China: A tale of premiumisation

Keeping you abreast of the latest asset manager lingo, the word ‘premiumisation’ is one to listen for. The Lens was on the road at the very beginning of the year to chart China’s economic rise (we are fine, thank you for asking) and it was there where we heard the term.

Rising incomes inevitably mean that people will generally try to access better products. But when we look at the drivers of income, the distribution of wealth is skewed more towards wealthier people, which drives more demand for premium products.

What are some of the products subject to premiumisation and why?

The products are as diverse as airports and electronic goods.

One form in which premiumisation manifests is through product innovation. Products with new functions drive the consumer’s desire to change to better products. Electronics have a very short lifecycle. In just one year a user might wish to upgrade.

A case study could be the launch of 5G handsets this year, which are more expensive than their older counterparts.

Another example of premiumisation is products that are steadily increasing their pricing in order to tailor for customer needs. This has been seen in the drinks sector, where price inflation of liquor is partially due to limited supply and also to growing demand. Look at the revolution that Vodka has been through over the past decade. And now, the Lens hears, gin is the new vodka, and ripe for the same premiumisation.

Premiumisation in dairy products and condiments are no different.

The trend of premiumisation is becoming more evident across China’s consumer sector. The word will no doubt be imported into asset manager presentations. Premiumisation could be an interesting story. You heard it here first!