Starbucks competitor Luckin struggles to hold on - Ben Cavender

Ben Cavender

The first quarter of China's coffee maker Luckin after it's US IPO earlier this year proved to be a rough one, as shares dropped. Luckin has a of work to do to catch up with competitor Starbucks, says retail analyst Ben Cavender to Reuters.

Reuters:

Luckin has gone toe-to-toe with Starbucks in China since it opened its doors early last year and the results highlight the Chinese company’s high cash-burn rate as it offers cut-price alternatives. 

Luckin’s operating expenses surged more than three times in the June quarter, as it opened 593 new stores taking its total to 2,963, about 1,000 fewer than Starbucks. 

On an adjusted basis, Luckin lost 48 cents per share. Analysts expected a loss of 43 cents, according to IBES data from Refinitiv. 

“(While) Luckin probably has done slightly better in the most recent quarter in terms of acquiring and keeping customers, the company is still having to work on aggressive recruiting of customers, which hurts the bottom line,” Ben Cavender, Shanghai-based principal at China Market Research Group, said before the results were released. 

Luckin has also expanded beyond coffee, allowing customers to buy food and other beverages via its app.... 

Analysts reckon both coffee companies will soon see more competition from smaller rivals. 

“At home Luckin is facing increasing competition both from quick service restaurant brands like KFC that are placing greater emphasis on coffee, as well as smaller chains like Manner Coffee that are using somewhat similar business models to interact with the consumer,” said Cavender. 

Luckin’s total net revenue surged more than seven-fold to 909.1 million yuan in the June quarter.

More in Reuters.

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Panic among businesses grows fast - Ben Cavender

Ben Cavender

Uncertainty among China-based companies grows fast after the US blacklisted Huawei and others, and China threatens to hit back, says Shanghai-based business analyst Ben Cavender to Reuters. Panic would be an understatement.

Reuters:

Analysts said U.S. companies had been more sanguine in the initial stage of the trade war, with many believing that it could not possibly go on, but that began to change after Washington last month accused Beijing of reneging on previous promises, prompting fresh tit-for-tat tariffs. 

The United States also last month put China's Huawei on a blacklist that effectively blocks U.S. firms from doing business with the Shenzhen-based telecoms equipment maker, aggravating existing frictions. 

"We have in the last three weeks fielded more calls from firms wondering about the political risk here than we probably have in the last 10 years," said Ben Cavender, an analyst at China Market Research Group, whose clients have ranged from clothing retailers to chemical firms. 

"Right now there's a lot more concern that the situation regarding the negotiations has become so unstable and so emotional, when or if there's going to be a resolution."... 

"It would not be inconceivable that China will look at, for example, large retail brands that are operating here and saying, well maybe they should also have fire code violations too. That would create immediate harm to a lot of businesses," Cavender said.

More at Reuters.

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Facebook Groups go private, copying WeChat - Ben Cavender

Ben Cavender

Facebook is struggling to remain relevant for its users and has a good look at China's WeChat where group interactions are more private than the chaotic mess Facebook offers. But business analyst Ben Cavender wonders if the Chinese approach works at Facebook, he tells the South China Morning Post.

The South China Morning Post:

“Facebook has struggled to find ways for its users to feel that they have valuable ways to share and engage in interesting discussions with relevant groups of people versus the wider platform in recent years,” said Ben Cavender, a Shanghai-based analyst at China Market Research Group.

“They've seen just how popular WeChat has become as a platform for sharing within smaller, more private groups and realised that this is something that might work similarly well for them ... the challenge though is that in more mature markets like the US, consumer trust in the platform is very low.”

WeChat, developed by Tencent Holdings and with over a billion users, is heavily centred around the basic functions of messaging and social media. Moments, its social media space that Messenger’s new ‘close friends circle’ resembles, is open only to WeChat friends.

Compared to Facebook’s efforts to help users discover new groups by recommendation, WeChat employs a more hands-off process. Users can only join groups by invitation of an existing member, but the group can boost its visibility by sharing a QR code that works as a link to the group.

More at the South China Morning Post.

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Still room for premium retail in China - Ben Cavender

Ben Cavender

A glut in big cities and some high-profile failures like Mark&Spencer have raised doubts on the growth possibilities in China for premium brands. But there is still room for growth, if you pick your locations right, says retail expert Ben Cavender to the China Daily.

The China Daily:

According to Euromonitor International data, revenue of department stores in China grew from $153.3 billion in 2014 to $159.57 billion last year, but it forecast the same to fall to $148.49 billion by 2023 after peaking in 2020 at $160.2 billion. 

"I think there is still a feeling among high-end retail operators that there is room for more premium retail in China. While some may argue that commercial retail space is overbuilt in China, there are still opportunities for developers to select underserved locations," said Ben Cavender, principal of Shanghai-based China Market Research Group. 

In the past decade, some major multinationals have been incredibly successful in China. However, the exit of brands like UK-based Marks&Spencer from China in 2017 are a good example of what global department store owners should not do, he said. 

M&S initially sold the same apparel in China that it was selling in other markets leading to confusion among Chinese consumers who could not figure out sizes or read price tags. They also did not have a clear understanding of who was actually shopping at their stores. M&S wanted to be selling to Chinese millennial women but most of their customers were 10-20 years older and hunting for bargains rather than brands, said Cavender.

More in the China Daily.

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Prada tries to become again relevant for the China consumer - Ben Cavender

Getting traction from Chinese consumers is increasingly becoming harder for brands. Prada has been investing in its relationship, but has a hard time to become relevant again for their key consumers, says retail analyst Ben Cavender to CNN.

CNN:

China is one of the world's biggest markets for luxury goods, and Chinese shoppers at home and abroad make up almost a third of purchases globally, according to McKinsey.

As the value of China's currency has declined, "consumers just haven't been buying as much overseas this year," said Ben Cavender, an analyst at China Market Research.

The lackluster results come at a turbulent time for Prada. The Italian fashion house's stock price has fallen more than 36% over the last year...

Analysts say that Prada has fallen behind its competitors. They say it hasn't invested enough to create a unique experience for customers and hasn't rolled out new products fast enough to create buzz. 

The company is working to put this right, but it has some catching up to do to compete with brands like Gucci, which is owned by French luxury group Kering (KER).

"Both Kering and LVMH have been able to invest very heavily into store renovations, visual merchandising, and digital strategy in China which has made it easier for them to generate mainland China sales," said Cavender. "Prada was behind the curve."... 

Prada has made some inroads over the last year. Cavender notes that the company "has been more aggressive with product launches," and it recently relaunched a website for one of its most popular brands, Miu Miu, in Europe.

More at CNN.

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China brands looking for more synergy - Ben Cavender

Ben Cavender

In a new trend, China brands are looking to cross traditional borders, seeking more synergy, says retail expert Ben Cavender to the China Daily. "Part of the challenge is in making the product meaningful to consumers," said Cavender.

The China Daily:

Crossover retail or brands building cooperation with each other for new products is the new buzzword for companies looking to gain an edge in China's rapidly changing retail marketplace. 

New crossover products that have made waves recently include a creamy candy shaped lip balm infused with White Rabbit creamy candy, a bottle of pink perfume jointly developed by baijiu maker Luzhou Laojiao, and a paprika lipstick from fast food chain Zhouheiya whose signature product is spicy duck necks. The lipsticks launched by US soft drink brand Coca-Cola and South Korean makeup brand Face Shop have the smell of Coca-Cola. 

"There is definitely a broader trend toward brand collaboration happening globally and especially in China," said Ben Cavender, principal of Shanghai-based China Market Research Group (CMR). It allows brands to connect with a broader group of consumers and imbibes a feeling of nostalgia, he said. 

Millennials, or those people born after 1980, have been the face of the crossover shopping. 

For many like Dong Biyong, a millennial shopper, the crossover products are fond remembrances of her childhood. "I was extremely upset after I failed to get the creamy lip balm on the debut day, but luckily enough could get some later," said Dong. 

She was referring to the lip balm launched by White Rabbit creamy candy and Maxam, a brand owned by cosmetics maker Shanghai Jahwa... 

CMR's Cavender said the crossover trend has not necessarily been just with cosmetics, but also with apparel brands. An example in this regard is the streetwear brand Supreme doing collaborations with Louis Vuitton. 

Regardless of the specific crossover product category, analysts suggest there are challenges for brands in seeking an alternative product other than their specialty. 

"Quite a few crossover products have been launched. But not all of them can be termed successful," said Jin Qiaoying, research director of the beauty and personal care sector at Mintel China. 

"Part of the challenge is in making the product meaningful to consumers," said Cavender. If consumers don't have affection for both brands they are unlikely to buy, so there has to be good brand synergy and retailers need to understand their target customer well, he added.

More in the China Daily.

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JD: trying to reframe their story - Ben Cavender

Ben Cavender

Alibaba's major competitor JD is trying to change its corporate structure, after its CEO and owner Liu Qiangdong has been accused - and acquitted - of sexual misconduct. Business analyst Ben Cavender sees an effort to reframe the JD story, he tells in Benzinga.

Benzinga:

JD's change comes at a time when investors are concerned with the company's corporate structure in which CEO Liu Qiangdong controls nearly 80 percent of all voting rights, WSJ said. The company's board cannot meet without his presence unless he recuses himself, and this became a more notable issue after the executive was briefly arrested in Minneapolis on suspicion of rape. 

The Chinese company's move to change its structure could be seen as an attempt to "change the narrative" surrounding the company, China Market Research Group's Ben Cavender told WSJ. From a public relations point of view, the restructuring move following Minneapolis authorities declining to press any charges against Qiangdong is encouraging, he said. 

Some uncertainty remains over what the revamped JD structure will look like, and it "doesn't change the fact that [Qiangdong] has the voting rights and power at the end of the day," Cavender said. Other analysts told WSJ they are skeptical the CEO will diminish his influence on JD behind the scenes.

More in Benzinga.

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Downturn in luxury purchases, certainly in the US - Ben Cavender

Ben Cavender

Consumers from China are spending less, and certainly luxury brands in the US will feel the downturn at least in the short run, says luxury consumer expert Ben Cavender to AP. Tighter visa restrictions under President Donald Trump also make it harder for Chinese shoppers to get to the United States.

AP:

Forecasters including Euromonitor International and Bain &Co. say Chinese customers will be the luxury industry’s main growth engine over the next decade. But this year, shoppers are skittish amid cooling economic growth, trade tension with Washington and weak real estate and stock markets. 

“Consumers are just not as excited about spending that kind of money right now,” said Ben Cavender of China Market Research Group. 

Demand for Tom Ford suits and Jimmy Choo shoes held up better than some other Chinese spending as economic activity slowed following a government clampdown on bank lending to cool a debt boom... 

In the United States, retailers face pressure from China’s weak yuan, which makes prices in dollars more expensive for Chinese shoppers. 

Tighter visa restrictions under President Donald Trump also make it harder for Chinese shoppers to get to the United States, said Cavender. 

Chinese tourist arrivals in the United States fell 20 percent from a year earlier to 880,000 in the three months ending in September, according to an estimate by the China Outbound Tourism Research Institute in Hamburg, Germany. The number going to France rose 20.7 percent to 664,800 and those bound for Italy rose 18.9 percent to 850,000. 

“If people previously were going to the U.S. to buy an American luxury brand, that’s not their first choice anymore,” said Cavender. “They would rather go to Japan, New Zealand or someplace in Europe where the process is easier.”

More at AP.

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Didi: still a lot of trouble with the authorities - Ben Cavender

Ben Cavender

Ride-hailing company Didi Chuxing, the main competitor of Uber, is trying to move upscale, into self-driving cars, foreign cooperation and projects out of China, but at home, they still face basic challenges, says Shanghai-based business analyst Ben Cavender. Local authorities focus on illegal drivers, according to Reuters.

Reuters:

The ministry (of Transport) said that there are still a large number of illegal cars and it will urge local authorities to target unqualified drivers, which could exacerbate the shortages. 

“Didi’s service times have been drastically affected over the last few months following removal of drivers from the platform who did not have local registration in the cities that they were driving in,” said Ben Cavender, Shanghai-based principal at China Market Research Group. 

“The majority of consumers that we speak to who use ride sharing platforms used Didi first but are increasingly looking at other options.”

More at Reuters.

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Why the Chinese consumer cannot be ignored anymore - Ben Cavender

Ben Cavender

Dolce&Gabbana was the latest fashion brand to feel the growing power of picky Chinese consumers, but it will certainly not be the last one, says consumer analyst Ben Cavender to the New York Times.  “The reality is this is probably going to kill growth for them,” he said on D&G.

The New York Times:

“The consumer is more selfish right now in feeling that China has a rich history and culture and is now a world power — that we know we are your most important customer base and you need to respect them,” said Ben Cavender, a senior analyst at China Market Research, a consultancy based in Shanghai. According to the Boston Consulting Group, Chinese consumers are currently responsible for 32 percent of luxury goods sales worldwide, a number expected to grow to 40 percent by 2024, at which point the Chinese will drive 75 percent of the growth of the global market... 

Chinese state media also sought to limit the fallout. Hu Xijin, the editor in chief of the Global Times, called on consumers to be “more open-minded.” 

“Dolce & Gabbana was undoubtedly wrong, but sins do not equate to death,” Mr. Hu wrote on Friday on his Weibo account. 

Mr. Cavender, the analyst, was not so sure. “The reality is this is probably going to kill growth for them,” he said. The last time a consumer boycott erupted on this scale in China was in 2017 over South Korea’s embrace of an American missile defense system that China feared could be used to spy on its territory. Back then, protesters besieged branches of Lotte Mart, a South Korean supermarket chain. This year, it closed all of its stores in China.

More at the New York Times.

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Single's day: consumers looking for a compelling experience - Ben Cavender

Ben Cavender

Marketing expert Ben Cavender discusses how China's Single's Day developed from a nondescript event ten years ago to a major shopping event at CGTN. "Consumers now want a more compelling experience, not just a product on display," he says.

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On the China market, the iPhone does not make a difference - Ben Cavender

Ben Cavender

Once Apple's iPhone was a much-wanted device for the picky Chinese consumers. But those glamorous days are over as domestic brands offer more than their US competitor, says branding analyst Ben Cavender to Patently Apple.

Patently Apple:

Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group, said the novelty of the iPhone attracted throngs of Chinese shoppers to Apple stores a decade ago, but many consumers in the country have since developed an affinity for local smartphone brands. 

Cavender added that "At that time, Apple was offering a product that was so much better and so different that it made sense for people to show up at the store to buy something. In 2018, it’s not clear what Apple is selling that’s dramatically different or better than anything else on the market."

More at Patently Apple.

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Can Luckin beat Starbucks? - Ben Cavender

Ben Cavender

Competition is a key feature in China's industries, but coffee retailer Starbucks never faced those challenges. Now Luckin emerges, and Starbucks has no longer a free ride, tells business analyst Ben Cavender to the New York Times.

The New York Times:

In May, Luckin sued Starbucks, arguing that the U.S. chain had signed exclusive contracts with commercial property owners that barred other coffee shops from entering the space if a Starbucks was already there. 

It’s not going to be easy to oust Starbucks, which has 3,400 stores in more than 140 cities in China and plans to nearly double that by 2022. 

Ben Cavender, senior analyst of China Market Research, a consultancy based in Shanghai, estimates that it has a 70 per cent share of the market, blazing past other coffee chains like McDonald’s McCafé and Costa Coffee. But the company must prove it can stay on the cutting edge. 

“The challenge is that consumers are much pickier about the experience they get now; they have other good options that have standardized quality and potentially a more interesting environment,” Cavender said. “So Starbucks has to do a better job. It’s not a clear win anymore.”

More at the New York Times.

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What made Pinduoduo so big? - Ben Cavender

Ben Cavender

For many outside China the successful IPO on Nasdaq of group purchasing platform Pinduoduo, mildly comparable to the less successful Groupon, came as a surprise. Shanghai-based business analyst Ben Cavender tries to explain the success at Inkstone. It uses the popular Tencent platforms WeChat and QQ.

Inkstone:

Pinduoduo has a mini-game called “Duo Duo Orchard,” in which players plant a tree of their choosing on the app and collect points by logging in daily, making purchases and inviting friends. After collecting a certain number of points, users will receive a box of fresh fruit.

Pinduoduo’s social media features give it “more stickiness” than Groupon, according to Ben Cavender, a senior analyst with the Shanghai-based China Market Research Group.

“It generates a lot more interest and there’s an entertainment value to the shopping process,” Cavender told Inkstone...

China’s online shopping market has long been dominated by two giants, Taobao of Alibaba (which also owns Inkstone) and JD.com.

Pingduoduo had 168 million monthly active users in May, behind Alibaba's 502 million and JD.com’s 273 million, according to data compiled by consulting firm Jiguang.

“I think increasingly what we are going to see is more space for different kinds of models,” Cavender says. “It may take some share away from Taobao and some of the low-end market share away from [Taobao-owned] Tmall and JD.com. But Pinduoduo’s not going to replace them.”

Currently, the majority of Pinduoduo’s users live in cities with populations of fewer than three million people – small cities with users who are more price-sensitive.

In the more affluent cities, Taobao and JD.com still dominate... “If Alibaba decides that’s a market they want to own, they are going to spend a lot of money, and Tencent has to decide how much they want to support Pinduoduo’s long-term growth,” Cavender says.

More at Inkstone.

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Nutrition additions: room to grow in China - Ben Cavender

Ben Cavender

The recent US$ 620 million purchase of Australian vitamin company Nature’s Care by Chinese investors made other firms in the industry wonder what their chances are for a similar deal. "There is a lot of room for growth in China," says business analyst Ben Cavender to Reuters.

Reuters:

Chinese investors have been hunting for deals in health foods, vitamins and supplements overseas to meet growing demand from China’s burgeoning middle class who are becoming increasingly health and fitness conscious. 

Australian firms in the sector including Swisse Wellness and Vitaco Holdings have lured Chinese buyers in recent years, while Chinese drugmaker Harbin Pharmaceutical Group Holding Co (600664.SS) said it would buy a 40 percent stake in U.S. nutritional supplements maker GNC in February. 

“There is a lot of room for growth in China,” said Ben Cavender, Shanghai-based principal at China Market Research Group, who added that Australian firms especially had built up good cachet and brand awareness in China. 

The buying consortium added in their statement that there was “explosive growth” in Chinese demand for “high quality nutrition supplements from overseas countries like Australia”, helped in part by a flourishing cross-border online market.

More at Reuters.

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Mixed chances for a political backlash against US companies - Ben Cavender

Ben Cavender

The trade war between China and the US is heating up, raising fears for a political backlash against US firms in China. Business analyst Ben Cavender feels it will vary very much according to the position of companies in China, he tells Reuters.

Reuters:

The highest profile corporate casualty was South Korean conglomerate Lotte Group, which saw its plans for mega shopping complexes indefinitely suspended and nearly all of its Lotte Mart stores in China shut for much of the year over alleged fire safety issues. Ben Cavender, an analyst at Shanghai-based China Market Research Group, said U.S. businesses in China such as Starbucks were more firmly entrenched in the country, making them less likely to receive similar treatment. 

“A lot of the brands are employing Chinese workers, essentially they’re Chinese companies in their own right,” he said. However, he warned that everyday consumption goods could nonetheless be hit. “You can see consumers saying we’re not going to buy a Ford , or a GM product, and we’re going to buy a European product or a Chinese product instead,” he said.

More in Reuters.

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A booming "she economy" - Ben Cavender

Ben Cavender

Milleniums, especially women, are key for consumer spendings, says retail analyst Ben Cavender at Reuters on Women's Day. Companies went all out to attract the female buyers, he says.

Reuters:

The women-targeted market, or the so-called “she economy”, a term coined by China’s education ministry in 2007, is expected to account for $700 billion by 2019, according to the Chinese securities firm Guotai Junan. 

“If you look at how companies are thinking about their ad spending, how they think about product selection, probably they are thinking, 70 to 75 percent of our spending really needs to be targeted directly at women,” said Ben Cavender, Shanghai-based principal at China Market Research Group. 

Women spent 64 percent more in 2017 than in 2015, with a majority of purchases made in major cities such as Beijing, Shanghai and Guangzhou, according to a report by Alibaba, which controls the largest share of retail e-commerce sales in China.

Purchases were more than cosmetics and shoes. 

The number of women who bought running outfits rose over 13 times in the last 12 months, while spending on boxing gloves by women soared 75 percent, according to a separate Alibaba report.

More at Reuters.

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Star Wars missing a following in China - Ben Cavender

Ben Cavender

Box office revenue for Star Wars: The Last Jedi, was beaten by a local romantic movie, showing US movies do not automatically win in China. US classics to not have the following in China, they have at home, says business analyst Ben Cavender to CNBC. 

CNBC:

"[T]his is a franchise which has always struggled in China ... the cult following just doesn't exist," Ben Cavender, principal at consultancy China Market Research Group, told CNBC. He attributed the less-than-outstanding performance of "The Last Jedi" at the Chinese box office to the lack of "generational awareness" among Chinese consumers of the franchise. The first three films in the series, which first began in 1977, were never shown in theaters on the mainland. In fact, the first Hollywood film shown theatrically after the Cultural Revolution was "The Fugitive" — which coincidentally also starred "Star Wars" actor Harrison Ford — in 1994. 

In order to tackle that lack of awareness ahead of the mainland release of "The Force Awakens" two years ago, Disney carried out large-scale marketing campaigns that included positioning 500 white-armored stormtroopers on the Great Wall to drum up hype around the film. 

Disney also recruited popular Chinese singer Lu Han to star in a themed music video ahead of the mainland release of "The Force Awakens" back in 2016. 

This year, cast and crew members of "The Last Jedi" — including actress Daisy Ridley, actor Mark Hamill and director Rian Johnson — attended a premiere at Shanghai Disney Resort some two weeks ahead of the film's mainland release to drum up support. 

Meanwhile, the relative popularity of the latest "The Ex-File" sequel could also be due to Chinese consumers becoming more attached to local "story-driven" films, Cavender said, citing the outperformance of "Wolf Warrior 2" last year.

More at CNBC.

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Alibaba needs older customers to maintain growth - Ben Cavender

Ben Cavender

E-commerce giant Alibaba launched this week a special app for the older people at Taobao, its online shopping website. A logical step, says retail analyst Ben Cavender to Reuters. “It’s easier now than it was in the past to get some of these older users to actually open up their wallets and spend.”

Reuters:

The company on Wednesday announced the launch of an “elderly friendly” version of its shopping app Taobao after causing an online stir this month by posting job adverts for candidates over 60 to act as consultants to promote the app and provide feedback. 

“The big motivator here is that their revenue growth is slowing,” said Benjamin Cavender, Shanghai-based principal at China Market Research Group. “It’s easier now than it was in the past to get some of these older users to actually open up their wallets and spend.” 

Trying to appeal to the elderly fits in with Alibaba’s $10 billion-plus spending spree to raise its presence in brick-and-mortar stores, which are frequented more often by older shoppers.

More at Reuters.

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Tencent's investment positive for Wanda - Ben Cavender

Ben Cavender

Dalian Wanda Group’s commercial property arm secured a US$5.4 billion investment from a group led by tech giant Tencent Holdings, a major move for the troubled real estate giant, hoping to get a Shanghai IPO, says business analyst Ben Cavender to Reuters.

Reuters:

The 34 billion yuan deal for a 14 percent stake in Wanda Commercial could also help the unit get back on track with a plan to relist in Shanghai after a bold and ultimately expensive decision to withdraw from the Hong Kong exchange in 2016. 

“From Wanda’s perspective it seems a good deal. They’ve overextended with expansions and acquisitions over the last couple of years,” said Ben Cavender, Shanghai-based principal at China Market Research Group, adding that Wanda Commercial had now become a more “attractive mainland IPO candidate”. 

The stake will be bought from existing investors who had been part of the $4.4 billion buyout fund created for Wanda Commercial’s delisting in 2016. Those investors had been promised up to 12 percent annual interest if it failed to relist in Shanghai within two years. 

The Shanghai IPO has, however, been held up by mainland regulatory measures to tighten liquidity in the real estate sector. Wanda said in a statement that with its new investors it was looking to take the unit public “as soon as possible”. 

The Tencent-led group includes major retailer Suning Commerce Group, e-commerce firm JD.com Inc and rival developer Sunac China, which bought some of Wanda’s theme park assets last year. 

“The tech companies are seen as the darlings of China’s emergence as a global superpower. So, reputation-wise I think this is a good move for Wanda,” Cavender said.

More at Reuters. Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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