In mid June 2011 I returned to China for the fifth time in a year. Over the past year our company has finalized several license agreements for US companies in China in the food and service sectors. Now we are seeking licensees for additional US food brands, another service brand and a retail brand in China.
This blog contains some comments on what I saw and heard over a 10 day period visiting four Chinese cities and meeting with 20 companies of different types.
The Chinese Consumer
The Chinese consumer engine is alive and well. This is not a macro analysis but an on the ground analysis. The young Chinese consumer in major cities is well dressed, very busy and has discretionary income to spend. They are saving at a much lower rate than their parents.
But this consumer wants a known brand with quality, convenience and service. And the product or service needs to be different than what is typical in the marketplace
We see more companies seeking international brand licenses with more capital to invest than even earlier this year. We are seeing a focus on Tier 2 city company interest, as well as the standard Tier 1 city companies. These potential licensees are seeking brands with something different to attract the young, spending consumer.
The executives we meet seem bullish on the Chinese consumer and are willing to make large infrastructure investments to be ready to serve these consumers, who – as mentioned above – want higher quality, better service and more convenience than ever.
Another thing that is very evident is the national infrastructure improvement in travel and road areas. Quite a contrast to what we saw in the first quarter of 2011 in India. In China high speed trains between cities are in operation or will start operating by 2015 – already under construction. Major airports are state-of-the-art and convenient. Flights are full between cities.
On the investment front, we see two types of Chinese mainland companies. One wants to build brands and then go public. Another type wants to rapidly build and operate units and then go public fast to get a quick payday. This second type of company is not a good US brand licensee, as they are not focused on building a long term revenue stream but on a fairly quick pay off so they can move on to another business. The question we ask is what happens to the brand left behind?
The Chinese Food Consumer
Another new trend we are finding in major Chinese cities is a healthy food trend.
One of the food sector people I met on this trip said 10 years ago the Chinese consumer was trying to fill their bellies. 2 years ago they were eating at expensive restaurants to show they had money no matter what the food. Today the younger generation is looking for low calories, low or no fat food that has a good taste. They are voting for healthy food with their wallets.
This means meals with lower fat, a major cultural change for Chinese. This is generational – the 20 somethings with discretionary income.
The Chinese Overseas Investor
A recent BBC article stated, “No longer content to be known for their cut-price efficiency in stuffing Disney toys, Chinese companies now want to own high-end global brands and be at the forefront of major technological projects.”
http://www.bbc.co.uk/news/business-13911755
Everywhere around the world we are seeing Chinese companies buying or buying into western companies. This is partly due to their growing cash from exporting to the west.
But there may be another reason: a flight to quality like Japanese companies did in the 1970s and 1980s once they had cash from exports to the western world.
One question: is the cash being used for purchases private or government?
China’s economy is about to burst???
Every China hand in the investment sector believes the China economy bubble is about to burst. It is hard to tell this on the ground watching the Chinese consumer buy or Chinese companies invest in US licenses. 30,000′ analyses are seldom indicative of the real world.
Shanghai 100s year ago
Shanghai is today one of the most significant business centers on this planet. Airport, roads, infrastructure are in many cases better than the US. Decades ahead of India.
‘Visualizing China’ is a project to define China today and in the past on the ground and not at 30,000′.
http://www.businessinsider.com/historical-china-photos-2011-7?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29
Thank you for this article, facts remain accurate in China for some things. I live in Shanghai for two years now, and I have also noticed that Chinese consumer are willing to spend a good amount of their salary in western products. 2nd or 3rd represent the future potential of the Chinese Economy. Many entreprises and franchises has moved inland China for better opportunities, cheaper labour cost, transport improvement, incentive taxes..
For the Chinese food, I do believe they take care of the quality of food. However, they are big fans of KFC, Burger King. Franchising in China is a great opportunity !