Name: The end of foreign brands in China?
Uploaded: 2024-11-11T03:30:02.000Z
Duration: 9 min 25 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

When it comes to Western brands in China, giants like McDonald's, KFC, Starbucks, Apple, and Walmart are no longer the only household names in the country.

Despite a long track record of success in the China market, many foreign players have struggled to adapt to recent changes.

So, is it really the end of foreign brands in China?

To look at how intense the battle is when it comes to foreign versus domestic brands, just look at China's coffee shops.

While Starbucks sells its lattes for about three US dollars, Luckin Coffee charges less than 1.5 US dollars.

Part of the reason they offer such a huge price advantage is because their baristas only need to push buttons to make the drinks.

In the first quarter of 2024, the Chinese coffee chain opened more than 2,000 new shops.

Luckin's 2024 first quarter revenue reached 6.28 billion Yuan.

Meanwhile, Starbucks has been struggling in China.

The Seattle-based giants has more than 7,000 stores on the mainland and opened more than 800 outlets in the first quarter of 2024.

Their China revenue was 735 million US dollars over that same quarter, 135 million US dollars less than Luckin.

If you think price is the only advantage Luckin has, think again.

Using everything from luxury spirits to computer game characters, it aggressively markets its drinks by tapping into the latest trends in Chinese society.

The price is similar to the price of other brands.

Because there are more coffee shops in Shanghai now.

The special coffee shops in Xiaozhong are doing well.

It became really clear that they cannot keep up with China and what Chinese consumers want in terms of flavor and product and marketing.

When people think about Starbucks, they think of a monolith.

And coffee is not the only brand battlefront.

Chinese entrepreneurs are also creating their own fast food chains, like this one.

This is simply a knockoff of KFC and McDonald's.

But as with other domestic brands in China these days, price is certainly a feature.

This burger set costs less than three US dollars.

The emphasis on Chinese cultural elements points to another recent consumer industry trend.

There is definitely a rise in nationalism or patriotism.

People are showing a more obvious preference for domestic brands.

I think patriotism definitely plays a crucial role in this consumer behavior change.

From coffee, fast food to apparels and consumer electronics, it seems that for every Western brand, there is a Chinese answer.

So what are Western brands doing to stay competitive?

One move is to raise a price wall, a term that's all too familiar in China.

When you open an app in China these days, a routine fixture is the number of coupons it provides.

And there's a term in China for what you can now order, poor man's meals.

The poor man's meal is basically a meal set priced at a very low cost.

But when consumer confidence was high, no one labeled this menu as the poor man's meal.

However, increased job pressure and this slowing economic growth, people have taken this self-deprecating humor by calling this cheap meal set as the poor man's meal.

China's consumer sentiment has remained low since the COVID-19 pandemic.

And the youth unemployment rate reached an alarming 18.8% in September 2024.

These figures have prompted Beijing to try and stimulate the economy by firing a policy bazooka, including slashing interest rates.

But even with fierce competition and economic headwinds, some foreign brands are not giving up and instead doubling down on the Chinese market.

Fast Food Giant McDonald's, for example, opened more than 1,000 stores in China in 2023.

The company also increased its stake in China operations from 20% to 48% in 2023.

Other brands have also increased their footprint in China and some even managed to outperform their local competitors.

And on a weekday, it's still quite crowded.

Unlike traditional supermarkets, which has a lot of name brands, the bread and butter here is store-bought.

And the types of goods available in each category are limited.

According to Walmart, Sam's Club only stocks about 25% of the products carried by their local competitors in 2020.

The people at Sam's Club can focus more on the quality and on bringing the price down, which is the ultimate value they're giving to Chinese consumers.

I think it is true that people don't really want to pay a lot of premium in economic downturn, but the middle-class consumers also don't want to sacrifice on quality and food safety.

This strategy helped fuel Walmart China's 70.7% sales growth in the second quarter of 2024 financial year, outpacing Walmart's global average of 4.8%.

Sam's Club has nearly 50 stores in China and plans to open more outlets in second and third tier cities like Wenzhou and Zhongshan.

It is a rare sight in China where traditional big box supermarkets have been bleeding wet ink.

These bricks and mortar supermarkets have been threatened by the growth of e-commerce platforms with domestic demand and because they often stock too many types of goods on their shelves.

So what do the ups and downs of different foreign brands tell us about the Chinese market today?

I think the most important thing for the decision makers at foreign company is not to be too anxious about China.

Like your decisions or how you feel about China as a market shouldn't be swayed by headlines, but you should be really having conversations with your consumers on what they want and what their aspirations are.

But one thing is certain, this is a challenging time for both domestic and international brands operating in China.

With consumer confidence still low, companies have their work cut out for them as they try to navigate fast-changing consumer sentiments and economic conditions.

Anyway, it really is expensive to feed yourself these days, but after having this poor man's meals for two days straight, I think I'm having a bad case of acid reflux.

 I don't think anyone can realistically sustain themselves with these meals alone.