McDonald’s, Coca-Cola, and Apple – the giants of American consumerism – all reported declining revenues in the Chinese market during the second quarter.
For decades, China has been a magnet for multinational corporations, thanks to its massive market size and rapid economic growth. However, in recent years, the world’s second-largest economy has slowed down, competition has intensified, and trade tensions with the U.S. have been squeezing the profits of foreign companies.
“Consumer sentiment in China is currently quite weak. People are changing their behavior, hunting for discounts and buying wherever they find the best deals,” observed Christopher Kempczinskin, Chairman and CEO of McDonald’s, following the release of their second-quarter financial report.
McDonald’s reported that its international market revenue fell by 1.3% compared to the same period last year. The fast-food giant’s business in China also declined, though they did not disclose specific figures.
Apple revealed a 6.5% drop in sales in mainland China during Q2 compared to the same period last year. Johnson and Johnson also commented on the highly volatile market, stating it’s “large in scale but underperforming in results.”
After a strong start to the year, General Mills saw a decline in consumer sentiment during Q2, impacting foot traffic at their Haagen-Dazs ice cream shops and Wanchai Ferry dumpling outlets, leading to a double-digit drop in sales last quarter.
The dismal business results have cast a shadow over corporate outlooks. We don’t expect to return to double-digit growth like the pre-pandemic era,” P&G CFO Andre Schulten said last week. He forecasts that over time, revenue in China will improve but only hover around 5-6%, akin to developed nations. Last quarter, their revenue from this market fell by 9%.
Hotel operator Marriott International also revised its revenue per room growth forecast down to 3-4% for the year, citing market weakness. Specifically, Q2 saw a 4% drop in revenue per room for Marriott, partly due to residents opting for international travel.
China’s economy, after decades of rapid growth fueled by reform and opening up, has recently decelerated. In Q2, the nation’s GDP grew by 4.7% year-over-year, slower than earlier in the year and below analysts’ expectations.
Beijing is striving to boost domestic demand amidst a three-year property market crisis, rising local government debt, and weak corporate spending. However, recent data indicate that this goal remains challenging.
Drink giant Coca-Cola reported a decline in revenue in the Chinese market, whereas Southeast Asia, Japan, and South Korea saw an uptick. The world’s second-largest economy is grappling with structural issues like real estate and pricing,” noted Coca-Cola CEO James Quincey. Nevertheless, he attributed the revenue dip to the company’s transition towards sparkling water, tea, and juice to better align with local tastes.
Starbucks CEO Laxman Narasimhan highlighted the “cautious spending behavior and heightened competition throughout the past year.” Rapid store expansion and price wars in China’s beverage sector have escalated costs, eroding the company’s profits. Sales at their Chinese stores dropped 14% in Q2 compared to last year, whereas in the U.S., the decline was 2%. Their major competitor in China, Luckin Coffee, also reported a 21% sales drop.
Both companies face stiff competition, from budget-friendly Cotti Coffee to premium brands like Peet’s. Interestingly, Peet’s reported double-digit growth in the Chinese market for the first half of the year.
Not all consumer brands are struggling, though. Fashion retailer Canada Goose posted a 12.3% increase in Q2 sales, reaching $15.9 million.
Sportswear brands are also faring well. Nike reported a 7% rise in Q2 revenue. “Despite short-term headwinds, we remain confident in our long-term competitive position,” said Nike CFO Matthew Friend.
Similarly, Adidas saw a 9% increase in Q2 sales, with China now contributing 14% of its net revenue. CEO Bjorn Gulden noted that Adidas continues to gain market share in China monthly. However, local brands are fiercely competitive. “Many companies produce and retail within their own stores, which means they can move quickly and offer attractive prices to consumers. We are adapting to that,” he said.
Skechers reported a 3.4% revenue increase in the Chinese market. The company expects the world’s second-largest economy to continue recovering and show improved performance in the latter half of the year. “Nevertheless, we remain cautiously optimistic,” stated Skechers CFO John Vandemore.
