Wang Xiaoyu | Consumption Stratification: New Trends and Countermeasures in Cultural and Tourism Investment
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2024-12-05
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Reasonable investment in the tourism market should be based on a deep understanding of consumer demand, respond to the phased requirements of socio-economic development, and balance the practical needs of economic and social benefits. Given the new global political and economic landscape, and the new situation of expanding domestic demand and transformation and development in China, on the one hand, high-quality tourism consumption and investment have become a new need to meet the people's happy life and a new way to promote the healthy development of the industry; on the other hand, current tourism investment still suffers from problems such as supply-demand mismatch, capital misallocation, lack of capacity, and lack of innovation. Therefore, it is urgently needed to carry out reasonable optimization in terms of focusing on demand, improving capabilities, efficient investment, and improving the environment.
New characteristics and development directions of China's tourism market
As China's socio-economic development gradually enters a post-industrial consumer society, referring to the history of developed countries such as the United States and Japan in the 1970s and 1980s, the domestic tourism market is gradually shifting towards high-quality development that takes into account both quality sightseeing and themed leisure vacations. This is specifically manifested in the stratification of demand, the refinement of consumption, the "downgrading" of material consumption and the upgrading of cultural experiences, and is reflected on both the supply and demand sides.
First, the demand side shows trends such as demand stratification, market differentiation, rational consumption, and experience upgrading.
With China's per capita GDP exceeding US$12,000, approaching the level of high-income countries ①②, similar to the situation in developed countries such as the United States and Japan.
First, the middle class and niche groups have emerged with differentiated and rational new tourism needs, which in turn leads the general public to emotionally follow the new consumption. Data on consumption during the "May Day" holiday in 2024 in China shows that the number of tourists increased by about 20% compared to 2019③, but income growth was less than half of the same period in the past, which is clear evidence.
Secondly, consumption "downgrading" and experience upgrading coexist. On the one hand, traditional material consumption such as accommodation, catering, and commerce pursues cost-effectiveness, good but not expensive; on the other hand, cultural experience content continues to upgrade, that is, preference for new cultural content, new themed scenes, and emphasis on process experience.
Thirdly, demand stratification and market differentiation have become major trends. That is, the quality of functional products is improved, focusing on safety and quality; cultural content focuses on scenes, aesthetics, learning, and emotions; at the same time, middle-class consumption returns to rationality, and mass consumption is emotionally followed. From the outstanding performance of mid-range hotels pursuing cost-effectiveness to the prevalence of fragmented consumption such as one-day barbecue tours, we can get a glimpse of this trend.
Against this background, the "theme + tourism" model has become a new trend. For example, Harbin's "ice and snow + tourism", Wuzhen's "drama + tourism", etc., diversified themed scenes + tourism consumption are becoming a new model. Tourists prefer products with themed IPs, scenes, and unique experiences.
Second, the supply side reflects new trends such as product upgrading, market penetration, theme diversification, and integrated innovation by entrepreneurs.
From the supply side, tourism products are stratified, and the entire process optimizes products and services. Reviewing successful cases of tourism product development in recent years, there is a trend of shifting from only functional products to providing functional optimization and experience upgrade products, that is, functions pursue cost-effectiveness, quality, and safety. At the same time, the experience focuses on innovative themes and interactive new content. For example, Kaifeng Wansui Mountain Wuxia City Scenic Area, based on improving basic products such as catering and accommodation, innovates "Wang Po matchmaking" themed interactive performances.
At the same time, the consumer market is sinking, and in the process of upgrading functional products, the public pursues emotional and fragmented experience consumption. According to the seventh national population census data, the population in third-tier and below cities accounts for 72%④, and their online new consumption has increased by more than 80% year-on-year⑤. Observing the recent "sports + tourism" in Moganshan, Zhejiang, and "film and television + tourism" in Jiangmen, Guangdong, in the sinking market, their functional products are upgraded, services are improved, and experience content continues to innovate locally.
In addition, diversified themed products will be subdivided, and cross-border integrated innovation by entrepreneurs will be the mainstream of development. Referring to the history of developed countries such as Japan and Germany entering the post-high-speed development stage, the market has produced many diversified themed and cross-border innovative "+" tourism subdivided products.
After gradually entering this stage, China is also incubating new themed consumption needs and cross-border integrated new products, such as "sports + tourism" in Moganshan, Zhejiang, and "industry + tourism" in Beijing Shougang Park. In the process of innovating products and improving services, enterprises give play to the innovative spirit of entrepreneurs, judge needs, cross-border integrate "+" tourism resources such as sports and education industries, and integrate investment, construction, operation, and continuous iteration of good products and services.
The underlying logic of investment is to adapt funds, make precise investments, innovate products, and create value, that is, relying on the innovative spirit of entrepreneurs, discovering new needs and investing in new products with adapted funds, solving pain points and creating value, breaking the market pattern and obtaining financial returns. Speculation only pursues short-term profit goals, mostly through rapid imitation and replication. The difference in tourism investment lies in two aspects: on the one hand, it is to understand market segmentation needs, control risks such as funds, assets, and policies, and split operating and non-operating assets; on the other hand, it is to develop and operate high-level projects throughout the process, and have economic spillover and social driving effects on its own assets, surrounding projects, and local communities.
Therefore, product function optimization and experience content improvement on the consumer demand side, product stratification, market penetration, and integrated innovation by entrepreneurs on the supply side, as well as precise investment, breaking the old pattern, and creating new value will be the phased characteristics and future development directions of the market.
Current situation and challenges of investment in the tourism market
As China gradually enters a post-industrial consumer society, and socio-economic development shifts towards high-quality development, tourism demand shifts towards functional optimization and experience upgrading, and products should also transform towards improving cost-effectiveness and experience. Correspondingly, investment behaviors that support product innovation should also improve quality and efficiency simultaneously. However, the tourism investment bubble that appeared in the previous stage of the market is due to the superficial reasons of government urgency, real estate frenzy, and blind tourism enterprises, and the deeper reasons are capital misallocation, demand misalignment, few operating assets, and lack of management and operation. Some tourism projects have not followed the underlying logic of tourism investment, ultimately failing to create new value and lacking sustainable profitability. This has also led to the existence of some mismatched products and capacity-deficient enterprises in the market, forming the current market chaos.
First, the market presents a situation of supply-demand mismatch, structural imbalance, and lack of confidence.
After years of double-digit investment growth, due to previous performance-driven factors, corporate land grabbing, capital impulse, lack of entrepreneurial innovation, insufficient project innovation, investment capital misallocation, and lack of management and operation, the market products have the characteristics of more functions and lack of experience, abundant material and poor culture. At present, when leisure and vacation needs exceed 50%⑥, more than 80% of the supply still consists of sightseeing projects and functional products. The obviously imbalanced market structure and a series of tourism project failures have further affected the overall investment quality and confidence of the market.
Second, there is a lack of integrated capabilities in investment, construction, and operation based on entrepreneurial innovation.
The development and operation of high-quality cultural tourism projects require a high-level entrepreneurial team to integrate innovative capabilities throughout the entire process of positioning, planning, design, investment, construction, and operation, forming an integrated investment, construction, and operation solution. In contrast, cultural tourism investments in the previous stage were mostly real estate-oriented towns or complex projects, or various "internet-famous" products like glass skywalks and sleepless cities. Due to a lack of entrepreneurial judgment and integrated innovation, or misjudgments of the market, the discontinuity in investment, construction, and operation led to fatal flaws and difficulties for these projects; alternatively, "internet-famous" products became severely homogenized, such as thousands of glass skywalks existing nationwide during the same period, leading to rapid product homogenization.
Third, tightening financing and project misalignment have led to a lack of matching funds for cultural tourism projects, with mismatched funds embedding deep-seated risks.
First, changes in the macroeconomic environment pose challenges to financing channels. Increased global political and economic uncertainties, coupled with the investment bubble in the previous stage, have led cultural tourism investment into a cautious wait-and-see period. In the first half of 2023, new investments by key listed tourism enterprises decreased by 19.4% year-on-year ⑦.
Second, financing channels urgently need to be expanded. Traditional short-to-medium cycle equity financing is not suitable for long-cycle cultural tourism projects, and there is a lack of debt financing channels in China, such as operating cash flow assessment or credit loans. Operating income cash flow replacement method loans or REITs (real estate investment trusts) equity financing models, prevalent in Europe and America, have not yet been widely adopted in China; Although some cultural tourism REITs have begun pilot programs, the scope and asset requirements are too high. The above issues have indirectly led to short-term debt financing for long-term investments and mismatched funds, while also highlighting the contradiction between capital providers' focus on short-term returns and operators' focus on long-term goals.
Finally, project misalignment and mismatched funds have exacerbated the current investment dilemma. Various heavy-asset projects in the cultural tourism market, such as themed towns and cultural tourism complexes, or various "internet-famous" light-asset products, are either primarily driven by cultural tourism land acquisition and platform subcontracting models, or they use "internet-famous" projects as bait to expand the sale of planning and construction solutions.
Cultural tourism projects should inherently respect market consumer demand and regional development needs, developing suitable products with matching funds. However, from their inception, the aforementioned cultural tourism projects often involve government attracting large enterprises, real estate developers acquiring cultural tourism land, and tourism enterprises monopolizing resources, leading to inherent problems of market absence and mismatched funds. These projects may either fail to generate quick cash flow to support project needs due to changes in the real estate cycle; or, due to the homogenization of "internet-famous" products, declining visitor numbers, and plummeting revenues, operating cash flow cannot cover financial costs, ultimately leading to project stagnation.
New Countermeasures for Cultural Tourism Investment
Given that the development of a high-quality cultural tourism market must address new challenges such as optimizing supply-demand structures, enhancing entrepreneurial integrated investment capabilities, and aligning financing with investment, respond to the underlying logic of cultural tourism investment needs, and meet the innovation requirements of new quality productive forces, future innovations in cultural tourism investment will focus on segmented products, integrated investment and development, theme IP-based investment, value investment, and digital intelligence empowerment.
First, the direction focuses on optimizing the quality and enhancing the experience of segmented products.
Promote the optimization of functional product quality and cost-effectiveness in vertical sectors, as well as diversified thematic scenarios and detailed investment in experiential content. The former focuses on quality, safety, cost-effectiveness, etc., while the latter concentrates on the aesthetics, learning, entertainment, and interaction of thematic content.
Second, the approach leans towards integrated investment, construction, and operation.
Rely on entrepreneurial teams to identify segmented demands, focus on suitable products, and invest in products through an integrated investment, construction, and operation approach. Integrated financing and investment means collaboration and conceptual alignment between funding and management teams, encouraging mergers and acquisitions to improve asset efficiency and project operational quality. Returning to value investing means focusing on project goals beyond single profit, avoiding the pursuit of "internet-famous" trends and distorted actions.
Third, the focus is on stock renewal and cross-sector integration based on thematic IPs.
A large number of products in the cultural tourism market have reached their renovation period, and a significant number of unfinished projects have been left behind due to investment bubbles, providing ample space for cultural tourism innovation. Future investments will gradually shift from incremental investment to stock renewal.
At the same time, in line with consumer rationality and the trend of experience upgrading, investment targets will, based on policy support, asset confirmation, pre-operating setup, and integrated development, prioritize the creation of hardware products and innovation of software content based on thematic IPs, scenarios, and story lines. Furthermore, a new "culture + tourism" model, meaning "cultural tourism content + industrial functions," will serve as an opportunity to integrate diverse "+ cultural tourism" themes, combining "flexible" cultural tourism consumption with "rigid" industries such as education, catering, and healthcare, thereby innovating new products and stimulating new consumption.
Fourth, the principles revolve around industrial investment and value investment, focusing on sustainable development and host-guest sharing.
Encourage entrepreneurial innovation, focus on industrial upgrading goals, invest in operating assets with matching funds to meet new demands and create new value, addressing pain points such as product quality, efficiency, cost-effectiveness, and experiential content. While focusing on carbon-constrained investment, low-carbon construction, and sustainable operations, it is also essential to consider the establishment of host-guest sharing mechanisms involving local residents, communities, and enterprises in processes and benefit-sharing, as well as the synergistic development of the cultural tourism industry with other industries.
Fifth, technology relies on digital intelligence empowerment to improve efficiency and enhance experience.
Investment relies on digital intelligence technologies, platforms, and applications such as artificial intelligence and big data. While providing technical and application support, these elevate the quality of entrepreneurial investment and development, enhance resource recombination efficiency, improve innovative product quality, optimize management and operation levels, and enhance the end-to-end user experience.
References:
① Source: Compiled from data released by the National Bureau of Statistics on February 29, 2024, in the "Statistical Communiqué of the People's Republic of China on National Economic and Social Development."
② Source: According to the standards released by the World Bank in 2020, countries with a per capita GDP of over US$12,535 are defined as high-income countries.
③ Ministry of Culture and Tourism of the People's Republic of China. Cultural and Tourism Market Situation During the 2024 "May Day" Holiday [EB/OL].[2024-05-13].https://www.mct.gov.cn/whzx/whyw/202405/t20240506_952682.htm.
④ Bank of China Research. Report on New Trends in China's Future Consumption from the Perspective of Demographic Structure Changes [R]. Beijing: Bank of China Securities, 2021.
⑤ Ebrun Research Institute. Research Report on New Consumption in Sinking Markets [R/OL].[2024-05-12].https://www.fxbaogao.com/detail/2228612.
⑥ Wang Xiaoyu. Who is Traveling, Who is Innovating: Research on Tourism Innovation in China [M]. Beijing: China Tourism Publishing House, 2023:62.
⑦ Cultural and Creative Finance Research Center, PBC School of Finance, Tsinghua University. China Cultural and Tourism Industry Investment and Financing Report [R]. Beijing: China Cultural Finance Summit, 2023.
Researcher Wang Xiaoyu, chief expert of a leading cultural tourism group, concurrently serves as a specially appointed expert of the World Tourism Cities Federation, a special researcher of the Tourism Research Center of the Chinese Academy of Social Sciences, a postdoctoral fellow in tourism economics, an expert of the Ministry of Culture and Tourism and the General Administration of Sport of China, a development consultant for multiple state-owned enterprises and provincial and municipal cultural tourism sectors. He continuously focuses on theoretical research and industrial practice of middle-class tourism and entrepreneurs' innovation. He has long been responsible for product development, strategic investment, and frontline operational work for large cultural tourism groups. His representative works include "Who is Traveling, Who is Innovating" and "Middle-Class Tourism."
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