Consumerism in China is healthy. Chinese consumers’ tastes are becoming healthier too — and more Chinese. Foreign consumer brands are declining in popularity.
Few know this better than Yum Brands, a former fast-food favourite whose fried chicken and pizzas once lorded it over noodles and dumplings. Last week, private equity groups were in talks to buy one-fifth of its China unit, due to be spun off this year. The price, reportedly, implies a valuation of $10bn for Yum’s China unit. That is less than a third of the whole company’s market capitalisation, even though China contributes 40 per cent of total profit. This imbalance may be warranted: Yum’s China business is struggling. Growth has become dependent upon new stores, rather than higher productivity at each store.
Results from a 2015 survey by McKinsey show that consumption of fizzy drinks and western fast food has fallen a fifth since 2012. The move is mirrored in other industries. In 2015, half of those surveyed aimed to buy the most expensive product they could afford in apparel and consumer electronics, a marked uptick from 2012. While premium foreign brands may smack their lips at this news, the trend is not unequivocally good for them. For the same price and quality, an increasing number of Chinese prefer to buy domestic rather than overseas goods.