Forget the Budget. Forget the US presidential election. In the end, neither will make much difference to companies or to investors one way or the other. Something far more significant is happening, even if few are paying much attention to it. A new wave of Chinese consumer brands is starting to push out into global markets.
The coffee market might already look hyper-competitive, but it is about to get a lot more crowded. Last week, China’s largest chain, Luckin Coffee, said it was planning to launch in the US market next year. It has already started advertising during sports events and has built up a list of initial locations in cities with lots of Chinese students and expats. It plans to undercut the big US chains by selling coffee in the $2-$3 price range, instead of the $5-plus for the big cups that have become the norm at Starbucks and many of its rivals.
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Why are Chinese consumer brands so popular?
China’s emerging brands have two things on their side. First, a vast domestic market, with more than 1.4 billion people, and 145 cities with more than a million people, mostly speaking the same language, and all using the same currency and the same payment systems. It is a strong base and one that can be used to fund expansion overseas. Next, and perhaps more importantly, many of them have developed their own distinct offering. The coffee chains have far more sophisticated apps than their Western rivals. The car companies have lower costs and often better design and technology. Western multinationals often still think of China as a country where they can offshore manufacturing. They are ignoring that it has grown richer and is bubbling with fresh ideas, some of which will be very successful.
The overall Chinese economy might be slowing down, but that should not fool anyone that the competition from Chinese companies is about to disappear. Even without any further growth, China is still the second-largest economy in the world and it has turned into a thriving laboratory for new entrepreneurial ideas. Investors spend a lot of time fretting about interest rates, tariffs, employment and all the other things that impact corporate profits. They are blind to the challenge to Western consumer brands from Chinese rivals. The fight has only just begun.
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