DFS Insights Predicting the Future: Drivers of Chinese International Travel Jim Beighley, EVP Strategy and Market Development 1
By definition, travelers are on the move WHO vs. WHERE ORIGINvs. DESTINATION TRAVEL CORRIDORS Japanese in Hawaii Indonesians in Singapore Chinese in Tokyo 2
Five Main Takeaways: 1. Asian travelers will continue to make markets all over the world. 2. Predicting where travelers come from and where they will go is becoming quite complex. 3. Chinese outbound travel is huge, and the growth has only just begun. 4. China is more like a CONTINENT than a COUNTRY. 5. Travel retail will be the growth engine of the retail industry in the future so get ready!
DFS is at the intersection of 3 industries Travel Retail Travel & Tourism Luxury 4
Travelers first, Customers second Visa requirements Air seat capacity Hotel room availability Currency exchange rate Distance/length of trip Demographic profile Psychological profile Group/ FIT Spend capacity Communication channels 5
GLOBAL TOURISM TRENDS 6
Accelerating Growth in Tourism : Driven by Asians, Traveling Everywhere Source: UNWTO
The World Underestimated China In 2006 the WTO famously predicted that Chinese outbound travel would reach the staggering number of 100 Million in the year 2020. Actually, China will exceed that number in 2014. And by 2020, there will be over 200 Million outbound travelers from China.
Fortunately for the Travel and Tourism industry: PRC Tourists will spend over $130 Billion outside of China. 60% will be on Shopping. Luxury goods spending patterns by market In 2014, Chinese will spend abroad over 3 times what they spend locally Spending projections in next 12 months Survey of 1,005 Chinese luxury travelers Spend the Same Spend More Where Luxury shopping is done Overseas Regionally Locally Increased shopping budget Spend Less Reasons for spending more 70% Cheaper to buy luxury items overseas Planned more gifts for friends 57% 50% American European Chinese Japanese Source: Altagamma 2014 Worldwide Markets Monitor, Bain & Co. Longer lists from friends/ relatives 42% Source: Chinese Travelers Buying Luxury, Nielsen 2014 9
THE ART OF FORECASTING FUTURE OPPORTUNITY 10
Forecasting China s Market Potential DFS set out to understand how to better forecast the Chinese travel phenomenon Understand trends in rising wealth and consumer behavior across China Identify the key indicators of outbound travel and consumption. Design a forecasting model to understand and identify the most important corridors of Chinese outbound travel End goal: a Market Potential Index: Who, Where, When, Why, What
Bringing the pieces of the model together China Travel Forecasting Model 12
The 4 Step Framework: Predicting Market Potential and Behavior. Where do they come from? And how many are they? China Outbound Tourists Segmented by Province (28) Where are they going? Long-Haul Short-Haul How are they traveling? FIT / PIT Conducted FIT / PIT Conducted Who are they? And what are they buying? (n= 896) Luxury Consumer Nonluxury Consumer Nonluxury Consumer Luxury Consumer Non-luxury Consumer Luxury Consumer Luxury Consumer Non-luxury Consumer 13
Understanding What Matters Trying to unlock the relationship between outbound travel and development inside China. 14
Unlocking the Travel Formula Urban expenditure is the key driver of outbound travel In other words: 15
Middle Class? Will Travel! Year in which average population of the city becomes middle class *disposable income per capita exceeds RMB30,000 2009 8.2 Million Donguan 2011 56.4 Million Hangzhou Guangzhou Ningbo Suzhou Shenzhen Shanghai 2012 35 Million Beijing Jinan Nanjing Wuxi Xiamen 2013 21.1 Million Baotou Hothot Qingdao Taizhou Tianjin Yantai Population: 120 Million 235 Million Source: DFS GROUP The Economist LIMITED Intelligence Unit + China Bureau of statistics 2014 20.1 million Changsha Dongying Maanshan Wuhan Xi an Yangzhou Zhongshan Zibo 2017 11.8 million Anshan Datong Hengyang Liuzhou Panzhihua Qinhuangdao Xiangfan Zhaozhuang Zhuhai Zunyi 2015 37 million Fuzhou Langfan Harbin Hefei Jining Linyi Nanchang Shenyang Shijiazhuang Tai an Tangshan Weifang Xiangtan Xiangfan Xuzhou Zhengzhou Zhuzhou 2018 14.2 million Changde Guiyan Haikou Huainan Jilin Chaoyang Taiyuan Xingtai Luoyang 2016 27.8 million Anyang Changchun Chengdu Dalian Guilin Huainan Jiaozuo Kunming Luoyang Nanning Pingdingshan Wuhu Zhangjiakou 2019 3.6 million Daqing Huaibei Qiqihar
Mapping 224 Travel Corridors from China (2006-2020): Regression analysis vs. history Driving outbound forecasts 17
Top and fastest growing origin markets for Asia 2005 Beijing Tianjin Liaoning 2012 Shandong Hubei Shanghai Zhejiang Fujian 2018 Guangdong 18
Top and fastest growing origin markets for Europe 2005 Shanxi Inner Beijing Mongolia Liaoning 2012 Hubei Tianjin Jiangsu Shanghai Zhejiang 2018 Guangdong 19
Top and fastest growing origin markets for America 2005 Shanxi Beijing Liaoning Shandong 2012 Shanghai 2018 Sichuan Chongqing Zhejiang **Driven by Visa processing, not Market dynamics!! Guangdong 20
Why Does This Matter? To design Destination marketing strategies that: Match the corridors and Reach the right people
CHINA CONTINENT OR COUNTRY? The Art of knowing our Customer 22
Tracking the evolution of the Chinese traveler TRAVEL SHOPPING Adventurous Free-spirited Exotic destinations Individualistic Authentic experiences Value seekers Obligations to do shopping favours Pre-trip planning/ shopping lists Shopping the Destination 2004 2008 2013 2015 One major target demographic High Income Professional Rapid change in the demography and experience of Chinese travelers Increased diversity in needs, tastes and behaviour defined by province/city of origin We expect to see increasingly discerning consumers and polarization of tastes and experiences of travelers
Diversity in China A tale of three cities Beijing Practical at heart Shenyang New and Knowledgeable Chengdu Carpe diem Not so brand conscious. Wary of buying fake goods in Beijing. Prefer to form a big tour group of their own and negotiate a customised conducted tour. Not well-traveled, yet. Most go to nearby countries like Korea and Japan. If further away, prefer conducted tour groups. Both men and women from Shenyang interested in going to Korea for cosmetic surgery. Enjoy good food, while traveling. Some travel to visit universities abroad for their children. Enjoy downtown duty free shops. Bored of HK as a destination. Love to visit islands for a change of scenery. 24
TRAVEL AND SHOPPING BEHAVIORS OF CHINESE GOING TO THE USA
Top Level: San Francisco is the 4th most visited city Most Chinese visit more than one city on a trip. 49.2% 34.6% 30.8% 22.3% 18.5% They are confident, experienced and more likely to be traveling FIT. They want to visit the US because it is different to China, new and exciting. Travel Reasons Leisure 58.5% Business 15.4% VFR 10% Shopping 4.6% Other 11% Top Motivators for visiting the US Relaxation 42.3% Natural scenic beauty 38.5% Different from home 35.4% Shopping 21.5% Culture/History 17.7%
Approximately 64% of the trip budget is allocated to shopping and tour package Travel Package 34% Shopping 30% F&B 12% Entertainment 10% Transportation 7% And they make 60%of their spending decisions before they leave home 27
Social Media and Forums are powerful influences on shopping and other purchase decisions in the US Due to language difficulties, Chinese are less likely to utilise advice during the trip and more likely to conduct online searches in advance of the trip to assess shopping and other purchase decisions. 65% of travelers rely on friends/ family/ word-of-mouthto decide on where to shop in the US Key sources of influence for shopping in the US Travel websites/blogs/guides 60.7% Social Networking sites 56.1% Online discussion/forums 40.8% 28
Applying what we know: Shanghai to USA direct! Shanghainese Fashion and travel The most welltraveled FITs Why FIT? More time for shopping. Like to show their individuality in their outfits. Know where to shop to get the best deals when traveling. Budget for the total trip and for shopping is lower than the national average (33%). Allocate more budget to F&B and Entertainment vs. national average. Rely mostly on: Travel websites/ blogs/ guides Online travel agents 53.7% 44.4% to make shopping and other travel purchase decisions. Top 5 media used by Shanghainese: C-trip WeChat Tuniu Qunar Travel.Sina 29
Spending priorities can vary widely by province: Travelers from Henan and Shaanxi will spend +50% more on Food and Entertainment than travelers from Shanghai. After Guangdong, Fujian and Henan have the highest average expenditure on shopping. shopping. 30
Influential media channels will also vary by region: WeChat is the most influential channel in Guangdong and Beijing. CTrip dominates travel information in Shanghai Tuniu is the most influential channel in Sichuan and Zhejiang RenRen is the most efficient channel in Anhui and Yunnan 31
PRC outbound travel is still relatively small -driven by only a few cities / regions: In China, 5.5% of the urban population is traveling internationally today (excluding HK and Macau). Contrast these travel rates to the entire population of Japan -13% and Korea 29%. Only 3 regions of China have international travel rates comparable to other developed Asian countries. 32
It s not just about China it s about ASIA. The next 10 years.. CHINA 550 mil middle class consumers to emerge 100 mil new international travelers INDONESIA, MALAYSIA, THAILAND, PHILIPPINES, VIETNAM 400 mil middle class consumers to emerge 75 mil new international travelers
Five Main Takeaways 1. Asian travelers will continue to make markets all over the world. 2. Predicting where travelers come from and where they will go is a complex art form. 3. Chinese outbound travel is huge, and the growth has only just begun. 4. China is more like a CONTINENT than a COUNTRY. 5. Travel retail will be the growth engine of the retail industry in the future are we ready?
Thank You.