Foreign companies operating in China are anticipating a robust recovery in the second half of the year, as numerous stimulus measures and the reinforcement of consumer confidence are set to bolster consumption in the world’s second-largest economy.
Starbucks, the global coffee shop giant, reported a strong recovery in China during the third quarter of fiscal 2023 (ended on July 1), with outstanding performance across all aspects. In a statement to the Global Times on Thursday, the company revealed that net revenue surged by 60 percent year-on-year to $821.9 million, while in-store sales grew by 46 percent compared to the previous year. Starbucks also opened 237 new stores during this period, a record high, bringing the total number of stores in the Chinese mainland to nearly 6,500. Belinda Wong, President of Starbucks China, expressed the company’s commitment to investing in innovation, digitalization, store experience, and workforce to capitalize on the limitless opportunities in China.
Yum China, the owner of KFC and Pizza Hut chains in mainland China, reported impressive results for the second quarter ending June 30. The company’s revenue reached $2.65 billion, marking a 25 percent increase year-on-year, and net profit saw a remarkable surge of 138 percent to $197 million. Joey Wat, CEO of Yum China, stated that the company is on track to achieve its expansion goals for the year, with 655 new stores opened in the first half of 2023 (468 KFC stores and 169 Pizza Hut stores). Yum China maintains its fiscal year 2023 targets of opening 1,100 to 1,300 net new stores in China.
The high-end foreign fashion brands also experienced a boom in the Chinese market. LVMH, the world’s largest luxury group, reported a 17 percent increase in sales during the second quarter, with a strong rebound in China offsetting a slowdown in the US due to consumer confidence erosion caused by historic inflation.
While some foreign companies are optimistic about their gains in the Chinese market, others adopt a more cautious approach, citing the challenging economic environment indicated by recent data. Unilever, the British consumer goods giant, reported that China’s declining property market and exports had led to a historic low in consumer sentiment. Similarly, Wall Street analysts downgraded forecasts for cosmetics giant Estee Lauder, citing concerns about the bumpy recovery in its key China market.
Experts point out that some Western multinationals, with decades of presence in China, are not adapting quickly enough to changing Chinese consumer behavior shaped by the pandemic. Emerging domestic brands have capitalized on targeted products and campaigns, leading to increased competition and market share loss for some Western conglomerates, particularly in the cosmetics sector.
Foreign-funded companies are urged to seize the opportunities presented by the Chinese market’s immense potential and resilience. It is essential for them to address consumer needs and adapt to changing trends to avoid missing growth opportunities. Despite subdued growth in the second quarter, China’s consumer market is on a faster development trajectory compared to developed economies.
Looking ahead, experts predict a strong recovery in the second half, with consumption playing a pivotal role as an economic driver. Recent top leadership meetings have resulted in numerous stimulus measures to boost market expectations and consumer confidence. In this regard, Chinese authorities announced 20 measures on Monday to support consumption, including measures to expand property and vehicle sales, reflecting the government’s dedication to ensuring a steady economic recovery.