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Weekly #19: China beverage going aboard🧋, TFBOYS’ economy-boosting concert👩🏼🎤, Dufry and Hainan’s travel retail ✈️ | Following the yuan
Both of Luckin and HeyTea face poor reviews due to a lack of local consumer insights and preparation.
If you love coffee and are on LinkedIn, you should *connect* with me to stay updated on all my Starbucks shit posts. I’m basically using LinkedIn as my personal Yelp.
Most recently, I posted about how Luckin Coffee’s revenue beat that of Starbucks China in the most recent quarter, here are some details in emojis because I can only seem to digest things that way:
📈Revenue: Luckin ($855.2 million) VS Starbucks China ($821.9 million)
📍Store number: Luckin (over 10,000) VS Starbucks China (nearly 6,500)
🧑🤝🧑Franchisee: 24% of Luckin’s Q2 revenue comes from partnership stores VS Starbucks China has none
🧮 Operating margin: Luckin (29.1%) VS Starbucks (17.3%)
What's intriguing is that some comments under the post suggest lingering doubts about Luckin's credibility due to the financial fraud and delisting. While that's understandable, isn't it somewhat biased to remain skeptical even after the key figures behind the manipulation, Lu Zhengyao and Jenny Qian, were ousted from the company? Or could this skepticism be rooted in prejudice?
If you haven't already, I recommend reading this WSJ article about Sean Ma, a hedge-fund manager who played a role in exposing the company's fraud and is now betting on its resurgence. I believe that a company is a reflection of its founders. When it comes to skepticism, it might be wise to focus it on Cotti Coffee, the project founded by Lu and Qian last year to compete with Luckin.
1. China beverage going aboard🧋
The fact: In Q2 2023, Luckin Coffee, Starbucks China's rival, opened five new stores in Singapore. Despite having established over 10,000 stores in China, Luckin is using Singapore as a hub for its expansion into Southeast Asia. Interestingly, Luckin has chosen to price its offerings higher than Starbucks'.
HeyTea, on the other hand, ventured beyond Asia with its first franchise in London's China Town. The company also revealed plans to establish overseas franchises in countries like the US and Canada.
Both Luckin and HeyTea face poor reviews due to a lack of local consumer insights and preparation. Customers reportedly had to wait for hours, and HeyTea had to close the store for two days after a power outage caused by an overwhelming influx of orders.
Dig Deeper: Despite targeting Chinese consumers, Chinese beverage brands often experience cultural challenges when entering foreign markets. For instance, Luckin's strategy of offering a S$0.99 coffee discount through apps didn't resonate well, as consumers found the discount less compelling than the hassle of downloading a new app, as domestic publication Xiaguangshe noted.
Brands that are eyeing to enter a foreign market may want to prioritize market research and finding an addressable market, but talking to the consumers should be conducted in parallel. In that way, the negative press and aftermath could have been avoided and they may find that the high pricing may not work so well.
2. TFBOYS’ economy-boosting concert 👩🏼🎤
The fact: In a manner reminiscent of Taylor Swift's The Eras tour and Jay Chou's concert in Haikou, TFBOYS held a "10-Year Anniversary Concert" last weekend, celebrating a decade since the formation of the teenage boy band comprising Karry Wang, Roy Wang, and Jackson Yee.
TFBOYS left a mark on the host city, Xi'an. Hotel bookings in Xi'an surged by 738%, contributing 416 million yuan in tourism revenue. The city, renowned for the Terra Cotta Warriors and Biang Biang noodles, benefited from this boost according to third-party data cited by official sources [Chinese].
Zealous fans clamored for tickets, with rumors circulating that front-row seats fetched prices as high as two million yuan. The city's official post boasted about this achievement and pledged to create a "new blue sea" merging culture and tourism. The city also plans to host events like the 12th anniversary of the online video game League of Legends and music festivals.
Dig Deeper: Celeb-driven cultural tourism seems to shine amid an economic slowdown, as Bloomberg forecasts declines in both producer and consumer prices this month. Yet, a pertinent question emerges: Are there enough celebrities to sustain this trend under the ongoing crackdown and censorship in the entertainment industry?
2. Where is Hainan’s travel retail going to land ✈️
The fact: Xavier Rossinyol, the CEO of the world's largest travel retailer Dufry, faced inquiries during the latest earnings call regarding its joint venture with Alibaba in Hainan. The concern centered around the modest CHF 2 million profit derived from this collaboration.
This situation appears to have arisen from a misunderstanding. Rossinyol clarified that the structure of China's joint venture allows the company to hold a maximum of 49% control, and the true value of the partnership lies beyond China. Notably, Dufry's sales in the Asia-Pacific market, encompassing China, have experienced an impressive rebound of 272% across all markets. This gain is noteworthy, even though it contributes just 4.89% to the group's total revenue of CHF 2.85 billion.
“We are going to see [the partnership in place] step-by-step when the Chinese traveler becomes again another significant force in Asia and across the globe,” he said last Saturday.
In the same week, the July Hainan’s duty-free sales was released and it was underwhelming to say the least. It plummeted by 34% to 2.64 billion yuan per data from Haikou Customs. The data came in after the officials put in a raft of measures to boost consumption, including issuing 20 million duty-free consumption coupons and holding an international duty-free shopping festival.
Dip Deeper: There are doubts about whether Hainan will achieve the momentum that Beijing desires. While it's reasonable to anticipate the region's needs for an extra boost after China lifts Covid restrictions, what remains uncertain is whether middle-class consumers will respond favorably to official encouragements to spend and travel, given the current circumstances. Equally dubious is whether international travelers would be inclined to visit China. Per WSJ reporting, China’s anti-West attitudes and a shortage of available flights are both cited s the main reasons of the country missing out on foreign travellers. 🔚
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One recommendation before you go, I have no background in economy but thankfully Hao HONG can always explain & forecast it in an engaging manner either through my past interviews with him or in Julius Baer’s BeyondMarkets podcast.
In the latest episode, he discusses the effectiveness of China’s stimulus and market opportunities. It’s also a great resource to learn Chinese if you ask me.