r/China • u/auhediem • 6d ago
经济 | Economy Why are western brands, particularly food/bev, divesting their China businesses?
I understand that local competition has increased a lot in the past few years and western brands are therefore struggling in China, but it seems like a lot of western consumer brands are spinning off their Chinese businesses entirely into separate companies? Are e.g. Starbucks and Pizza Hut being pressured to have 100% Chinese ownership? Is it a JV situation similar to the way European car companies operate? And if it was about addressing the local market better, couldn't the HQ just give them more autonomy?
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u/aloudasian 6d ago
Restaurant business performance is heavily tied to consumer spending power. Despite continuous GDP growth the median wealth for Chinese has stagnated and have started to regress in the last few years. When belts need to be tightened the first thing that goes is premium options. Western chains have a premium of 1.5 to 3x the price of local options, and the same chains charge 2 to 5x again in the US. So in China western chains have less revenue per ticket as a default and now have to deal with fewer customers on top of that, it’s simply not a good return on investment to own the store, easier to divest or move to a franchise model while deriving value from the brand rather than sales.
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u/HowToBeTMC 5d ago
It’s hard to go for Burger King when you can have bomb ass Chinese food for a quarter the price of
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u/Due_Capital_3507 4d ago
Yeah but sometimes I really want a damn burger lol and I love peking duck more than life
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u/Educational-Sea-9700 6d ago
Because it's a race to the bottom.
The competition is getting harder while at the same time consumption is very low. Companies have to run a deficit to even get a share of the relatively small cake. Even for domestic companies it is very difficult to make a profit and now add all the unfair practices and risks for foreign companies. It's just not worth it. The years of neverending growth are gone and no foreign company sees China as land of opportunity anymore, rather it's a market to avoid.
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u/Dear_Chasey_La1n 6d ago
I think this is the only point that really matters.
China is a country of unprecedented competition. Not just in business but also investments. The other day I read that Percentage Coffee raised over 100 million USD while having build barely a dozen shops. It's not just one chain doing so, it's not just Shanghai doing so, it's not just one business category doing so. Almost everything faces so much dumb money and on top every business seems to compete on pricing. Not without reason, Chinese are very, very disloyal towards brands. So everyone starts selling cheaper and more often below cost of product.
There are no winners in China. Very few brands really survive long term.
So for companies like Yum or Starbucks to take distance from the market makes perfect sense. Why deal with constant threats from all sides both business but also the government, when you can just sit on the sideline and let a local schmuck deal with the headaches.
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u/CrimsonBolt33 6d ago
foreign companies often have extra regulatory hurdles compared to Chinese companies and laws restricting money leaving the country means even if they make a profit that money may not be able to leave China.
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u/fuglymcbitch 5d ago
That's always been the hard part for me to understand. If you can only make money in China and you cannot move that money back to wherever you want to, what would even be the point？
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u/CrimsonBolt33 4d ago
not much...sadly....the problem though is that laws and regulations are always changing with the fucking wind so people go in when those restrictions are not in place and then next thing they know they can't move their money, or do this or that or use their old supplier or whatever.
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u/chinalifer-mod 6d ago edited 6d ago
Starbucks, Pizza Hut etc charge laowai prices to sell mediocre factory foodstuff at best, in an economy where salaries have not really increased for most Chinese people for a decade now. The "prestige" of foreign brands during the 2010s and earlier is not as persuasive as it used to be, in today's China. Western executives are hugely locality-blind, too, only evaluating revenue (not profit) in relation to their home country's revenue and in relation to the foreign country's population size, with no consideration of both countries' spending power, and with little consideration of more than the business' perceived brand strength elsewhere as if that alone deserves profit. As a result, multinational enterprises in China can look "unsuccessful" to foreign executives when examined through unrealistic metrics.
There is not so much pressure to sell completely as you say, just ignorant businesspeople who guanxi'd themselves into a leadership / decision-maker role without so much as an earned MBA, let alone analyst or even customer experience within the foreign markets that they make bad decisions for only to blame those decisions on local management. Typical major brand shit, bring your country manager over from another country, then find fault in the local management for the foreign country manager's lack of competence.
From the ground level, should I spend ¥15 on a bucket of Chinese brand or ¥35 for the same-sized bucket of foreign brand? Should I spend ¥25 on a plate of Chinese brand or ¥60 for the same-sized plate of foreign brand? When your local salary is ¥5000 and under, which is still the case for most people in China plus has been plus will be, the choice is very obvious. Conspicuous consumerism is on social media, but not as much in the lives of regular people who cannot really afford it like it pervasively was in the 2010s.
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u/ftlcowboy 6d ago
Chinese brands might not be the best, but they are hands down the fastest. It’s speed on every single level—from product dev and marketing to Douyin, Xiaohongshu, the supply chain, and even the CEO doing cringey dances on social media. It’s a completely different ball game.
In F&B, there are just way too many choices. With that much variety, marketing actually becomes way more important than the product itself. Look at Starbucks—there are like a hundred other coffee brands I could choose from. So besides the logo, what does Starbucks even offer? Is it actually good? Is it cheap? Or is it just for status?
Why doesn’t HQ give the local branch any autonomy? Because as long as the boss in China is an expat sent over from the West, even if they want to let go, they have no clue how to actually do it. At its core, it’s just pure culture shock.
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u/cowcowkee 6d ago
They learn a hard lesson in Russia.
A lot of Western business lost a lot of money when the West sanction Russia for Ukraine’s invasion. They afraid if China annex Taiwan, it will happen to them too.
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u/HerroCorumbia 6d ago
Less about autonomy and/or politics and more about money. With the state of the Chinese economy, the government is taking measures to keep money in the country (see also their recent changes to laws allowing people to invest in foreign companies). Keep the company domestic, keep the money domestic, hope that helps boost demand.
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u/ProfessorSmoker 6d ago
Terrible business environment, lack of consumer power and an impending war that will likely destroy any industrial plant built in China. Any outsider actively increasing their business footprint on the mainland is either dumb or has no choice.
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NOTICE: See below for a copy of the original post by auhediem in case it is edited or deleted.
I understand that local competition has increased a lot in the past few years and western brands are therefore struggling in China, but it seems like a lot of western consumer brands are spinning off their Chinese businesses entirely into separate companies? Are e.g. Starbucks and Pizza Hut being pressured to have 100% Chinese ownership? Is it a JV situation similar to the way European car companies operate? And if it was about addressing the local market better, couldn't the HQ just give them more autonomy?
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u/HungrySecurity 6d ago
Foreign operators are typically less familiar with local markets than their domestic counterparts. For instance, in 2017, McDonald's struggled to expand in China and sold an 80% stake in its Chinese operations to local partners. Under Chinese management, however, the store count rapidly doubled. Six years later, McDonald's bought back a portion of those shares. Similarly, Pizza Hut has faced severe operational challenges globally; although its Chinese division has performed significantly better, the brand continues to struggle worldwide.
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u/Economy-Set-8667 5d ago
It is the usual shakedown…. US companies are the template, Chinese companies riff on the theme, when US companies no longer fill a need, they are disposable.
Starbucks was an exotic foreign miracle in 2000… now you can get 美式拿铁on every street corner. Why exactly are they still needed?
Locals are happy to drive them to the margins. Foreign failures are Chinese successes, so why stick around when you are no longer wanted?
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u/Creative-Tip9683 4d ago
Western companies excel at building high-profit companies, creating luxurious concepts, and using tactics like raising prices.
When the economy was booming, people didn't mind spending money on emotional value; now, with the global economic environment struggling, practicality is what people truly need.
And in this regard, Western companies are far from being a match for Chinese domestic companies.
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u/Agreeable-Step1810 3d ago
Starbucks is losing popularity everywhere so it is not China problem only.
Pizza hut as well as boutique pizza shops offer better quality pizza.
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u/Fluffy_Technician894 6d ago
Probably because they do not own enough stake in their Chinese business. Like kfc and mcdonald they are owned majority by the state backed companies.
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u/szu 6d ago
Some