Where to Begin

The evolution of US consumer spending over the past century offers a clear roadmap for understanding how consumption patterns shift with economic development. The core takeaway is that while physical goods consumption expands steadily, the real driver of long-term growth is the transition from goods to services. This shift is inevitable once a country's per capita GDP crosses a critical threshold, leading to a structural change in what consumers prioritize.

Core Finding 1: Goods Consumption Grows Steadily with a Shift from Essentials to Durables

A review of US consumer history shows that physical goods consumption has always been the foundation. In the early industrial era, with limited income, the market centered on low-value necessities like food, basic textiles, and household items. As GDP expanded, per capita purchasing power rose, and the population grew, durable goods such as cars, appliances, and furniture became widely adopted. Rising income and wealth then further segmented the goods market, with high-income groups buying luxury cars and premium items, the middle class acquiring household durables, and lower-income groups maintaining spending on everyday goods, thus extending the growth cycle for physical goods.

Core Finding 2: Services Become the Main Growth Engine

Once per capita GDP surpassed the $10,000 mark, a key milestone, the middle class expanded, and basic material needs were met. The consumer focus then shifted toward upgraded and experiential services. Rising long-term incomes opened up space for services, with high earners turning to private healthcare, premium education, and international travel, while the large middle class supported chain restaurants, hotels, and mass entertainment. An aging population further created new demand in long-term care, wellness, and senior recreation.

Core Finding 3: Cyclical Patterns in Consumer Performance

During economic expansions, rising disposable income and positive outlooks drive consumers to prioritize discretionary items like cars, luxury goods, and travel, boosting both earnings and valuations for those sectors. In contrast, during stagflation or recessions, consumers cut back on large, non-essential spending, pressuring discretionary companies' profits. Meanwhile, demand for staples like food, daily necessities, and basic medicine remains resilient, making essential consumer companies a safe haven for cash flow and dividends. This creates a long-term pattern where discretionary stocks lead in booms, while staples defend in downturns.

Core Finding 4: Long-Term Winners in US Staples

US long-term winners in the consumer staples sector are concentrated in household goods retail, beverages, and food. Examples include Walmart, Costco, Kroger, Casey's, and Sysco in retail; Coca-Cola, PepsiCo, and Monster Beverage in beverages; and Hershey, Tootsie Roll, and Hormel Foods in food. These companies share low cyclicality, high customer loyalty, and resistance to economic or technological shifts, giving them durable pricing power. Their asset-light models also generate high free cash flow, allowing them to boost shareholder returns through dividends and buybacks.

Core Finding 5: Long-Term Winners in US Discretionary

In the US discretionary sector, long-term winners are found in consumer services and retail. Examples include McDonald's, Starbucks, Disney, Domino's Pizza, and Marriott International in services, along with Amazon, discount retailer TJX, and home improvement giant Home Depot in retail. These companies have relatively stable demand, as consumers often shift to lower-priced dining and discount retailers during recessions. Their strong brand equity provides stable pricing power, enabling them to raise prices to offset inflation. Their business models are also extremely asset-light, generating high free cash flow and maintaining high ROE, often above 20% for leaders.

Comparing China and the US Consumer Markets

① Both countries follow a similar path of consumption upgrading, driven by rising per capita GDP, urbanization, and income growth. The progression starts with basic staples, then moves to durable goods like cars and appliances, and finally shifts to services like travel, dining, and leisure.

② A key difference is that China has a unique trillion-dollar baijiu (白酒) sector. While the US beverage market is dominated by Coca-Cola and Pepsi, China has a vast array of baijiu companies, with Kweichow Moutai, Wuliangye, Luzhou Laojiao, Shanxi Fenjiu, and Gujing Gongjiu being among the top-performing stocks on the A-share market. These brands rely on social gifting, business banquets, and cultural heritage to create stable demand, strong pricing power, and high cash flow with exceptional ROE.

③ As a competitive advantage, China's home appliance and automotive sectors have outperformed their US counterparts. Gree, Haier, and Midea have shown excellent historical stock performance, supported by smart home trends, trade-in policies, and export growth. Similarly, China's new energy vehicle (NEV) sector has a cost advantage, with strong domestic demand driven by replacement cycles and government subsidies. Companies like BYD have better overall earnings and growth prospects compared to US automakers.

Investment Recommendations

Path 1: Consumer Services (analogous to US McDonald's, Marriott, Disney): China's consumer services sector is currently at a stage comparable to the US service boom in the 1980s. Domestically, services consumption accounts for just 46% of total spending, leaving a 23 percentage point gap to reach the US level of 69%. This represents the biggest growth opportunity for the next decade.

Path 2: Discount Retail Chains (analogous to US Walmart, TJX, Costco): Retail channel consolidation was a major theme in the US from the 1970s to the 1990s. Chinese discount retail brands are likely to follow a similar path. The current consumer preference for high value-for-money products benefits the discount format, and China's integrated online-offline supply chains provide a strong competitive moat.

Path 3: High-Moat Staples Brands (analogous to US Coca-Cola, Pepsi): Essential consumer goods with strong pricing power offer defensive, cross-cycle characteristics. Leading companies can use their deep brand equity to consistently raise prices. Industry consolidation is also increasing market share and cash flow, making these stocks suitable as a core holding to hedge against macro volatility.

Path 4: Domestic Pleasure-Driven Cosmetics (analogous to US Estée Lauder): The domestic cosmetics sector has stronger growth potential than its US counterpart. Local brands are accelerating their replacement of overseas products. The small-ticket, high-frequency, self-rewarding nature of these purchases provides a stable long-term source of excess returns.

Risk Warnings

The national conditions of China and the US show significant differences; there is a risk that Chinese consumer companies may not achieve their performance targets under economic pressure; and there is a risk that policies to boost consumption may fall short of expectations.