Week #27: Concert economy goes awry 🤡, 3 lower-tier market successes🏆, Domestic travel lower than forecasts 😞 | Following the yuan
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Week #27: Concert economy goes awry 🤡, 3 lower-tier market successes🏆, Domestic travel lower than forecasts 😞 | Following the yuan
While China’s economic growth has slowed, it’s logical to tap into more regions to harness the population dividend, just like what foreign brands did to China 20 years ago.
In another instance of me worrying about things beyond the scope of my control, I’m thinking about the prospects of businesses born pre-digitalization and how they could fare against their competitors. Especially when the latter has their sales number and customer data.
Whether you are an Amazon user or you are watching over Amazon for work, you may be aware of the ongoing Federal Trade Commission V.S. Amazon suit that alleges the e-tailer of monopolistic behaviors including prohibiting rivals from lowering prices. This is a practice that’s all too familiar in China’s market.
It makes me wonder how the U.S. would regulate Chinese on-demand platforms including Alibaba’s Freshippo, which is on its way to an IPO in Hong Kong that is separate from the main entity, and ride-hailing platform Didi.
As a regular user of both, I noticed rather unfair competition in recent months. Ride hailing platforms engulf business from taxi services is nothing new, but when Didi gives riders cash back while listing taxi, sometimes its own rides may cost just 1/2 than taxi.
Freshippo has been launching a slew of staple products from pasteurized eggs to soda water to salt-reduced oyster sauce. When stacking up next to the branded products from Japanese egg producer Avtan, personal care retailer Watson and condiment manufacturer Lee Kum Kee, it’s obviously advantageous in the current economy.
I’m certain that Freshippo made the product decisions using proprietary sales data of these branded products and then go head-to-head with them with imitators that carry similar packaging and selling points. Yay or nay, FTC?
1. Concert economy goes awry 🤡
What happened: When The Midi Music Festival, one of China's largest rock music festivals came to a third-tier city during the past holiday, there was a lot of expectation.
Seeing it as an opportunity to replicate BBQ city Zibo’s success model, Nanyang government recruited around 40,000 volunteers — a number similar size to that of the just-concluded Asian Games — and readied both medical and transportation support to give the 150,000 attendees an unforgettable experience.
That expectation was fulfilled until attendees realized that their laptops, tents, chairs and many other belongings were stolen when they were immersed in the mud-soaked venue. Later, Midi Musical Festival said that the thieves, who are local villagers, were arrested.
Then, the incident spiraled into an online war. Some netizens leaned into the stereotype that Henan natives are prone to stealing, while locals argued that the tarnished image was unjust, given the maximum efforts exerted by the local government.
Dig deeper: This should be a case study for all cities that see concert as a key driver of the local economy. There were too many success cases including Jay Chou’s concert in Haikou, to rock festivals in Shenyang to how music events help revive Macau’s gaming industry, but it’s like a brand that has great campaign and ads, yet below-average customer service. Midi’s founder Zhang Fan vowed to media that he’d like to make Nanyang a music city and double the size of the venue next year, now it’s uncertain whether the promise will materialize.
If you don't work in brands, then this is a great reflection on the conflicting facets of China: locals in rural areas V.S. middle-concert goers, the widely spread regional stereotypes perpetuated by the mainstream V.S. the small crops of people who view others as individuals, etc.
[P.S. There are also also heart-warming moments, like how Dong Yu, a rock fan with cerebral palsy, was lifted by crowds over the 4-day festival. 🥺]
2. Three lower-tier market successes you should know 🏆
The ones who have been watching China for a long time would have noticed that many large consumer brands and luxury brands are strategically going into lower-tier markets. This is because top-tier cities are saturated with competition, and middle-class consumers there are downgrading their options while facing decreased salary/bonuses and mounting mortgage and living expenses.
Those who live in first and second-tier cities account for around 30% of the population (and nearly half of the GDP). While China’s economic growth has slowed, it’s logical to tap into more regions to harness the population dividend, just like what foreign brands did to China 20 years ago. Here are three local examples that are already excelling:
Retain chain Pang Dong Lai 胖东来 (No IPO plans)
Pang Dong Lai may have never left Henan province as a local retail giant for over 20 years, but it has won many praises online because of a seemingly “abnormal” way of operation that has gone viral in China several times.
It’s probably the only company in China that boasts its culture as “freedom & love”. Its founder Yu Donglai, once famously said, “working overtime is unethical” and offers employees a grievance prize for situations in which they are wronged in customer services.
Boasting over 10 stores in Xuchang and Xinxiang, two prefecture-level cities adjacent to Henan’s provincial capital, Zhengzhou, the company's annual revenue in 2021 surpassed seven billion yuan, according to media reports.
Hotpot supermarket chain Guo Quan 锅圈
Guo Quan, founded in 2017 in Henan province, offers a variety of so-called “ready-to-eat, ready-to-heat, ready-to-cook and pre-pared ingredients” for diners who want to make hotpot and barbecue at home. It already passed its listing hearing with the Hong Kong Stock Exchange as of writing.
In an prospectus filed this April, it revealed that the company broke even in 2022 and recorded a net profit of 119.6 million yuan (US$16.4 million) for the four months ended April 30, 2023. By Sep. 26, it has 9,978 stores across China, encompassing 27 provinces, 4 autonomous regions and 4 municipalities.
Chinese burger Tastien 塔斯汀
Fujian-founded Tastien was lucky to hit the market in 2017, just before the ‘guochao’ trend became mainstream. The notion of so-called Chinese burgers has been around for over 10 years, yet, no one has made this far. Tastien replaces burger bread doughs with bread pockets, and added stuffing options of traditional Chinese dishes like yuxiang shredded pork.
Rumors say that it’s been rejecting VC money after a 120M equity investment in 2021, and it’s been eyeing on an IPO. It currently has over 5,000 stores and counting.
3. Domestic holiday travel disappoint estimates 😞
What happened: The just-passed eight-day holiday has given Chinese economy a boost, despite not a super strong one.
On Sep. 30, China’s Ministry of Culture and Tourism gave a rosy forecast on the number of domestic trips and tourism expenditure, saying that 896 million trips would be undertaken and 782.5 billion yuan would be spent. That proved to be overly optimistic, and the fact that the results fell short of predictions was likely to be censored.
A key number people were paying monitoring was the recovery compared to 2019 levels. Citing new MCT data, China Daily reported that there were around 826 million visitors, marking a 4.1% growth compared to 2019 figures, while tourism-related revenue totaled about 753.4 billion yuan ($103 billion), a 1.5% growth compared to 2019 numbers.
Dig deeper: This kind of tourism data reporting is giving me Double 11 vibes, as in, the growth is slowing while the duration is getting longer. This year, the holiday period is extended to eight days (plus the mid-autumn festival, which is different every year per lunar calendar), as opposed to the customary seven days.
There’s one common ground shared with the May 1 golden week travel numbers, that is the rebound in spending is trailing behind that of traffic, which aligns with my preliminary predictions. Will this become a pattern?
The next test to Chinese economy is the Double 11, though big platforms like Alibaba doesn’t release figures anymore (because the growth didn’t look good enough), we could at least gauge consumer sentiment by individual best-sellers and livestream sales. And I can’t wait for that to happen. 🔚