiwan 4.0 4.2 17,627 26,978 70.5 112.0 Japan 2.4 5.0 29,037 29,368 69.7 146.8 Singapore 1.7 2.1 23,579 23,844 40.1 50.1 Vietnam 2.0 1.8 18,667 17,504 37.3 31.2 Malaysia 1.6 1.5 20,401 27,944 32.6 41.9 Germany 0.5 0.9 43,093 40,434 21.5 34.4 Italy 0.5 0.7 41,250 37,785 20.6 26.8 Australia 0.7 1.0 27,796 30,200 19.5 30.2 Cambodia 0.6 0.7 22,178 24,944 13.3 17.2 UK 0.2 0.3 60,666 49,606 12.1 12.4 Rest of the world 18.5 15.9 26,198 25,782 484.1 409.4 Overall 77.3 80.9 26,198 25,782 2,025.3 2,084.7 Note: The number of outbound trips excludes one-day trips to Macau and Hong Kong. Our previous outbound tourism annual reports and estimates included one-day trips to Hong Kong and Macau in ‘Rest of the world’ Sources: Korea Tourism Organization, US Office of Travel and Tourism Industries, Tourism Research Australia, Destatis, Dgcis, China’s National Tourism Administration, Taiwan Tourism Bureau, Vietnam National Administration of Tourism, Ministry of Tourism of Cambodia, Macau Government Tourist Office, Hong Kong Tourism Commission, Tourism Authority of Thailand, Japan Tourism Marketing Co, Singapore Tourism Board, FT Confidential Research estimates

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Chapter 6 | shopping

6. Shopping

6.9%

YoY drop in shopping spending per trip among outbound tourists

Key shopping trends

Chinese travellers are cutting back on shopping overseas, with our latest survey finding that spending on shopping per trip had fallen 6.9% YoY. Frugality on the part of tourists as a result of the economic slowdown only partly explains this shift. Spending habits are changing: as the travel experience matures; the cost differential between luxury goods bought at home and those purchased abroad narrows; and as more channels open to buy overseas goods from the comfort of home. Furthermore, as higher-income travellers and those in first-tier cities scale back their shopping spending, their lower-income, lower-tier-city peers are picking up the baton.

Shopping spending per trip

Overall Shopping is still a major part of the Chinese outbound travel experience. All of the 1,318 travellers surveyed said they did at least some shopping on their most recent trip, while shopping still accounted for the biggest chunk of spending on outbound trips by Chinese tourists last year (see chapter 5). However, our latest survey provides further clear evidence that shopping plays nowhere near as central a role as it did previously. Just 12.7% of respondents said shopping was the primary purpose of their most recent trip, compared with 15.1% in 2015. Moreover, travellers are spending less on shopping per trip than in the past. According to our latest survey, respondents spent an average Rmb10,265 on shopping on their most recent trip abroad, 6.9% YoY less than in our last survey. Shopping accounted for 39.8% of

Traveller profile | South Africa

gao jianying, 59

Occupation: Retired Annual income: Not disclosed City of residence: Shanghai Recent country visited: South Africa

Gao Jianying is one of a growing band of globetrotting Chinese

retirees. Since her retirement four years ago, the 59-year-old has taken an average of two overseas trips a year, visiting a wide range of countries in Europe, North America, Australasia and Africa. Ms Gao had wanted to see the Cape of Good Hope ever since reading about it as a young student, so chose South Africa for her most recent trip. Ms Gao signed up for a nineday tour with a difference: all of her fellow tour companions were experienced, adventurous global travellers. The tour took in a combination of beaches, cities, vineyard tours, wildlife safaris and casinos. Ms Gao thought the beaches in South Africa were the

most splendid she had ever seen, while the natural scenery throughout the country impressed her, as did the opportunity to observe wild animals close up, including penguins and seals. Chinese tour operators are no longer allowed to build compulsory shopping trips into their itineraries, but the group agreed to visit a diamond shop. No-one actually purchased a diamond, however. Ms Gao bought a wooden sculpture from a local market, but otherwise did not spend much on shopping or souvenirs, preferring to spend more on the excellent local wine and seafood. The trip cost Rmb9,000/ person ($1,385/person).

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Chapter 6 | shopping

total spending, down from 42.1% in our previous survey and over 47% in 2013. By income group and city tier This slowdown was led by higher-income travellers, as well as those from first-tier cities. Respondents with annual household incomes in excess of Rmb350,000 spent an average Rmb14,791 on shopping on their most recent trip, 10% less than in our previous survey.

Outbound tourists from second-tier cities are now spending more at the shops on each foreign trip than their first-tier-city counterparts

Respondents in the Rmb200,000-350,000 income group spent 6.9% less on shopping, while those with incomes below Rmb200,000 actually increased their spending slightly – Rmb8,653, up from Rmb8,576. There was a similar trend in terms of spending by travellers from first- and second-tier cities. Average spending by respondents from first-tier cities was 12.4% lower than in our previous survey, whereas spending among second-tier-city respondents was far more resilient – down just 2.0% YoY (see chart 1). In fact, outbound tourists from second-tier cities are now spending more at the shops on each foreign trip than their first-tier-city counterparts. Second-tier-city respondents shelled out Rmb11,124 in stores on their most recent trip, 19% more than those from firsttier cities. We believe this is due to the fact that higher-income travellers from first-tier cities are likely to have been abroad more often than their lower-income, lower-tier-city counterparts, and therefore have less incentive to stuff their suitcases full of purchases to take home while overseas.

1. Shopping spending per trip By annual household income Rmb200k or less

Rmb200k-350k

By city tier

Over Rmb350k

First tier

Jewellery and watches

Jewellery and watches

Make-up and cosmetics

Make-up and cosmetics

Clothes, shoes and hats

Clothes, shoes and hats

Bags

Bags

Electronics

Electronics

Souvenirs and local specialities

Souvenirs and local specialities

Baby products

Baby products

Alcohol

Alcohol

Cigarettes

Cigarettes

Other

Other 0

1,000

2,000 Rmb

3,000

4,000

0

500

Second tier

1,000 1,500 Rmb

2,000

2,500

Q: How much did you spend on the following items on your most recent overseas trip? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 6 | shopping

Moreover, those living in first-tier cities have better access to a wider range of foreignbrand and imported goods, so have less need to purchase these products while overseas. The narrowing price differential between luxury goods purchased in mainland China and those bought overseas has also made foreign purchases less attractive.

Spending on souvenirs rose sharply, in line with the increased focus on engaging with the culture in foreign destinations

By product type Spending on big-ticket items suffered the most, with the sharpest decline seen in spending on bags, which accounted for 13.1% of travellers’ total spending on shopping per trip. Spending on luxury handbags averaged Rmb1,349, a 29.5% drop from the previous survey, while spending on jewellery fell 14% (see chart 2). Again, the biggest falls in spending on these items, handbags in particular, came from higher-income travellers and those from first-tier cities. Many leading luxury brands slashed their retail prices in China on some goods by over 20% last year. These price cuts, as well as government efforts to curb high-end gifting and localise the luxury consumption that does occur, has seemingly already crimped demand for these goods among outbound travellers. Chinese travellers also spent less on non-essential items like alcohol and cigarettes, with spending down 15.9% and 5.7%, respectively, from the previous survey, although in these categories the slowdown was most pronounced among lower-income consumers. Spending by product category was by no means down across the board, however. Our latest survey found a YoY increase in per-trip spending on cosmetics, baby products and electronics, while spending on clothes, shoes and accessories rose slightly. Spending on souvenirs also rose sharply, in line with the increased focus on maximising the experience of visiting and engaging with the culture in foreign destinations evident in this year’s survey. Higher spending on these product types was generally driven by middle- and lowerincome consumers, with the exception of baby products. Respondents with incomes above Rmb350,000 spent more than double the amount on products for babies than in our previous survey, reflecting continued concerns about the safety and quality of

2. Shopping spending per trip – breakdown by product type Shopping spending on most recent overseas trip 2015

2016

Jewellery and watches Make-up and cosmetics Clothes, shoes and hats Luxury handbags Electronics Souvenirs and local specialities Baby products Alcohol Cigarettes Other 0

500

1,000

1,500

2,000

2,500

Rmb Q: How much did you spend on the following items on your most recent trip overseas? Source: FT Confidential Research www.ftconfidentialresearch.com


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Chapter 6 | shopping

domestically made baby products such as infant milk formula. Interestingly, spending on baby products grew less sharply among first-tier-city travellers, likely due to the more widespread availability of imported baby products in China’s most developed cities. By destination Visitors to Europe continued to report higher shopping spending per trip than those to other long-haul destinations and to short-haul Asian destinations (see chart 3). However, even among visitors to key shopping destinations such as France, spending fell in line with broader trends.

6.8%

YoY fall in overseas travellers’ shopping spend during their most recent trip to France

Visitors to France spent an average of Rmb20,491 on shopping on their most recent trip, down 6.8% YoY. This was almost entirely driven by a reduction in spending on luxury goods (bags, jewellery and clothes, shoes and hats). Similar trends were seen in spending patterns among visitors to the UK and Germany. Shopping spending per trip was lower overall but proved more resilient among visitors to popular short-haul destinations such as Japan and South Korea. In fact, average spending on shopping among visitors to these two countries was higher than among visitors to Australia and the US, as well as to rival short-haul destinations such as Hong Kong and Singapore. This likely reflects the enduring popularity of Korean and Japanese fashion and cosmetics among Chinese shoppers. Visitors to South Korea spent an average of Rmb2,635 on make-up and cosmetics on their most recent trip, for example, compared to an average cosmetics spend of just Rmb1,585 among visitors to Hong Kong. Reasons for overseas purchases Chinese people still like shopping abroad because they have more confidence in the quality of goods purchased overseas and can often get a better price, but our survey

3. Average shopping spending per trip by visitors to key destinations

11.0 US

18.1 UK

13.9

Germany

20.5 France

ASIA AND AUSTRALASIA

EUROPE

NORTH AMERICA

Rmb (000s)

11.4 S. Korea 8.3

12.8 Japan

Macau

9.8 HK

10.3

Taiwan

7.7

Thailand

9.5

Singapore

9.3

Australia Q: How much did you spend on shopping on your most recent overseas trip? Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 6 | shopping

indicates that these incentives to shop abroad are becoming less compelling.

These falls likely reflect more stringent regulation of goods sold domestically, as well as moves by major multinational retailers to narrow the price differential between China and popular overseas markets in a bid to arrest slowing sales growth on the mainland. The proportion of respondents who said they bought jewellery and watches overseas because they were cheaper fell from 62.9% in our previous survey to 54.3% in this year’s survey, for example. In contrast, the proportion of clothing, jewellery and cosmetics buyers who attributed purchases to the better service offered by overseas retailers rose, again suggesting a shift in behavior and motivations among Chinese travellers. 30% of respondents that bought clothing, shoes and hats cited service as a factor in their decision to purchase overseas vs just 17.2% last year, while that proportion was 28.9% for jewellery and watches, up from 17.9% last year. It may come far behind questions of authenticity and price, but for higher-income travellers especially, the shopping experience is increasingly important. Among high-income travellers buying jewellery and watches, 43.4% said better service was a reason for their purchases, up from just 13% last year. For baby products, the category which saw the biggest increase in spending, authenticity and product safety were still cited as the key reasons for buying overseas, highlighting the continued distrust of domestically bought baby products. Who the purchases are for Although the government’s anti-corruption campaign and austerity drive is still in effect at home, spending on gifts remained stable (see chart 5). The overall proportion of respondents that bought gifts on their most recent overseas trip dipped just 0.6pp to 80.9%. Lower-income travellers trimmed their gift purchasing, with

4. Reasons for buying goods overseas 2015

2016

100 80 % of respondents

Lowerincome travellers trimmed their gift purchasing

78.8% of respondents said they bought goods overseas because they believe them to be genuine, down 7.8pp on last year, while those who bought because they trust the origin of the product fell 3.1pp to 77.8%. The 75.4% who said they purchased goods overseas believing them to be safer or of higher quality is 2.5pp lower than in our previous survey, while lower prices were cited by 76.5%, also a 7.8pp drop (see chart 4).

60 40 20 0

Genuine (not fake)

Cheaper

Trust the origin of the product

Safer/higher quality

Better service

Other

Q: Why did you buy goods overseas? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


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Chapter 6 | shopping

5. Purpose of buying goods overseas 2015

2016

100

% of respondents

80 60 40 20 0

For myself

Gifts (for family, Buying on behalf friends and others) of friends

Resell

Others

Q What were the purposes of your overseas purchases? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey

the exception of alcohol, cigarettes and clothing. Meanwhile, the proportion of middleand higher-income travellers buying gifts rose 4.6pp and 1.9pp, respectively, to 83.9% and 75.7%, with purchases of bags and jewellery as gifts by wealthier travellers also rising.

44.7%

Of respondents said they had bought items overseas on behalf of others on their most recent trip abroad, down 3.5pp YoY

This was in contrast to a marked slowdown in gift purchases of these products by highincome travellers in our previous survey, a trend which seemed, in part at least, influenced by the government’s anti-corruption campaign. The rebound in gifting among wealthier travellers this year may suggest that the intense climate of scrutiny over conspicuous gifting has eased somewhat. Equally, though, it may well also be that personal gifting has to some extent replaced business gifting as the primary motivation for buying gifts overseas. Purchases made on behalf of friends, relatives or colleagues – so-called daigou purchases – continued to decline in our survey. 44.7% of respondents said they had bought items overseas on behalf of others on their most recent trip abroad, down 3.5pp YoY. The decline was evident across all income groups. By product category, 31.6% of cosmetics buyers said they were purchasing on behalf of others, down 2.6pp YoY. This is partly due to the overall slowdown in purchases made by Chinese travellers overseas but, with more Chinese hitting the road, there is also less need to ask friends, family or workmates to buy on their behalf. This year’s results also reflect the growth of haitao purchasing, in which overseas purchases are made online. The growth in the number of free-trade zones (FTZs) has boosted the growth of this trend, with more liberal policies allowing companies like Amazon (AMZN: Nasdaq) to introduce direct shipping to China from countries like Japan and the US. Amazon has established operations in Shanghai’s FTZ, allowing it to sell imported goods at a lower price, with lower shipping charges and faster delivery times. Smaller domestic haitao websites, such as Xiaohongshu and Ymatou, are also increasingly popular, with cosmetics the most popular category for this kind of purchase. According to a recent FT Confidential Research survey on the haitao trend, 48.1% of consumers bought cosmetics from overseas online, making it the number one product category. www.ftconfidentialresearch.com


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Chapter 6 | shopping

6. Shopping locations during most recent overseas Shopping locations during most recent overseas triptrip 2015

2016

Airport duty-free store Department store/mall Downtown duty-free store Hypermarket/supermarket/ grocery store Cosmetics/personal care store Outlet/discount store Souvenir store Independent brand store Pharmacy Other 0

10

20

30 40 % of respondents

50

60

70

Q: Where did you shop during your most recent overseas trip? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential Research traveller survey

Means of payment abroad % of respondents 2016

2015

Unionpay card 72.0 76.4 Cash 67.7 64.3 Visa card 54.0 46.1 Mastercard 23.4 21.2 Other credit card 0.8 0.5 Other means of payment 0.1 0.3 Q: What were your means of payment when making purchases abroad? (Multiple-choice question with no limit on possible answers) Source: FT Confidential Research traveller survey

Shopping locations Airport duty-free stores remain the most common location for overseas purchases. Almost two-thirds (64.3%) of respondents made purchases at airport duty-free on their most recent trip, a slight increase on the 63.7% that did so in our previous survey (see chart 6). Downtown duty-free stores were also once again popular; 59.3% made purchases at these stores on their most recent trip. However, shifting spending patterns recorded in this year’s survey were reflected in purchasing locations as well. Increased spending on cosmetics and baby products resulted in a significant increase in the proportion of respondents making purchases in pharmacies, supermarkets and specialist cosmetics and personal care stores while overseas. Furthermore, with the price differential of brand and luxury goods narrowing, outlet stores and discount malls have become increasingly popular, as Chinese shoppers travel further in search of bargain brand goods. Payment methods The vast majority of Chinese travellers surveyed made purchases on Unionpay debit and credit cards while overseas, reflecting both Unionpay’s dominance over the domestic debit and credit card industry and its growing acceptance by retailers overseas. 76.4% of respondents made purchases using their Unionpay cards on their most recent trip, up from 72% in our previous survey. In contrast, the proportion making purchases on international Visa and Mastercards fell, highlighting the difficulties both companies face in making meaningful inroads into the China market. This trend was even in evidence among higher-income respondents, who are more likely to carry Visa or Mastercard plastic in their purses or wallets. The proportion of respondents with annual income over Rmb350,000 paying for purchases on Visa fell from 68.1% in our previous survey to 58.8% this year. As Unionpay acceptance overseas rises, the proportion of travellers paying for purchases in cash also fell slightly compared with our previous survey. n n n www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

Featured brands/ companies: Luxury fashion: n Chanel n Coach n Dior n LVMH n Louis Vuitton n Burberry Jewellery and watches: n Rolex n Omega Cosmetics: n Chow Tai Fook n Amorepacific n Shiseido n Procter & Gamble n Estée Lauder n L’Oréal n Kering Electronics: n Apple n Huawei n Canon Alcohol: n Pernond Ricard n Brown Forman n Wuliangye n Moutai

7. Products and brands purchased Key product and brand trends

Despite a further scaling back in spending on luxury goods, leading Western luxury brands with well-established presences in mainland China continued to lead the way in terms of purchases by Chinese travellers while overseas. Western brands did not have it all their own way, however. South Korean and Japanese brands continued to increase their share of the fast-growing cosmetics market, buoyed by strong spending by Chinese visitors on cosmetics in the two East Asian countries. Alcohol buyers also showed an increased preference for Japanese and Korean liquors.

Luxury fashion

Overall spending average Chinese travellers’ overseas spending on luxury fashion – encompassing clothing, shoes and accessories, as well as handbags – continued to fall over the past year, according to our latest survey. This was due to a combination of lower spending on – and a lower priority afforded to – shopping by higher-income and first-tier-city respondents. A decrease in retail prices at luxury outlets in mainland China has also reduced the price advantage of making luxury purchases overseas. Spending on luxury handbags per trip fell particularly sharply – down 29.5% YoY in our latest survey. This reflected both a drop in the number of travellers surveyed who purchased a handbag on their most recent trip and the money spent on each handbag purchase. The number of handbag buyers fell to 45%, from 47% of total travellers in our previous survey, while the Rmb2,998 spent on bags on average was 27.3% lower than last year. In contrast, per-capita spending on clothes and accessories was relatively stable, up 1.7%. This was mainly due to an increasing proportion of people buying these items. 67% of respondents said they bought clothing, shoes and hats during their most recent trip, up 1pp. However, each buyer spent an average Rmb2,447, down slightly from Rmb2,466 in our previous survey. Brands Within this overall context of slowing spending and sales, leading Western designer brands nevertheless continue to dominate. Iconic premium luxury brand Chanel remained the favourite brand among Chinese outbound travellers, and gained popularity in our latest survey, with 25.6% of buyers saying they bought Chanel products during their most recent trip, up 5.6pp YoY. Affordable luxury brand Coach (COH:NYSE) also saw an increase in popularity – up 2.4pp to 15.6%. The popularity of second-placed Dior fell 2.3pp to 17% (see chart 1). Chanel’s popularity was in part at least due to it winning favour among younger consumers. Our survey showed that Chanel also overtook LVMH’s (MC:PAR) Dior to become the most popular brand among those born in the 1990s and 1980s. 26.1% of designer fashion buyers born in the 1990s said they purchased Chanel goods vs 18.2% in our previous survey, while 24.9% of buyers born in the 1980s said they purchased Chanel goods, up from 19.8%. Dior’s popularity among travellers born in the 1990s fell 4pp to 20.8%, and its popularity www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

1. Most popular luxury fashion brands purchased 2015

2016

Chinese visitors to France continue to spend more per trip on luxury fashion goods than those to any other country

% of luxury fashion buyers

30 25 20 15 10 5 0

Chanel

Dior

Coach

Hermes

Gucci

Burberry

Louis Vuitton

Armani Versace

Calvin Klein

Q: During your most recent overseas trip, which of the following luxury fashion brands did you purchase (including clothes, shoes, hats, and bags)? Note: Multiple-choice question with no limit on possible answers. Results were rebased to exclude those buying ‘other’ brands Source: FT Confidential Research traveller survey

among travellers born in the 1980s dropped from 19.6% to 17.3%. Chanel’s improved popularity is partly due to the company’s high-profile strategy of cutting retail prices on some of its classic handbags, like the 2.55 and Le Boy, by more than 20%, not only in mainland China, but also in popular shopping destinations for Chinese travellers such as Hong Kong and Thailand. Dior has now followed suit. Buying locations Chinese visitors to France continue to spend more per trip on luxury fashion goods than those to any other country. Respondents spent an average of Rmb2,818 on handbags and Rmb2,596 on clothes, shoes and accessories on their most recent trip to France, far higher than spending on these products by visitors to any other country. This reflects the continued perception of France as the home of luxury goods. It is far from a coincidence that three of the five most popular luxury designer brands in our survey – Chanel, Dior and Louis Vuitton – are French in origin. However, even among visitors to France, average spending on both handbags and clothes, shoes and accessories was far lower than in our previous survey – down 38% and 25% YoY, respectively. Britain, home to the sixth-most-popular luxury brand Burberry (BRBY:LSE), ranked second in terms of average spending on luxury goods. However, here again, average spending on both luxury goods categories fell by double-digit percentages. Average spending on luxury goods among visitors to the US was lower than to major European destinations, reflecting lower per-trip spending overall – and on shopping – by Chinese visitors to the US. In terms of Asian luxury shopping destinations, visitors to Japan had the highest average spend. Visitors to Korea also spent significantly more on clothes, shoes and accessories than those to Hong Kong, Macau, Singapore and other popular Asian shopping destinations.

Jewellery and watches

Overall spending As with other big-ticket categories, spending on jewellery and watches by Chinese travellers while overseas continued to fall over the past year, according to our latest survey. More people are buying, but they are spending less on average per trip. Chinese www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

Of jewellery and watch buyers surveyed said they purchased the products for themselves, up 2pp YoY

Beside falls in gold prices, this is an indication that Chinese travellers are favouring jewellery and watch brands with lower prices than in the past. Preference for lower priced items is also likely due to increased demand for items for personal use, rather than for gifting in order to curry favour with associates. 82% of jewellery and watch buyers surveyed said they purchased the products for themselves, up 2pp YoY. Brands The popularity of most leading jewellery and watch brands remained broadly stable in our latest survey, with one notable exception: Rolex. 15% of those who purchased jewellery and watches during their most recent trip bought a watch made by the Swiss company, up 7pp YoY. Interestingly, despite the high price tags of its products, Rolex’s increasing popularity was supported by lower- and middle-income groups – 14.4% of respondents with annual incomes of less than Rmb200,000 that bought jewellery or a watch on their most recent trip said they bought a Rolex, up sharply from our previous survey. This suggests not only strong desirability for what is generally perceived to be a premium brand, but also the significant spending power and willingness to make selective big-ticket purchases even among Chinese travellers with lower incomes. Omega, another Swiss watchmaker, also gained in popularity, with the proportion of travellers buying the brand rising 1.8pp YoY to 14.0%. Both Rolex and Omega nevertheless trailed Swatch Group’s (UHR:VTX) lower-priced Longines brand, which remained the most popular jewellery and watch brand in our survey for a second successive year (see chart 2). Hong Kong-headquartered jewellers Chow Tai Fook (1929:HKG) likely benefited from a surge in demand for gold products last year – revenue from gold product sales accounted for 55.5% of total revenue in the six months to September 2015, up from 49.5% during the same period in 2015. 30% of respondents who bought jewellery on their most recent trip

2. Most popular luxury jewellery and watch brands 2015

2016

20

% of respondents

82%

travellers’ per-capita spending on jewellery and watches during their most recent trip was down 14% YoY to Rmb2,085. The decline was caused by a drop in the amount spent on each purchase: buyers purchased Rmb4,650 worth of jewellery and watches, on average, which is 29% lower than last year. But the proportion of respondents who purchased jewellery and watches on their most recent trip increased to 45%, up from 37% in our previous survey. This was led by increased spending among older travellers with the means to afford these expensive goods.

15 10 5 0

Longines

Chow Tai Fook

Rolex

Omega

Cartier

Tissot

Chow Tiffany Sang Sang

Bvlgari

Rado

Q: During your most recent overseas trip, which of the following luxury jewellery and watch brands did you purchase? Note: Multiple choice question with no limit on possible answers. Results were rebased to exclude those buying ‘other’ brands Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


Chapter 7 | products and brands purchased

39

to Hong Kong did so at one of its branches in the city, while over a quarter of jewellery buyers in Macau and 18.4% in Taiwan also shopped at Chow Tai Fook.

24%

YoY fall in average per-capita spending on jewellery and watches among visitors to Hong Kong

Buying locations Major European destinations once again led the way in terms of average per-trip spending on jewellery and watches. Visitors to France on average spent Rmb5,176 on jewellery and watches, while those that went to Britain spent Rmb4,703. However, average spending fell on a YoY basis among visitors to both countries. Japan topped the list in terms of average spending on jewellery and watches in Asia (Rmb2,486), followed by Taiwan (Rmb2,289) and Singapore (Rmb2,235). Although it remained the most popular buying location for jewellery among respondents, average per-capita spending among visitors to Hong Kong continued to fall – down 24% YoY to Rmb2,133. While this lower average spending in part reflects the larger number of visitors – in particular lower-income visitors – to Hong Kong, it also highlights the difficulties that Hong Kong jewellery and watch retailers face in light of the city’s declining popularity among mainland travellers.

Cosmetics

Overall spending In contrast to luxury fashion, and jewellery and watches, average spending on cosmetics and make-up by Chinese outbound travellers rose on a YoY basis, according to our latest survey. Cosmetics spending per capita increased 3.1% YoY. Travellers who bought cosmetics products spent Rmb2,308 on average, a 7% increase on last year. This continued a trend seen in our previous survey, when cosmetics and make-up was the only category in which Chinese travellers reported higher YoY average spending, suggesting that while spending on other discretionary consumer goods categories is slowing, Chinese travellers are continuing to increase their outlay on cosmetics while overseas. This growth was mainly fuelled by young travellers. Travellers born in the 1990s spent an average Rmb1,813 on cosmetics on their most recent trip, up 47.9% from our previous survey. Meanwhile, average spending on cosmetics per trip among those born in the 1980s and 1970s increased just 0.4% and 4.4% to Rmb1,873 and Rmb1,892, respectively. Higherincome consumers also, on average, spent more on cosmetics, again in contrast to falling spending by this cohort on luxury fashion, and jewellery and watches. Brands Although Western cosmetics brands still dominate the market, Asian brands, in particular those from South Korea and Japan, are gaining in popularity among Chinese travellers, thanks to their combination of targeted marketing, endorsements by popular Korean and Japanese celebrities, and lower average unit prices. Four of the five brands that gained most in popularity in our latest survey were South Korean or Japanese. A combined 14% of respondents said they purchased products made by South Korean cosmetics maker Amorepacific (090430:SEO) across its range of brands, which includes Sulwhasoo, Laneige and Innisfree. Innisfree enjoyed the strongest YoY growth in popularity among all cosmetics brands in our latest survey. 5.5% of respondents bought Innisfree products during their most recent outbound shopping trip, up 2.8pp YoY. This was despite the overall decline in Chinese visitors to South Korea in 2015, in large part due to the outbreak of Middle Eastern Respiratory Syndrome (Mers) last summer. Meanwhile, Japanese brands continued their recent upward trajectory as well. Shiseido (4911:TYO) and high-end cosmetics brand SK-II (a Japanese brand acquired by Procter www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

3. Most popular cosmetics brands 2015

2016

25 20 % of respondents

South Korea and Japan have become major cosmetics-buying destinations for Chinese tourists

15 10 5 0

Estée Lauder

Chanel Lancôme

Dior

Shiseido

SK-II

Gucci

Clinique Laneige Biotherm

Q: During your most recent overseas trip, which of the following cosmetics and make-up brands did you purchase? Note: Multiple choice question with no limit on possible answers. Results were rebased to exclude those buying ‘other’ brands Source: FT Confidential Research traveller survey

& Gamble [PG:NYSE]) enjoyed 2.2pp and 2.1pp increases in popularity, respectively, to 13.4% and 11.8%. On the other hand, many leading Western cosmetics brands, while still dominating travellers’ shopping lists, have seen their popularity stagnate or fall. Estée Lauder (EL:NYSE) and Chanel remained the two most popular cosmetics brands in our survey – purchased by 22.1% and 20.4% of respondents, respectively – but both saw their popularity remain at almost identical levels to our previous survey (see chart 3). The popularity of both Dior (DIOR:PAR) and L’Oréal’s (OR:PAR) Lancôme, meanwhile, fell slightly. The only leading Western cosmetics brand to gain in popularity among Chinese travellers was Kering’s (KER:PAR) Gucci. The proportion of respondents purchasing Guccibranded cosmetics rose 2.2pp YoY. Buying locations In line with the rising popularity of South Korean and Japanese cosmetics brands, the two countries have become major cosmetics-buying destinations for Chinese tourists. Travellers visiting South Korea during their most recent trip spent 23.1% of their total shopping budget on cosmetics, the highest proportion among all destinations in our survey – in comparison, travellers to Japan spent 18.2%, France 17.4% and Hong Kong 16.2% on cosmetics. France nevertheless remained the destination that visitors spent the most on cosmetics in – in line with higher average spending among Chinese travellers to France.

Consumer electronics

Overall spending Spending on consumer electronics by Chinese outbound tourists also picked up, according to our latest survey. Travellers spent an average Rmb1,159 on consumer electronics, up 13.2% on our previous survey. Growth was primarily driven by tourists from second-tier cities, with spending by this cohort increasing 17.3% to Rmb1,329 on their most recent trip. This was higher than the Rmb982 spent by first-tier residents, up 7.9%. Expenditure on electronics products was also robust among middle-income travellers. Average spending on electronics www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

increased 33% to Rmb1,385 among respondents with annual household income between Rmb200,000 and Rmb350,000. Spending by wealthier travellers, with annual household incomes of more than Rmb350,000, was unchanged from the previous year.

33%

Smartphones were top of tourists’ shopping lists, with 44.7% of respondents who purchased electronics on their most recent overseas trip saying they bought a new phone (see chart 4). Cameras and laptops also picked up, with 34.9% and 17.4% of respondents purchasing these products, up 11.0pp and 7.1pp respectively. 23.3% of respondents visiting Hong Kong on their most recent trip bought cameras and laptops, up 11.4pp and 12.8pp, respectively.

YoY increase in average spending on electronics among respondents with annual household income of Rmb200k350k

Chinese tourists are also buying more household and lifestyle goods while abroad. 23% of respondents bought a home appliance during their most recent trip abroad, for example. As more consumers look for high-quality and smart home appliances, ranging from electronic toilet seats to rice cookers to robot vacuum cleaners, demand for home appliances has the potential to grow further, though momentum could be lost as purchasing channels at home widen. Brands Apple (APPL:Nasdaq) remained the most popular smartphone brand, with 50% of respondents who bought a smartphone on their most recent foreign trip buying an iPhone, up 5.8pp (see chart 4). Samsung’s popularity among smartphone buyers remained stable at 38.1%, supported by relatively strong sales in East Asia. 35.1% of respondents who

4. Most popular consumer electronics products and brands purchased Tablets 2015

Smartphones 2015 2016 Apple

Apple

Smartphones

Samsung

Samsung

Sony

Sony

Tablets

Huawei

Huawei

0

Toshiba 10

20

30

40

50

0

10

%

Home appliances

MP3 players

Other 10

20

30 %

40

50

Apple

Nikon

Sony

Sony

Lenovo

Samsung

Dell

Panasonic

Samsung 5 10 15 20 25 30 35 40 %

30

40

50

Laptops 2015 2016

Canon

0

20 %

Cameras 2015 2016

Laptops

0

Dell

BlackBerry

Cameras

2016

0

5

10 15 20 25 30 35 %

Q: Which types of consumer electronics did you buy on your most recent overseas trip? Q: Which brands of smartphone/tablet/laptop/camera did you buy on your most recent overseas trip? Note: Multiple-choice questions with no limit on possible answers Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


Chapter 7 | products and brands purchased

42

visited Hong Kong recently and bought a phone, purchased a Samsung one against 28.4% in last year’s survey. 71.4% of respondents who visited South Korea recently bought a Samsung smartphone.

Huawei was also a popular choice among Chinese travellers abroad

Domestic smartphone brand Huawei, which has enjoyed significant market share gains at home over the past year, was also a popular choice among Chinese travellers abroad, likely reflecting supply shortages of latest models at home and the cheaper price of its handsets in overseas markets such as Hong Kong. 9.5% of smartphone buyers said that they purchased a Huawei handset during their most recent overseas trip, up 7.9pp. 14.9% of respondents that had bought a phone recently in Hong Kong chose to buy a Huawei, up from only 3.4% the year before. Apple remained dominant in the laptop and tablet categories. 34.1% of surveyed respondents who bought a laptop on their most recent trip bought a Mac, up 2.4pp. But among laptop buyers in Hong Kong, 40.5% had bought a Mac, up 13.8pp. Apple also remained the most popular tablet brand, even though its popularity was down 9.2pp in our latest survey to 40.5%. Sony was the big gainer among tablet-makers; 15.1% of tablet buyers purchased a Sony model on their most recent trip, compared with just 6.1% in our previous survey, driven largely by travellers to Asian destinations. This was likely due to the popularity of its Xperia Z4 tablet, released last summer. Samsung’s popularity among tablet buyers continued to decline. Among camera brands, Canon suffered a decline in popularity. 34.1% of surveyed outbound camera buyers bought a Canon model, down 4.8pp YoY. The decline was particularly steep in Canon’s home market: 38.2% of tourists who purchased a camera in Japan bought a Canon, down from 50% the year before. 43.2% of respondents who bought a camera during a recent visit to Hong Kong bought a Canon, also down 3.9pp. As with tablets, Sony was the big gainer; 23.8% of camera buyers bought a Sony camera on their most recent trip, up from 12.6% in our previous survey, driven by an increase in purchases among visitors to Hong Kong, Japan and South Korea.

Traveller profile | Italy, Vietnam

geng jing, 31

Occupation: Fashion industry Annual income (personal): Rmb200,000 City of residence: Chongqing Recent countries visited: Italy, Vietnam

Ms Geng and her husband, an architect, made two overseas trips last year, both of which they organised

and booked themselves online. They found flight deals on travel price comparison website Qunar, and made accommodation reservations through international sites Booking. com and Airbnb. They applied for their Schengen visa in person at the Italian consulate in Chongqing, but organised their Vietnamese visa via an agency on Taobao. Ms Geng and her husband spent 18 days in Italy, taking in Milan, Venice, Rome and Florence, spending around Rmb70,000 ($10,775) in total. Much of this was on luxury goods, which Ms Geng found to be especially cheap in Italy. She admired the history and culture – and the handsome Italian men. However, she was unhappy about being

overcharged at major tourist destinations. In contrast to their Italian shopping bonanza, most of the Rmb8,000 spent during the couple’s 11-day trip to Vietnam was on dining, accommodation and entertainment. The couple organised their itinerary with the help of online travel forums, flying into Ho Chi Minh City, and travelling north up the coast to Hanoi via Mui Ne, Da Lat and Nha Trang. Ms Geng is keen to make more outbound trips in the coming 12 months, with Singapore and Malaysia top of her list. The couple have budgeted around Rmb20,000 for foreign travel this year.

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Chapter 7 | products and brands purchased

49.1%

Of surveyed alcohol buyers said authenticity was their main reason for purchasing alcohol overseas

Buying locations Although overall shopping spending by Chinese visitors to the US was lower than that of visitors to other major long-haul destinations, electronics was an exception. Visitors to the US spent 13.4% of their total trip spending on electronics, ranking it second behind Hong Kong in terms of the highest proportion of spending on electronics. This is likely due to the relatively low price of consumer electronics goods in the US and the continued popularity of US brand Apple in our survey. Among Asian destinations, visitors to Japan recorded the highest average spend on electronics: Rmb1,658. Japanese-brand cameras gained in popularity in our latest survey, driven by strong purchases by Chinese tourists visiting Japan. 54% of surveyed visitors to Japan who bought electronics purchased a camera. Japan was also a popular location for home appliance purchases, reflecting both the wide range and perceived high quality of appliances sold. 33.6% of visitors to Japan who bought electronics purchased a home appliance on their most recent trip.

Alcohol

Overall spending Chinese tourists cut back on spending on alcohol again over the past year, according to our latest survey. Average spending on alcohol by Chinese tourists fell 16% to Rmb278. Among those who purchased alcohol, the average spend was Rmb1,507. Spending on alcohol by tourists from first-tier cities fell 25.5% to Rmb271. The decline was also substantial among lower-income travellers. Survey respondents with annual household income below Rmb200,000 spent an average of just Rmb209 on alcohol during their most recent trip abroad, down 19.6%. Spending dropped 10% among middle-income respondents (with annual household income between Rmb200,000 and Rmb350,000) and 12.6% among higher-income respondents (who reported annual household income of more than Rmb350,000). Lower spending on alcohol during overseas trips is likely, in part at least, due to the wider availability and improving quality of imported alcohol domestically, especially in first-tier cities. The percentage of surveyed alcohol buyers said authenticity was their main reason for purchasing alcohol overseas, fell 6.9pp to 49.1%. Additionally, Chinese customs statistics suggest that wine imports are growing rapidly. In 2015, the value of imported bottled wine increased 37% to $1.87bn. Our latest survey also identified a growing preference for Asian spirits, while the popularity of Western-style wine and spirits fell (see chart 5). 43.8% of alcohol buyers purchased wine or champagne during their most recent trip abroad, making it the most popular alcohol category in our survey again, despite a 2.6pp fall. 31.1% of survey respondents brought whisky home, also down 2.5pp. In contrast, 27.6% of respondents said they bought sake during their recent trip abroad, up 8.1pp, while 16.5% of respondents bought shochu/soju, up 4,5pp. 11.8% of liquor shoppers bought baijiu, the popular Chinese spirit, up 1.9pp. Brands Mainstream alcohol brands that are well established in the domestic Chinese market remained the top choices for tourists. 50% of surveyed whisky buyers bought Pernond Ricard’s (PI:PAR) Chivas, up 10pp YoY. The popularity of LVMH’s Glenmorangie and Brown Forman’s (BF:NYSE) Jack Daniels also improved, rising 10.6pp and 8.4pp in this year’s survey. Chateau Lafite remained the most popular wine and champagne brand, purchased by over a quarter of respondents who bought wine or champagne on their most recent trip. LVMH’s Hennessy, Bacardi and Brown Forman’s Finlandia were the most popular cognac, rum and vodka brands, respectively. www.ftconfidentialresearch.com


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Chapter 7 | products and brands purchased

Despite Chinese baijiu-makers suffering lacklustre sales domestically, Wuliangye (000858:SZ) and Moutai (600519:SHA) remained popular among outbound tourists, with 57.9% and 52.6% of baijiu purchasers buying the two brands, up 16.7pp and 20.3pp, respectively. Buying locations Purchases of sake, shochu/soju and baijiu were unsurprisingly strong in Asian countries. 64.3% of respondents who bought alcohol in Japan purchased sake, while a further 34.3% bought shochu/soju. Baijiu purchases also rose in a number of markets. 17.1% of respondents buying alcohol in Hong Kong brought baijiu home, up 9.1pp. Purchases from South Korea rose 5.6pp and those from Japan rose 4.3pp. These purchases were mostly made at airport duty-free shops. The UK and Germany were popular destinations for wine and champagne purchases, with 66.7% and 81% of alcohol buyers who visited the two countries buying wine or champagne to bring home, up 31.4pp and 21.9pp, respectively. The UK was also a major destination for whisky purchases: 58.3% of alcohol buyers bought whisky while in Britain. France remained the destination with the highest average spending on alcohol. However, the proportion of alcohol buyers who bought wine or champagne in France actually fell 2.9pp to 61.1%. n n n

5. Most popular alcohol products and brands purchased 2015 Wine and champagne

2016

Wine and champagne

Chateau Lafite Chateau Margaux

Whisky

Bollinger Sake

Campo Viejo

Rum

Jacob’s Creek 0

Vodka

5

10

15

20

25

30

% Cognac

Whisky* Chivas

Shochu/Soju

Glenlivet

Gin

Glenmorangie Baijiu

Ballantine’s

Other liquor types

Johnnie Walker 0

10

20

30 %

40

50

0

10

20

30

40

50

%

Q: Which types of alcohol did you buy (to take home) on your most recent overseas trip? Q: Which brands of whisky/wine and champagne did you buy (to take home) on your most recent overseas trip? Notes: Multiple-choice questions with no limit on possible answers. *Includes scotch, malt and bourbon Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


45

Chapter 8 | Accommodation, services and activities

8. Accommodation, services and activities Our latest survey results show a clear shift in spending patterns away from shopping towards services, including accommodation, food, entertainment and activities.

YoY increase in accommodation spend by those with annual household incomes of Rmb200,000 and below

Accommodation

Average per-trip spending on accommodation rose 5.3% YoY in our latest survey to Rmb4,315 ($666), accounting for 16.7% of total trip spending, up from 15.6% in our previous survey. Accommodation has accounted for a growing proportion of total trip spending every year since we began our outbound surveys in 2013 (see chart 1). Chinese travellers across the income spectrum are allocating a greater proportion of their total travel budgets to where they stay, with growth in spending on accommodation led by lower- and middle-income respondents in particular. Spending on accommodation by those with annual household incomes of Rmb200,000 and below rose 22.3% YoY in our latest survey to Rmb3,185, accounting for 17.2% of total trip spending, up from 16% in 2015. Young travellers are also increasingly willing to shell out on more luxurious accommodation while overseas. In fact those born in the 1990s spent more, on average, on accommodation, than any other generation of traveller, both in absolute terms and as a proportion of their overall trip spend. Wang Yang, chief operating officer of Zanadu, an online travel agency specialising in overseas travel, told FT Confidential Research that his site now regularly sees younger travellers booking hotel rooms costing more than Rmb1,000 a night. “Today’s young people are more willing to pay for pleasure,� he said. This increasing willingness to spend big on accommodation was also reflected in the type of hotels that travellers stayed at while overseas (see chart 2). More than three-

1. Average spending on accommodation by Chinese outbound travellers Average spending

% of total trip spending

5

17

4

16

3

15

2

14

1

13

0

2013

2014

2015

2016

%

Rmb (000s)

22.3%

Chinese travellers are increasingly willing to spend big on accommodation, food and entertainment, and are participating in an increasingly broad range of activities while abroad. Cruises are also becoming a more popular form of holiday.

12

Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


46

Chapter 8 | Accommodation, services and activities

2. Most popular accommodation types among Chinese outbound travellers 2015

2016

Five-star hotel and above Four-star hotel Three-star hotel Budget hotel Hostel Independent boutique hotel Rent private apartment Stay with relatives or friends Other 0

10

20

30 % of respondents

40

50

60

Q: Which of the following types of accommodation do you usually stay at during your overseas trip? Note: Multiple-choice question with no limit on possible answers Source: FT Confidential traveller survey

quarters (78.1%) of respondents to this year’s survey said they usually stay in four- or five-star hotels while overseas, up from 73.8% in our previous survey. The proportion staying at three-star hotels also rose. In contrast, the number of respondents staying at small, budget accommodation fell sharply. This trend was seen across income and age groups.

Food and entertainment

Our latest survey also showed a marked increase in spending on food and entertainment, both in absolute terms and as a proportion of total trip spending. Respondents spent a combined Rmb6,419 on these two categories on their most recent trip, accounting for 24.9% of their total spending, up from Rmb4,932 (18.8% of total spending) in 2015 (see chart 3). This trend was seen across city-tier and age groups, while respondents across all income groups spent more on food. The only exception to this trend was entertainment spending by travellers with annual incomes above

3. Average spending on food and entertainment by Chinese outbound travellers Average spending

% of total trip spending

8

25

7

24

6

23

5

22

4

21

3

20

2

19

1

18

0

2013

2014

2015

2016

%

Rmb (000s)

The number of respondents staying at small, budget accommodation fell sharply

17

Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


47

Chapter 8 | Accommodation, services and activities

Rmb350,000, which was lower this year than last, though such spending had increased sharply in last year’s survey. Visitors to France spent the most, on average, on food, among visitors to all major destinations, reflecting its reputation as the home of fine dining, with Britain having the second highest spending per capita on eating out.

36.4%

Of visitors to the UK said they went to a concert or musical on their most recent trip

When it came to entertainment spending, Britain had a slight edge over France, due to its strong reputation for performing arts, music and live sports. 36.4% of visitors to the UK said they went to a concert or musical on their most recent trip, the highest proportion among visitors to any major destination, while the same proportion attended a sporting event or visited a sports stadium, second only to the US. Also of note: spending on entertainment among visitors to Macau was down sharply – 48.4% YoY – likely reflecting the impact of the ongoing anti-corruption and frugality drive on spending in the city’s casinos.

Activities

The range of activities that visitors participated in during their most recent trip points to some emerging trends (see chart 4). 17.8% rented a car and went on a road trip, up from 14.7% in our previous survey. The US was the most popular destination for road trips; almost a third (32.4%) of visitors to the

4. Activities undertaken on most recent trip 2015

2016

Shopping Sightseeing Tasting local cuisines and delicacies Visiting historical sites Participating in outdoor/adventure sports and activities* Going to bars, pubs or nightclubs Renting a car and going on a road trip Going to concert or musical Going to theatres or cinemas Going to sports events, visiting stadiums or other sports venues Visiting casinos Other 0

20

40 60 % of respondents

80

100

Q: Which of the following activities did you participate in on your most recent overseas trip? Notes: Multiple-choice question with no limit on possible answers. *Not included in 2015 survey Source: FT Confidential Research traveller survey www.ftconfidentialresearch.com


Chapter 8 | Accommodation, services and activities

48

Traveller profile | Australia, Malaysia

hong zhengyu, 41

Occupation: Sales manager Annual income: Not disclosed City of residence: Chengdu Recent countries visited: Australia, Malaysia

Hong Zhengyu took the family to Australia via Malaysia for the Chinese New Year holiday. Their itinerary was designed around flight deals.

The Hong family travelled internally from Chengdu to Shenzhen, then took advantage of Rmb500/ticket ($77/ticket) flights from there to Kuala Lumpur. They paid around A$300/person ($225/person) for return flights from Malaysia to Australia, booked separately. Coming from inland China in winter, the Hong family found the weather in Kuala Lumpur rather hot, but that did not stop them visiting Merdeka Square and the Petronas Twin Towers. They enjoyed the food, particularly local delicacies such as Ipoh chicken rice noodles and shrimp soup. Mr Hong was pleasantly surprised by the simplified Australian visa application process. All he needed, in

addition to filling in the forms, was a Rmb40,000 bank deposit certificate. Once there, he enjoyed Melbourne, from its convenient and efficient airport to its scenic tourist attractions, such as Federation Square, Yarra River and Queen Victoria Market. However, he was surprised by how small it was compared with Chinese cities. The family rented a car and drove along the Great Ocean Road – a highlight of their trip was seeing penguins. The Hong family also did lots of shopping – Mr Hong said the price of luxury goods was lower than in mainland China and about the same as in Hong Kong. The family spent around Rmb14,000/person in total on their trip. They are planning a cheaper, short-haul trip to Taiwan this year.

US surveyed said they rented a car and went on a road trip. Travel agencies surveyed also identified self-drive road trips as a key growth activity requested by their customers. With the vast majority of travellers surveyed – 89% – holding a driving licence and Chinese travellers seemingly more confident about driving overseas, the potential growth of car rental and car-focused activities among Chinese travellers appears significant. Furthermore, almost a quarter (24.8%) of respondents said they participated in outdoor or adventure sports – encompassing a wide range of activities, from hiking to skiing to scuba diving – on their most recent trip. Visitors to Thailand, Taiwan, the US and Europe had the highest outdoor activity participation rates. This is in line with the growing preference for destinations with a strong emphasis on natural scenery and outdoor activities reflected in the dream destinations selected in this year’s survey.

Cruises

As Chinese travellers start to prioritise the travel experience – accommodation, services, food and relaxation – over shopping and frenzied sightseeing, cruises are becoming an increasingly popular option. Official tourism statistics show Chinese tourists took 1.2m cruise trips in 2015, a 44% jump from the previous year. Our traveller survey highlights the popularity of cruises as a holiday option. 45.3% of respondents said they had taken a cruise over the past year. Higher-income travellers (with annual household incomes above Rmb350k) were especially enthusiastic about this kind of travel: 56.1% said they travelled to a foreign destination by cruise ship over the past year. Travellers like cruise trips not only for the premium service – the all-you-can-eat buffet concept is a winner among Chinese tourists – but also because many destinations allow cruise passengers to apply for tourist visas when they arrive. Our survey shows Japan and South Korea, selected by 40.1% of travellers, are the most popular destination for cruise trips, followed by Hong Kong, Macau and South-east Asian countries. n n n www.ftconfidentialresearch.com


49

Chapter 9 | appendix

9. Appendix Methodology

Surveys FT Confidential Research surveyed 1,318 respondents in first- and second-tier Chinese cities in late February 2016. Respondents were selected according to the following criteria: • Respondents had taken at least one outbound trip in the past 12 months. • They were resident in one of ten cities in mainland China: Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu, Shenyang, Hangzhou, Changsha, Wuhan and Nanjing. • A balanced ratio was kept between male and female respondents. • At least 150 respondents from each of the four first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) and at least 100 respondents from each of the other cities. • Minimum annual household income was set at Rmb100,000, with around 20% of respondents having annual household income above Rmb300,000. • Roughly 20% of respondents were over 40 years old. • We have also interviewed managers at 37 travel agencies across China. The agencies were located in the following cities: Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Chengdu, Taiyuan, Huizhou, Changzhou, Linfen, Deyang and Neijiang. Market size estimate Our total spending estimate (see chapters 1 and 5) was based on the following: Number of outbound trips to key destinations taken from arrival data released by the relevant national tourism administrations in these countries. Where full-year data was unavailable, estimates based on the latest available data were used. Overall number of outbound trips taken released by China’s National Tourism Administration. One-day trips to Hong Kong and Macau made by residents of neighbouring cities holding annual multi-entry permits were excluded. Average per-capita spending based on average spending reported by visitors to these key destinations as well as overall average per-capita spending on their most recent trip in our survey of outbound tourists. Total spending based on number of outbound trips multiplied by average spending per trip. n n n

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CONFIDENTIAL

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Chinese outbound tourism report 2016  
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