China’s consumers are tightening up their belts, but not everyone’s a loser. Some companies are riding the frugal wave.
Saizeriya, a restaurant chain from Japan — a country well familiar with a prolonged downturn — is one company making bank from China’s downturn.
In its fiscal year that ended August 31, Saizeriya, which serves Italian food at budget prices in several Asian countries, reported operating profit nearly doubled from a year ago to 14.8 billion Japanese yen, or $99.6 million.
Hideharu Matsutani, the company’s president, said at a Wednesday press conference that operating profit from its China operations “rose significantly,” per Nikkei.
Matsutani said Saizeriya is now using its strategy for Japan in the neighboring market because “conditions in China in some respects look like Japan after its economic bubble burst.”
There are similarities between Japan’s “Lost Decade” of economic stagnation in the 1990s, after the country’s asset and credit bubbles burst, and China’s economic downturn now.
After Japan’s asset bubble implosion, consumption in Japan witnessed a fundamental shift, as people who previously would pay for quality and convenience increasingly moved to buying discount goods, consultancy McKinsey wrote in a 2010 report.
Chinese consumers now appear to be moving in the same direction as their Japanese peers, trading down for cheaper products — even if the trend also presents challenges for budget-friendly retailers.
Still, investors appear to agree with the strategy of offering more value for money. Shares of Saizeriya listed on the Tokyo Stock Exchange are up 7.7% this year-to-date.
Living well but at the ‘best value for money’
In China, too, times have changed, and people are looking for cheaper products, including dupes and substitutes.
“Consumers are increasingly rational and strategic, focusing on obtaining the best value for their money,” said MingYii Lai, a strategy consultant at Beijing-based market research firm Daxue Consulting, told Business Insider.
Shoppers are seeking high-quality experiences and products at lower costs while aiming to live well, she said.
People are increasingly choosing to spend on experiences, like travel and food, rather than buying products.
“Economic pressures and changing priorities are driving a move towards more economical spending,” said Lai.
The ethos has benefited companies with budget offerings, including Yum China, which operates KFC and Pizza Hut in the country.
Yum China’s second-quarter operating profit grew 4%, to $266 million, from a year ago thanks to aggressive budget-friendly deals.
Fast Retailing — the parent company of Uniqlo, known for affordable clothes — reported net profit growth of 25.6% for its full year ending August 2024 thanks to robust sales in both the domestic and international markets. Sales in Greater China grew by 9.2%, to 677 billion yen.
Yum China shares are up 11% this year to date, while Fast Retailing shares are up 56% over the same period.
Intense competition
However, China’s market is a fast and furious one — even for winners — and the country’s economic downturn has created cut-throat competition with aggressive price wars.
Uniqlo said on Thursday that while sales in mainland China were “strong” in the first half of its fiscal year, they were “lackluster” in the second half.
Some consumers are going straight to the source to buy original equipment manufacturer goods or white label products to replace items in a wide range of categories — even if they’re just ordinary products.
The race for Chinese consumers’ yuan is exemplified in the boba tea business, where an all-out price war is changing market dynamics for what is considered a still affordable indulgence in a penny-pinching era.
As China’s economic malaise deepened, boba tea went from premium pricing around $3.50 to $5.50 on average to as little as $1 or less over the last few years.
“All the players are trying to introduce low-price offers. So, either you can use a low price range, or try to be very creative in terms of pricing promotion so as to stay ahead of the market,” Jason Yu, the Greater China managing director at Kantar Worldpanel, a consumer research group, told BI.
In KFC’s case, its marketing and pricing strategies cater to both ends of the market, with wagyu beef products at the higher end and promotions like 15 wings for under $3, BI’s Matthew Low reported last month.
As Allison Malmsten, another analyst from Daxue Consulting, told BI: “the rich are comfortable to spend, while the middle class chooses cheaper options.”
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