From Apple to Coke, global brands are having a tougher time in China

Western brands have to work harder to win over customers in China.

Where American or European companies could once expect to find a huge market hungry for their products, changing tastes and the challenge of new Chinese rivals are forcing them to adopt new strategies to succeed in the world’s second-largest economy.

The tougher challenge facing big names like Starbucks (SBUX) and Apple (AAPL) has nothing to do with the trade war. At least not yet. It is about new competition and increased wealth.

“It no longer works to just show up,” said Benjamin Cavender, a Shanghai-based analyst at consultancy China Market Research Group, referring to well-known brands in the West. “The tastes of Chinese consumers are changing rapidly.”

Coca Cola (CCE) is one of the best companies to have to adapt to this new reality.

“We have seen a huge shift in consumption patterns,” Curtis Ferguson, the company’s China CEO, told CNN last week. World Economic Forum in the Chinese city of Tianjin.

Coke has launched more than 30 new beverage brands in China in the past six months and now have around 275 in total, Ferguson said. They range from regular Coke to more exotic varieties with flavors like yellow beans and apple fiber. Coke even has its own line of teas in China.

It’s a big change from the Atlanta-based company’s previous approach of building on the strength of its brand.

coca cola plus porcelain
Coke has launched more than 30 new beverage brands in China in the past six months. This announcement concerns an apple fiber drink.

The philosophy was “let them drink Coke,” Ferguson said. He argued that Western companies could not afford to treat their brands as sacrosanct.

“Either you destroy your own brand in China or someone else is going to do it for you,” he said.

Starbucks scrambles to keep up

Starbucks has learned the difficulties of changing Chinese consumption habits the hard way.

The coffee chain has around 3,000 stores nationwide, making it a of his main markets. But in June, the company reported a sudden slowdown in growth in China, just weeks after announcing plans for rapid expansion there.

This is partly because it faces increasing competition from an upstart local competitor. Luckin Coffee opened its first store in China less than a year ago. Today, she has over 500 of them. Many of her customers order coffees online for delivery or take out. Chinese consumers are also increasingly turning to delivery apps, like Meituan Dianping, for food or drink.

“Starbucks has always been slow to adopt technology in China,” Cavender said. Its customers “were tired of queuing to place orders.”

The global coffee giant is now trying to correct its course. In August, he partnered with Ali Baba (BABA), China’s largest e-commerce company, launches delivery services.

Starbucks Reserve Roastery Shanghai
Starbucks opened its world’s largest store in Shanghai last year. This year, it launched delivery services.

Automakers face a ‘big challenge’

Global automakers are also struggling to keep pace with changes in China’s auto market, the world’s largest. It is shaken by the rapid spread of electric vehicles, which have been promoted through government subsidies, resulting in an overcrowded market.

François Provost, Asia-Pacific President of Renault (RNLSY), said the French automaker is now battling competition from traditional rivals and newer arrived in China. Local player Nio (NIO), for example, sells an SUV in China that costs about half the price You’re here (TSLA) Model X.

Tesla to build factory in China

The price of stickers is crucial in China, Provost said, as most customers are first-time buyers. But drivers are also demanding electric vehicles with longer battery life, as networks of charging stations are still being built across the country.

“The big challenge is to increase the efficiency of the range and reduce the costs of use at the same time,” Provost said during a panel. discussion at the World Economic Forum. It will be tough for the automakers, he predicts: “I can’t honestly say we have full visibility on this.”

Apple loses the innovation race

Apple (AAPL) possesses loss of market share in China to local rivals over the past two years. The iPhone accounts for less than 10% of smartphone sales in the country, analysts say. In the United States, it matters for about 40%.

Apple faces fierce competition from Chinese players such as Huawei, Oppo, Vivo and Xiaomi.

Can Chinese smartphone giant Xiaomi survive a trade war?

“In recent years, Apple has slipped a lot in the Chinese market,” said Mo Jia, researcher at Canalys. “The very aggressive technological innovation of Chinese brands is changing the high-end landscape.”

The latest models of the American company, the XS and XS Max, include features that could increase their appeal in the Chinese market, such as dual SIM maps and a larger screen. But analysts are skeptical that it will make a big difference.

“Apple is fighting a bit of a losing battle,” Cavender said.

– Sherisse Pham and Rishi Iyengar contributed to this report.

CNNMoney (Hong Kong) First published on September 25, 2018: 10:23 p.m. ET

Leave a Reply

Your email address will not be published. Required fields are marked *