This summer, the lemon water from the Mixue beverage and ice cream chain has been flying off the shelves in China—not because of its extraordinary taste, but because it’s cheaper than bubble tea.
According to The Economist, Mixue’s lemon water has enjoyed “spectacular success” as recent heatwaves swept through China. However, the secret behind its popularity isn’t the refreshing, tangy flavor; it’s the price—just 3.6 yuan (around 0.5 USD), compared to 15 yuan for a cup of bubble tea.
Across Chinese social media, many bloggers speculate that the widespread popularity of Mixue’s lemon water reflects a frugal consumer mindset and a growing trend of cutting back on expenses, shifting from high-priced goods and services to more affordable options.
Reuters has noted that consumers are showing little enthusiasm for promotional offers and discounts from brands, likely due to job insecurity and the prolonged housing slump. For instance, car sales—one of the largest components of retail sales in China—declined for the fourth consecutive month in July, despite the national old-for-new trade-in program and relaxed auto loan policies.
China’s nationwide retail sales experienced a modest growth of 2% in June. However, key markets like Beijing and Shanghai painted a different picture, with sales plummeting by 6.3% and 9.4% respectively. The July consumer price inflation for essential goods remained stagnant, signaling a slowdown in consumer spending. Notably, the Producer Price Index (PPI) dropped by 0.8% in July year-over-year, exceeding the anticipated 0.9% decrease.
A significant shift is taking place among Chinese youth, who are now trading their pursuit of luxury brands for a trend of frugality. While Mixue’s lemon water is flying off the shelves, many high-end restaurants are shutting their doors. Among the casualties in Beijing’s upscale dining scene is the Michelin-starred restaurant of Italian chef Umberto Bombana.
Consumer spending on beauty products has also taken a hit. In Hainan’s duty-free zone, cosmetics saw the steepest decline in sales during the first half of the year. Conversely, nearly expired makeup stores have emerged on social media, offering products at less than half the original price due to their short shelf life.
International luxury cosmetic brands are feeling the pinch. Earlier this month, Nivea’s parent company Beiersdorf reported that it missed profit expectations for the first half of the year. A slowing Chinese luxury market contributed to a 7% decline in sales for its La Prairie brand. L’Oreal, Beiersdorf’s French rival, witnessed similar challenges, projecting a slightly negative market outlook for the second half of the year.
On August 8, Shiseido’s stock took a nosedive in Tokyo after the cosmetics giant reported a 2.7 billion yen (18.44 million USD) loss in the first half of 2024, compared to a 13.6 billion yen profit in the same period the previous year. Shiseido’s losses were attributed to restructuring costs and declining demand in China.
This development positions Shiseido as the latest luxury brand to suffer, following in the footsteps of Richemont’s Cartier and Kering’s Gucci, both of which have been hit hard by slowing growth and declining consumer confidence in the world’s second-largest economy.
Earlier, Kering—owner of Gucci, Boucheron, and Balenciaga—revealed that sales from Chinese consumers dropped by 25% in the second quarter. China, a crucial market for Gucci, has been affected by a real estate crisis and high youth unemployment rates.
The weakness in the Chinese market contributed to Kering’s global sales dropping to 4.5 billion euros, an 11% decrease year-over-year. The group forecasts a potential 30% drop in revenue for the second half of the year, following a 42% decline in the first half, reducing their earnings to 1.6 billion euros.
Swatch Group, the world’s largest watchmaker and owner of brands like Tissot, Longines, and Omega, reported a 14.3% drop in sales in the first half of the year, totaling 3.85 billion USD, due to weak demand in China. CEO Nick Hayek noted that Chinese consumers have become “more price-sensitive.” Even the wealthiest individuals are now shunning ostentation in favor of more understated fashion.
Caroline Reyl, Senior Investment Manager at Swiss private bank Pictet, remarked that the challenges faced by brands in China stem from the ripple effects of a depressed real estate market on the broader economy. This reduces consumer and investor confidence and also leads to higher unemployment rates,” she said.
S&P Global noted that luxury spending remained moderate in 2023 but lacked any bright spots this year. Instead of carrying luxury handbags, young Chinese are now seen with plastic bags holding bubble tea, according to The Economist.
Household consumption accounts for 39% of China’s GDP. At the end of July, China announced plans to use 300 billion yuan (about 41.4 billion USD) from government bonds to stimulate the economy by funding trade-in programs for consumer goods like household appliances and vehicles.
Approximately half of the funds—150 billion yuan (20.9 billion USD)—will be used to subsidize 15-20% of the original price for products like new energy vehicles and home appliances, encouraging consumers to upgrade their existing products. However, analysts remain skeptical as this amount represents just 0.12% of GDP.
Earlier this month, officials unveiled a 20-point plan to support consumption in areas such as childcare, elderly care, education, sports, and tourism. However, these measures focus on long-term market development rather than direct cash handouts to households.
