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  • 9.9 Yuan coffee, anyone?

  • A $2 burger set, what could go wrong?

  • What about some made-in-China burger?

  • 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.

  • Luckin has more than 20,000 shops.

  • 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.

  • Now it's not so obvious.

  • The taste is more important.

  • The price is similar to the price of other brands.

  • It's not obvious.

  • 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.

  • There's nothing special about Starbucks.

  • There is no new experiences.

  • 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.

  • KFC is centered around Chinese elements.

  • 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.

  • It has always existed.

  • 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.

  • This is Sam's Club by Walmart.

  • 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.

9.9 Yuan coffee, anyone?

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