Summary of Key Points
In recent years, established foreign brands such as Häagen-Dazs, McDonald's, and Starbucks have sold their operations in China to local investors. This shift reflects a transition in the Chinese market from rapid growth to maturity, as consumer attitudes have shifted from a fascination with foreign products to a more rational approach. Local brands have risen rapidly, while foreign brands have gradually lost their competitiveness due to issues such as rigid management, slow product innovation, and low cost-effectiveness. Although local investors have revitalized some brands through localization efforts, they have also encountered challenges in the form of price-driven competition. The once-glorious "luxury" image of these foreign brands is no longer sustainable.
1. Häagen-Dazs: From a Symbol of Luxury to a Troublesome Asset
Häagen-Dazs entered the Chinese market in 1996, positioning itself as a luxury brand within the ice cream category with its marketing slogan "If you love her, take her to Häagen-Dazs." Despite being priced similarly to regular ice creams abroad, it was sold at a much higher price in China and was even considered a premium choice for dates by young people (even characters like Liu Xing in the TV show "Home with Children" regarded it as more upscale than domestic ice cream). At its peak in 2017, the Chinese market accounted for half of its global sales, with over 500 stores. However, things have changed significantly since then: new flavors are released slowly, and the brand has been accused of using cocoa butter substitutes instead of genuine chocolate. Local brands like Zhongxuegao (although its reputation has declined) and Yeren Shengshi have started to compete for market share. Consumers, influenced by the "self-pleasure economy," are no longer willing to pay premium prices for unnecessary brand prestige. As a result, nearly 100 stores were closed, leaving only 171 in operation today. The company was acquired by Ningji, which saw the potential in its high-quality locations in first- and second-tier cities and used its remaining fame to build a narrative around the brand.
2. Foreign Brands' Collective Handover: Not a Choice of Will, but an Inevitability
Not only Häagen-Dazs but also McDonald's, Starbucks, and Burger King have sold their Chinese operations. The reasons are straightforward:
1. The Market Has Changed: China's food and beverage market grew from less than one trillion yuan in 2005 to 4.67 trillion yuan in 2019, but the growth rate has slowed to 5% since 2020, meaning it's no longer a guaranteed source of profits.
2. Intense Competition from Local Brands: Local brands like Luckin Coffee release 119 new products annually, compared to Starbucks' 78; Luckin allows for more experimental approaches, while Starbucks relies on headquarters approval, making it difficult for foreign brands to keep up with the pace.
3. Lack of Understanding of Chinese Consumer Preferences: Brands like Burger King stick to American-style cooking methods, and combinations like onions and pickled cucumbers are not well-received by Chinese consumers. Local brands, on the other hand, are adept at collaborating with popular culture (e.g., milk tea partnerships with anime characters), leaving foreign brands behind.
4. Difficulty in Increasing Profits: Foreign brands once relied on premium pricing, but consumers no longer respond to this strategy. It's more profitable to sell the business and earn a transfer fee rather than operate it at a loss.
3. Local Investors' Transformation Efforts: Effective, but with Challenges
Take McDonald's as an example. After CITIC and KKR acquired 80% of its shares in 2017, they implemented online marketing, localized supply chains, and digital operations, leading to a significant expansion of stores from 2,400 to 5,903 within six years, earning recognition even from the parent company in the US. However, these efforts have come with challenges: popular promotional offers have led to reduced portion sizes (e.g., the "Heartwarming Set" being jokingly called a "Bakelaron" due to its small size).
The more serious issue is the price-driven competition. During last year's delivery boom, milk tea prices dropped to as low as one or two yuan per cup, resulting in high volumes but low profits for businesses and mediocre quality for consumers. This race to the bottom leaves no winners, with both businesses and consumers suffering.
4. Consumers' Changing Perceptions: The Loss of Foreign Brands' Charm
Foreign brands once enjoyed a reputation for luxury and quality, but now:
- Rational Consumption: Young people are more willing to spend on products that meet their needs; local brands often understand these better (e.g., Luckin's coconut latte is more popular in China).
- National Sentiment: There is growing support for domestic products, and a foreign "flavor" is no longer seen as a positive attribute; instead, it can be perceived as arrogant (e.g., Starbucks' slow localization efforts).
- Cost-Effectiveness: Consumers prioritize value for money, and the high prices of foreign brands no longer justify their reputation.
5. The End of an Era: Why Did Foreign Brands' Glory Fade?
The golden age of foreign brands coincided with the initial openness of the Chinese market, when there was a gap in information and brand awareness. Now that the market has matured, local brands have learned from foreign practices and become more flexible and adaptable. If foreign brands do not adapt to these new realities, they will be marginalized. The days when Häagen-Dazs represented romance are gone forever, and the era of these brands has quietly come to an end, becoming a memory for a generation.
This analysis explains the behind-the-scenes logic of foreign brands selling their operations in plain language, covering individual brands, the entire industry, and consumer behavior, making it accessible to non-financial professionals. The core message is clear: the market and consumers have changed, and foreign brands that fail to adapt will be replaced by local investors, who must then face new competitive pressures.
In summary, the decline of foreign brands in China reflects a broader shift in market dynamics and consumer preferences.