.
BEIJING, China / China International Business Magazine / Focus / July 31, 2009
Once believed to be a lost cause
because of their ascetic shopping habits,
the elderly —
retirees like Li of about 60 or older —
are now slowly shedding.....
By Xiyun Yang
From CIB August 2009 Print Edition
At 7 am on a stifling Beijing summer morning in July, Li Rulai, 71, waited with his wife and several other retirees in their 60s and 70s for a bus nearby their apartment building.
Picked up from their leafy surroundings, the group was dropped off at the offices of Beijing Puzhongtong Biotechnology (北京普中堂生物科技有限公司), in a nondescript office building around the east fourth ring road. Li, along with dozens of others, listened patiently to the company’s sponsored lectures on bone health and nutrition in hard-backed chairs from “a very good fellow who graduated from Peking University medical school, served in the army and worked in the countryside.”
Li takes careful notes in a small black notebook. He likes the speaker because, as he recalled later, the man made common sense. At the end he decided to buy several months worth of health supplements from the presenters for himself and his wife, at a total cost of around RMB 800 (USD 117) a month per person. As a retired electrical engineer who had worked for a state-owned architectural company, Li receives a pension of just RMB 2,700 a month – so RMB 1,600 represents a considerable proportion of the couples’ monthly income.
Companies like Puzhongtong Biotechnology that target older consumer as a demographic are beginning to pop up on the retail landscape. Once believed to be a lost cause because of their ascetic shopping habits, the elderly — retirees like Li of about 60 or older — are now slowly shedding their frugal image and are beginning to be considered as a market force of their own.
Baidu recently announced the launch of a search page directly targeting elderly web surfers, while Nestlé has expanded away from its baby milk formulas to market one specifically targeted at the elderly. The Harbin Institute of Technology is currently developing a special robot that will service the elderly with functions including fetching food and medicine and sounding an alarm in case of a gas leak. Priced between RMB 30,000 and RMB 50,000, the team hopes to get the robot market-ready within the next two to three years.
As policymakers and entrepreneurs within China and abroad scramble to coax money out of the mythical Chinese consumer who, as a group, are expected to create enough domestic demand to pull the country — and perhaps the world — from the depth of crisis, they are largely focusing on young consumers. Yet, while younger consumers are more easily swayed by the excesses of a consumption culture, it is the older generation who could be the key demographic-by sheer dint of their overwhelming numbers.
STRENGTH IN NUMBERS
The United Nations defines an aging society as one in which 7% or more of its population are 65 years or older; in 1999, China, for the first time in its history, became an elderly nation. Fueled by an artificially-imposed low fertility rate and an ever-rising life expectancy, the trend will only continue, gathering speed as China’s baby boomers slide into retirement.
In 2005, 143 million people were over the age of 60 nationwide, out of a population of approximately 1.3 billion. In 2050 it is projected that there will be 438 million people over the age of 60, 103 million of them 80 years or older. While this demographic change raises serious questions about how the country’s underdeveloped social security system will perform under such enormous strain, as well as the balance between the workforce and those pension dependent, the market targeting the elderly consumer, or the “silver market” as it is referred to in the West, is also massively underdeveloped. Spending by senior citizens is projected to reach RMB 1.4 trillion next year, and RMB 4.3 trillion by 2020, according to the China National Committee on Aging.
“In terms of consumption, the aging population will have a huge influence on China’s future social and economic development,” committee head Li Bengong told Xinhua in May. They are also considered intensely brand loyal and are less easily swayed by passing trends, at least according to Kunal Sinha, head of Ogilvy & Mather’s consumer analysis unit, which recently released a report on China’s senior citizens. Currently, however, market supply has only met about 10% of their demands, according to some industry estimates.
Manufacturers and retailers have long avoided the Chinese silver market often because of a lack of understanding on how, why and what the elderly are willing to spend their money on. “It has huge potential, but it is a very unique market. You really have to understand the people,” says Yuwa Hedrick-Wong, an economic advisor for MasterCard who wrote the book The Glittering Silver Market: The Rise of Elderly Consumers in Asia. “You have to look at their life experiences in determining how they behave. You cannot rely on models from overseas.”
The current generation of elderly Chinese consumers is what is referred to sometimes as the Lost Generation. Like the West, there was something of a baby boom in post-war China, but China’s baby boomers have not been the movers and shakers of society. They do not hold the wealth of spending power, nor did they drive social movements and changes. This group struggled during the Great Leap Forward and came of age during the chaos of the Cultural Revolution. Following governmental initiatives, they labored in the countryside rather than concentrating on school-based education. In fact, they are among the most poorly educated generations in Chinese history.
URBAN VS. RURAL
For obvious reasons, the Chinese elderly consumer is not a homogenous group, says Wang Yanni, the international director of the Gerontological Society of China, with the most obvious line being drawn between urban and rural residents. It is, and will remain for the near future at least, predominantly urban residents who form the bulk of elderly consumers; it’s fundamentally a matter of wealth. 65% of the urban work force is covered by some kind of pension system, compared with only 11% of rural residents, where the average pension is just RMB 85 per month according to a paper released by the Center for Strategic and International Studies in the United States. The urban/rural income ratio is currently a little over three to one.
With a projected 300 million Chinese emerging into the middle class within ten years, the spending power of the elderly Chinese consumer will also be based partly on their well-to-do children. “In an urban setting, incomes are higher, and their children would have done a lot better” says MasterCard’s Hedrick-Wong. “This is key: in the west the children are irrelevant, in the case of China it is completely different.”
Less financial pressure put upon them by subsequent generations also translates to a more active leisure life. According to one study published in Asian Social Science, over 70% of elderly urban residents in China said they attended classes or engaged in hobbies during their leisure time, compared to less than 17% of rural residents, who listed household chores as the number one use of their time.
“It’s the urban lifestyle that drives spending,” says Hedrick-Wong. A case of buying things you didn’t think you wanted until you saw them in a mall, and a more concentrated effect of keeping up with the neighbors. Migrant workers returning home and bringing their urban habits back with them is gradually spreading this mindset, but it is unlikely to factor too heavily for the older generation.
A LIFETIME OF THRIFT
Li Rulai and his wife Ma Yilan, 68, are examples of the elderly urban consumer. Born to a family of ten in a rural village of about 300 people in Jiangsu Province, Li’s parents were peasants who tilled less than five acres of land. Li tested into junior high and high school in a town 30 kilometers away. The school canteen cost RMB 6 a month, and the government gave him a subsidy of only RMB 3 a month. Unwilling to spend the extra RMB 3 at the canteen, he walked home once a week to collect enough grain to feed himself. When the steamed buns became stale, he poured hot water over them and ate the mush. He gave the RMB 3 subsidy to his parents.
At school his possessions consisted of one worn and patched outfit — “three years new, three years old and three years patched, we used to say” — a quilt, one bed sheet and a padded jacket. No one had enough money for underwear. In his youth, Li does not recall ever buying an item solely because he wanted it but without any practical need. The closest thing is a watch he bought in the 1970s, for RMB 110, because he needed to be time-conscious for work. He saved for three years and queued all night in the street outside the Xidan department store to purchase it. “Everyone standing in line was so excited,” he says about the experience, showing some of the delights of consumer living. “I was so happy.”
Life turned around for Li in the late 1980s, after a trip abroad working in the Chinese embassy in Tunisia. Nowadays Li has more time on his hands to relax, his four children are all middle class college graduates with multiple apartments and cars of their own, while Li and his wife live in a one-bedroom apartment they’ve owned for the last 20 years.
As for disposable income and spending, 90% of Li’s medical expenses are covered by the state — 85% for his wife — meaning that, vitamin supplements aside, they do not have to worry too much about future expenses as their health deteriorates. They never eat in restaurants, and still use the same wardrobe they had made in the 1970s.
Like the apartments of many of China’s elderly, theirs is furnished and decorated with the same utilitarian glee for scavenging as those of many university students in the West. The Formica covered dining table and chairs are rickety from use. Li still refuses to buy anything for himself that he does not explicitly need. His wife claims to have a bulging closet full of clothes, “to make up for everything I was gypped out of my entire life,” but her husband quietly explains that it was all bought for her by a particularly generous daughter-in-law. In fact, the only thing the couple spends money on is their health supplements, which they heard about through friends.
GOOD HEALTH
“You know what they say: ‘glory is in the past, power is doubtful, money is for the next generation, only health is yours,’” Li says. “There’s really nothing else for us to spend money on.” Li says that he’s been able to control his high blood pressure, insomnia and constipation with his supplements.
Li isn’t the only Chinese believer in health supplements. Despite recent scandals and dubious claims — Li’s supplements claim to alleviate everything from high blood pressure to Parkinson’s disease — the health supplement industry plows on, partly on the backs of purchases made by concerned children.
Brain Platinum, whose ubiquitous television advertisements strike hard at the filial pious nerve, announced last year that it has had cumulative sales of more than RMB 10 billion in the last ten years. Less prominent companies have been working to establish communities among their buyers, not only by sponsoring free lectures — which often draw crowds in the hundreds — but also by organizing short excursions out of the city. Its salespeople spend large amounts of time visiting its clients, forming relationships akin to those between neighbors.
While the health supplements industry is at best chaotic, other sectors of the silver industry show a steadier promise. Domestic travel to cultural sites remains a major interest for China’s retirees, but there is also a growing market for international travel. Retirees make up 13.5% of China’s international travel market, but account for 45% of its total spending, according to Hedrick-Wong.
Demand for adult education is also blooming. Since the Shanghai government introduced distance learning courses aimed at retirees four years ago, around 887,000 senior citizens have taken part. Hu Maili, 64, a retired accountant who lives with her daughter in downtown Beijing, says she spends most of her extra money on singing and neighborhood dance classes. She also shops for clothing bargains on the website Taobao after a computer class taught her how to navigate the internet. “This was never something I learned in school," says Hu of her new skills. “Society is moving so quickly [and] the older generation has to keep up – otherwise we'd be illiterate.”
THERE’S NO PLACE LIKE HOME
One of the most reliably expanding sectors is, however, private health care. Retirees who stay in their homes rather than move into retirement communities are generally those more likely to be healthy and active for a longer period of time, according to a UN white paper on aging. Due to cultural factors over 90% of Chinese retirees choose to stay at home, says the Gerontological Society of China’s Wang, who is also the founder and CEO of Pinetree, a start-up that aims to provide home care and financial services for the elderly.
Pinetree plans to roll out at-home care services in packages as low as a few hundred RMB a month. Wang believes that this will be the easiest sector of the silver market to penetrate. “Other sectors — real estate, retail, health supplements — you’re pushing [your goods] on the consumers. Do they want to pay that premium?” she says. “This sector is a vacuum, it just pulls you in.”
China currently needs over 10 million nurses to take care of its elderly population, according to the Ministry of Civil Affairs, but there are few organized nursing care companies. As China and the world transition towards an older population with a firmly-rooted tradition of aging at home, that number is sure to grow, and those in power have begun shifting their focus from a retirement home approach to aging to a more inclusive mindset.
In the nineties, the central government based its preparedness for handling the needs of an aging population on the number of available beds in retirement homes. Now it is encouraging the development of neighborhood-based retirement services such as communal dining halls and maid services for the elderly. Shanghai and Beijing have begun to give vouchers of up to RMB 500 a month to their poorest elderly, redeemable for goods and services. Quality is still an issue, however, as most at-home caretakers are still found by word of mouth, and many families complain of their quality of care and high turnover rates.
But despite the unmistakable emergence of the Chinese elderly as an important demographic, only a few companies have seized the opportunity to treat them as one, and those companies are seeing the rewards. “I believe a booming silver market is just around the corner,” says Pinetree’s Wang. [
rc]
Copyright © 2009 China International Business
Once believed to be a lost cause
because of their ascetic shopping habits,
the elderly —
retirees like Li of about 60 or older —
are now slowly shedding.....
By Xiyun Yang
From CIB August 2009 Print Edition
At 7 am on a stifling Beijing summer morning in July, Li Rulai, 71, waited with his wife and several other retirees in their 60s and 70s for a bus nearby their apartment building.
Picked up from their leafy surroundings, the group was dropped off at the offices of Beijing Puzhongtong Biotechnology (北京普中堂生物科技有限公司), in a nondescript office building around the east fourth ring road. Li, along with dozens of others, listened patiently to the company’s sponsored lectures on bone health and nutrition in hard-backed chairs from “a very good fellow who graduated from Peking University medical school, served in the army and worked in the countryside.”
Li takes careful notes in a small black notebook. He likes the speaker because, as he recalled later, the man made common sense. At the end he decided to buy several months worth of health supplements from the presenters for himself and his wife, at a total cost of around RMB 800 (USD 117) a month per person. As a retired electrical engineer who had worked for a state-owned architectural company, Li receives a pension of just RMB 2,700 a month – so RMB 1,600 represents a considerable proportion of the couples’ monthly income.
Companies like Puzhongtong Biotechnology that target older consumer as a demographic are beginning to pop up on the retail landscape. Once believed to be a lost cause because of their ascetic shopping habits, the elderly — retirees like Li of about 60 or older — are now slowly shedding their frugal image and are beginning to be considered as a market force of their own.
Baidu recently announced the launch of a search page directly targeting elderly web surfers, while Nestlé has expanded away from its baby milk formulas to market one specifically targeted at the elderly. The Harbin Institute of Technology is currently developing a special robot that will service the elderly with functions including fetching food and medicine and sounding an alarm in case of a gas leak. Priced between RMB 30,000 and RMB 50,000, the team hopes to get the robot market-ready within the next two to three years.
As policymakers and entrepreneurs within China and abroad scramble to coax money out of the mythical Chinese consumer who, as a group, are expected to create enough domestic demand to pull the country — and perhaps the world — from the depth of crisis, they are largely focusing on young consumers. Yet, while younger consumers are more easily swayed by the excesses of a consumption culture, it is the older generation who could be the key demographic-by sheer dint of their overwhelming numbers.
STRENGTH IN NUMBERS
The United Nations defines an aging society as one in which 7% or more of its population are 65 years or older; in 1999, China, for the first time in its history, became an elderly nation. Fueled by an artificially-imposed low fertility rate and an ever-rising life expectancy, the trend will only continue, gathering speed as China’s baby boomers slide into retirement.
In 2005, 143 million people were over the age of 60 nationwide, out of a population of approximately 1.3 billion. In 2050 it is projected that there will be 438 million people over the age of 60, 103 million of them 80 years or older. While this demographic change raises serious questions about how the country’s underdeveloped social security system will perform under such enormous strain, as well as the balance between the workforce and those pension dependent, the market targeting the elderly consumer, or the “silver market” as it is referred to in the West, is also massively underdeveloped. Spending by senior citizens is projected to reach RMB 1.4 trillion next year, and RMB 4.3 trillion by 2020, according to the China National Committee on Aging.
“In terms of consumption, the aging population will have a huge influence on China’s future social and economic development,” committee head Li Bengong told Xinhua in May. They are also considered intensely brand loyal and are less easily swayed by passing trends, at least according to Kunal Sinha, head of Ogilvy & Mather’s consumer analysis unit, which recently released a report on China’s senior citizens. Currently, however, market supply has only met about 10% of their demands, according to some industry estimates.
Manufacturers and retailers have long avoided the Chinese silver market often because of a lack of understanding on how, why and what the elderly are willing to spend their money on. “It has huge potential, but it is a very unique market. You really have to understand the people,” says Yuwa Hedrick-Wong, an economic advisor for MasterCard who wrote the book The Glittering Silver Market: The Rise of Elderly Consumers in Asia. “You have to look at their life experiences in determining how they behave. You cannot rely on models from overseas.”
The current generation of elderly Chinese consumers is what is referred to sometimes as the Lost Generation. Like the West, there was something of a baby boom in post-war China, but China’s baby boomers have not been the movers and shakers of society. They do not hold the wealth of spending power, nor did they drive social movements and changes. This group struggled during the Great Leap Forward and came of age during the chaos of the Cultural Revolution. Following governmental initiatives, they labored in the countryside rather than concentrating on school-based education. In fact, they are among the most poorly educated generations in Chinese history.
URBAN VS. RURAL
For obvious reasons, the Chinese elderly consumer is not a homogenous group, says Wang Yanni, the international director of the Gerontological Society of China, with the most obvious line being drawn between urban and rural residents. It is, and will remain for the near future at least, predominantly urban residents who form the bulk of elderly consumers; it’s fundamentally a matter of wealth. 65% of the urban work force is covered by some kind of pension system, compared with only 11% of rural residents, where the average pension is just RMB 85 per month according to a paper released by the Center for Strategic and International Studies in the United States. The urban/rural income ratio is currently a little over three to one.
With a projected 300 million Chinese emerging into the middle class within ten years, the spending power of the elderly Chinese consumer will also be based partly on their well-to-do children. “In an urban setting, incomes are higher, and their children would have done a lot better” says MasterCard’s Hedrick-Wong. “This is key: in the west the children are irrelevant, in the case of China it is completely different.”
Less financial pressure put upon them by subsequent generations also translates to a more active leisure life. According to one study published in Asian Social Science, over 70% of elderly urban residents in China said they attended classes or engaged in hobbies during their leisure time, compared to less than 17% of rural residents, who listed household chores as the number one use of their time.
“It’s the urban lifestyle that drives spending,” says Hedrick-Wong. A case of buying things you didn’t think you wanted until you saw them in a mall, and a more concentrated effect of keeping up with the neighbors. Migrant workers returning home and bringing their urban habits back with them is gradually spreading this mindset, but it is unlikely to factor too heavily for the older generation.
A LIFETIME OF THRIFT
Li Rulai and his wife Ma Yilan, 68, are examples of the elderly urban consumer. Born to a family of ten in a rural village of about 300 people in Jiangsu Province, Li’s parents were peasants who tilled less than five acres of land. Li tested into junior high and high school in a town 30 kilometers away. The school canteen cost RMB 6 a month, and the government gave him a subsidy of only RMB 3 a month. Unwilling to spend the extra RMB 3 at the canteen, he walked home once a week to collect enough grain to feed himself. When the steamed buns became stale, he poured hot water over them and ate the mush. He gave the RMB 3 subsidy to his parents.
At school his possessions consisted of one worn and patched outfit — “three years new, three years old and three years patched, we used to say” — a quilt, one bed sheet and a padded jacket. No one had enough money for underwear. In his youth, Li does not recall ever buying an item solely because he wanted it but without any practical need. The closest thing is a watch he bought in the 1970s, for RMB 110, because he needed to be time-conscious for work. He saved for three years and queued all night in the street outside the Xidan department store to purchase it. “Everyone standing in line was so excited,” he says about the experience, showing some of the delights of consumer living. “I was so happy.”
Life turned around for Li in the late 1980s, after a trip abroad working in the Chinese embassy in Tunisia. Nowadays Li has more time on his hands to relax, his four children are all middle class college graduates with multiple apartments and cars of their own, while Li and his wife live in a one-bedroom apartment they’ve owned for the last 20 years.
As for disposable income and spending, 90% of Li’s medical expenses are covered by the state — 85% for his wife — meaning that, vitamin supplements aside, they do not have to worry too much about future expenses as their health deteriorates. They never eat in restaurants, and still use the same wardrobe they had made in the 1970s.
Like the apartments of many of China’s elderly, theirs is furnished and decorated with the same utilitarian glee for scavenging as those of many university students in the West. The Formica covered dining table and chairs are rickety from use. Li still refuses to buy anything for himself that he does not explicitly need. His wife claims to have a bulging closet full of clothes, “to make up for everything I was gypped out of my entire life,” but her husband quietly explains that it was all bought for her by a particularly generous daughter-in-law. In fact, the only thing the couple spends money on is their health supplements, which they heard about through friends.
GOOD HEALTH
“You know what they say: ‘glory is in the past, power is doubtful, money is for the next generation, only health is yours,’” Li says. “There’s really nothing else for us to spend money on.” Li says that he’s been able to control his high blood pressure, insomnia and constipation with his supplements.
Li isn’t the only Chinese believer in health supplements. Despite recent scandals and dubious claims — Li’s supplements claim to alleviate everything from high blood pressure to Parkinson’s disease — the health supplement industry plows on, partly on the backs of purchases made by concerned children.
Brain Platinum, whose ubiquitous television advertisements strike hard at the filial pious nerve, announced last year that it has had cumulative sales of more than RMB 10 billion in the last ten years. Less prominent companies have been working to establish communities among their buyers, not only by sponsoring free lectures — which often draw crowds in the hundreds — but also by organizing short excursions out of the city. Its salespeople spend large amounts of time visiting its clients, forming relationships akin to those between neighbors.
While the health supplements industry is at best chaotic, other sectors of the silver industry show a steadier promise. Domestic travel to cultural sites remains a major interest for China’s retirees, but there is also a growing market for international travel. Retirees make up 13.5% of China’s international travel market, but account for 45% of its total spending, according to Hedrick-Wong.
Demand for adult education is also blooming. Since the Shanghai government introduced distance learning courses aimed at retirees four years ago, around 887,000 senior citizens have taken part. Hu Maili, 64, a retired accountant who lives with her daughter in downtown Beijing, says she spends most of her extra money on singing and neighborhood dance classes. She also shops for clothing bargains on the website Taobao after a computer class taught her how to navigate the internet. “This was never something I learned in school," says Hu of her new skills. “Society is moving so quickly [and] the older generation has to keep up – otherwise we'd be illiterate.”
THERE’S NO PLACE LIKE HOME
One of the most reliably expanding sectors is, however, private health care. Retirees who stay in their homes rather than move into retirement communities are generally those more likely to be healthy and active for a longer period of time, according to a UN white paper on aging. Due to cultural factors over 90% of Chinese retirees choose to stay at home, says the Gerontological Society of China’s Wang, who is also the founder and CEO of Pinetree, a start-up that aims to provide home care and financial services for the elderly.
Pinetree plans to roll out at-home care services in packages as low as a few hundred RMB a month. Wang believes that this will be the easiest sector of the silver market to penetrate. “Other sectors — real estate, retail, health supplements — you’re pushing [your goods] on the consumers. Do they want to pay that premium?” she says. “This sector is a vacuum, it just pulls you in.”
China currently needs over 10 million nurses to take care of its elderly population, according to the Ministry of Civil Affairs, but there are few organized nursing care companies. As China and the world transition towards an older population with a firmly-rooted tradition of aging at home, that number is sure to grow, and those in power have begun shifting their focus from a retirement home approach to aging to a more inclusive mindset.
In the nineties, the central government based its preparedness for handling the needs of an aging population on the number of available beds in retirement homes. Now it is encouraging the development of neighborhood-based retirement services such as communal dining halls and maid services for the elderly. Shanghai and Beijing have begun to give vouchers of up to RMB 500 a month to their poorest elderly, redeemable for goods and services. Quality is still an issue, however, as most at-home caretakers are still found by word of mouth, and many families complain of their quality of care and high turnover rates.
But despite the unmistakable emergence of the Chinese elderly as an important demographic, only a few companies have seized the opportunity to treat them as one, and those companies are seeing the rewards. “I believe a booming silver market is just around the corner,” says Pinetree’s Wang. [rc]
Copyright © 2009 China International Business
