Apple, Tesla and Starbucks struggle in China’s economic slump after making a fortune for decades

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For decades, Western companies have made a fortune betting on the inexorable rise of the Chinese consumer. Now, the economic downturn and the emergence of fierce local competitors mean those bets look less safe as price wars break out.

Discounts and special offers are being offered across consumer brands from food and clothing to consumer electronics and automobiles, reflecting a seismic shift in consumption patterns in the world’s second-largest economy.

One of the most intense price wars is taking place in the electric car industry, where Race “life and death”. he have Manufacturers are scrambling to survive.

Tesla’s Chinese market share shrank to 4% in April, nearly half from 7.7% in March, according to data released by the China Passenger Car Association on Friday. Delivery from its factory in Shanghai, The largest in the world, It was down 18% last month compared to the previous year.

The sharp decline contrasts with rising sales of its biggest Chinese rival BYD, which reported a 29% jump in deliveries of pure electric vehicles.

“Everyone has changed the way they think about China,” said Anne Stevenson Yang, co-founder and managing director of J Capital Research. “The entire business climate has changed.”

Last month, Tesla (TSLA) announced Aggressive price cuts In the country, also shortly after price cuts in the United States and Germany. This step has been added to A Price discount series which it has achieved in its largest foreign markets since late 2022.

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Last year, the Chinese economy grew by 5.2%. Outside of the pandemic years, that was the slowest pace of annual expansion since 1990, when GDP increased just 3.9% due to international sanctions following the 1989 war. Tiananmen Square massacre.

Consumers have cut back on their spending as their job opportunities and incomes have deteriorated. The long-term crisis in real estate, which represents 70% of household wealth, and the stock market collapse have exacerbated their problems.

In the 1990s, “every company in the West” was hiring consultants and holding board meetings about how to do more in China, according to Stevenson Yang. But now the advisers are gone, and instead of talking about how to capitalize on rapid growth, senior officials’ discussions are about “exiting, protecting operations, or balancing supply across multiple countries.”

She added: “China is now somewhere close to Brazil’s status – big, important, but difficult.”

The country’s economic woes aren’t limited to Tesla and the electric car industry either. They are hitting other giant American companies like Apple (Camel), Starbucks (Stokes(and McDonald’s)MCD): They are all struggling to adjust their business strategies to suit the rapidly changing market.

Concerns about the future have forced Chinese consumers to be more budget conscious, said Yang Wang, senior analyst at Counterpoint Research. As a result, purchases associated with luxury or luxury have declined.

Kevin Fryer/Getty Images/File

People browse Apple products at a flagship store in Beijing on September 22, 2023.

“Chinese consumers are certainly suffering from lower consumption overall,” he said.

Apple’s total revenue in Greater China — including mainland China, Taiwan, Hong Kong and Macau — fell 8% to $16.4 billion in the fiscal quarter ended March 30.

Meanwhile, Huawei, the Chinese technology champion that the West once tried to eliminate, has been advancing rapidly. Its smartphone sales rose by 70% in the first quarter of 2024, supported by the successful launch of the Mate 60 series, according to data collected by Counterpoint Research.

“[China] “It’s the most competitive market in the world,” Apple CEO Tim Cook said on a call with analysts earlier this month. He added that he remains optimistic about the Chinese market in the long term.

The US smartphone maker cut prices for iPhones sold in China, helping its shipments rise in March, according to data published last week by the China Academy of Information and Communications Technology, a government-backed research firm. This represents a turnaround from the previous two months of 2024, when Apple saw a deep decline in iPhone sales.

Apple and third-party retail platforms led the price cuts, with some iPhone 15 models being offered at discounts of up to 20%.

Café chains were also quick to undercut each other’s prices. Last February, Cotti Coffee, a startup founded by two former Luckin Coffee executives, began a campaign to lower latte prices to 9.9 yuan ($1.4).

This move prompted Luckin, who… The largest coffee shop chain in the country, To match this price. Coty then reduced latte prices again to 8.8 yuan ($1.2).

She has aggressive rivalries Affected global brands. Even Starbucks, which has indicated it is not interested in the project China’s price war began with coupons that effectively brought latte prices down to less than 20 yuan ($2.8). They usually sell for 30 yuan ($4.2).

The average check paid by a Starbucks customer fell 9% in China in the first quarter of the year, mainly due to promotions and lower sales of higher-priced merchandise, the company said.

“Our consumers are now more cautious with their spending,” Belinda Wong, chairman and co-CEO of Starbucks China, said on an earnings call in January. “You see a mass influx of mass-market competitors focused on rapid in-store expansion and low-price tactics to drive the experience.”

Fast food chains have also gotten into the act.

The term “poor man’s deal” has become a popular term among Chinese youth since 2022. It initially referred to McDonald’s “1+1 = 13.9 yuan pair as you like” meal at $1.90, which was very popular among customers.

Later, other Western fast food chains jumped on the bandwagon, launching their own low-priced fixed meals.

Online guides for weekly discounts on fast food have disappeared Viral on social media.

“Mondays at McDonald’s for a free McNuggets, Tuesdays at Tastien for a ‘one for one’ deal, Wednesdays at Dominos for a 30% discount, Thursdays at KFC for a ‘Crazy Thursday’ deal, and Fridays at Burger King for half price a set deal on weekdays, then head to Wallace for the weekend and repeat next week, according to one guide.

Nanchengxiang, a Beijing-based fast food chain, even launched a super-cheap breakfast buffet for “3 yuan (41 cents),” setting a record low price for all-you-can-eat meals.

The kit, which many netizens described as “essential for poor people working in Beijing,” has doubled its sales during breakfast hours, according to canyin168, a restaurant industry data tracking and analysis site.

“Depressed” consumer sentiment is likely to persist for a while, said Counterpoint Research’s Yang.

Some Western brands will “inevitably” have to reconsider pricing to defend their market share.

He added that this would not be an “easy solution”, because foreign brands are at a disadvantage compared to local brands due to high operating costs.

But he does not think they are likely to withdraw from the country.

In the medium to long term, China remains capable of driving global economic growth and contributing to the largest growing group of middle-class consumers.

“With the economic outlook in most developed countries declining, and some efforts to catch up with major emerging market growth markets such as India, China can still offer the most profitable market in the world, even with low consumption levels,” he said.

But expectations must be lowered.

“I think the fundamental mistake that many Western companies made in China was to believe the myth of a rising middle class,” Stevenson-Yang said.

In fact, Chinese people had a lot of money from capital gains in real estate and the stock market; They never received significant increases in income. “The economy is not returning to the poverty levels it was in the 1980s, but there is a lot of work being done.”

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