Dong Cao and Manuel Baigorri
Updated 4 min read
In This Article:
(Bloomberg) — The consumer landscape in China was very different in the 1990s, when Häagen-Dazs and Starbucks ventured in with premium products that were alien to most people. They made huge inroads nonetheless, opening outlets at breakneck pace and raking in revenue. But times are changing, and they, like many other Western brands, are reassessing their approach to the world’s second-biggest economy, including possibly selling their businesses.
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General Mills (GIS), which owns Häagen-Dazs, is working on a potential sale of its more than 250 stores in China. Starbucks Corp. (SBUX) is sounding out interest in its business in the country, where it has over 7,750 outlets. Sporting goods retailer Decathlon SA has started a process to sell about 30% of its China business.
Reasons for this shift include the fierce competition from Chinese companies, which have evolved into nimble and sophisticated rivals with a deep connection to local consumers. Iconic brands including Apple Inc. and Nike Inc. face intensifying rivalries with local names such as Huawei Technologies Co., Xiaomi Corp. (XIACY, XIACF), Anta Sports Products Ltd. (ANPDY, ANPDF) and Li Ning Co. (LNNGF)
The economic malaise in the wake of Covid has also affected spending habits.
“Multinationals face competition from local rivals and shifting demands, especially younger generations prioritizing value for money and emotional resonance,” said Chen Jie, global head of mergers and acquisitions at China International Capital Corp. “To survive and succeed, they must develop localized strategies.”
Häagen-Dazs and Starbucks have both introduced products catering more directly to the local market, such as specialty Lunar New Year mooncake ice creams and braised pork flavored latte. Starbucks, feeling the heat from rapidly rising homegrown chains like Luckin Coffee Inc., also recently announced price cuts in China on tea-based and Frappuccino beverages, a strategy that contrasts with its US operations, where it is streamlining its menu to emphasize coffee.
McDonald's Corp.’s (MCD) China menu includes offerings such as congee and luncheon meat burgers, while Yum China Holdings Inc., which operates KFC and Pizza Hut, has egg tarts, Peking duck-style wraps and durian pizzas in addition to its more traditional fare.
