It’s no secret that most consumers in China were in no mood to spend big. But what would make them open their wallets is so far from reality that Jefferies analysts said Wednesday that it’s up to companies to find ways to grow on their own. The analysts’ “random check” of consumers in mainland China found that people said they would spend more – if prices or wages rose by 20% to 30%. Highly unlikely, given that home prices fell in October and the word on the street is more likely to be layoffs than promotions. Alibaba confirmed Friday that it is replacing the December version of its Singles Day shopping event with an ad that simply translates as “year-end bargain festival.” Analysts generally say that for consumers in China today, there are daily necessities, rather than discretionary goods. Thus are products perceived as high quality. This favors traditional Chinese brands Kweichow Moutai – the famous alcohol company – and Mengniu – a dairy giant. Top picks Both are in Jefferies’ top picks for the Chinese consumer in 2024. The analysts forecast a 22% rise for Shanghai-traded Moutai from its close on Friday, and 60% in gains ahead for Hong Kong-listed Mengniu. The two companies are so big that they are among the six Chinese companies that made it into a list of the world’s 50 largest consumer goods suppliers for 2022, according to an annual report by OC & C Strategy Consultants released on Wednesday. Nestle, PepsiCo and Procter & Gamble held the top three spots, in descending order. “Chinese spirits player Moutai has driven gains in revenue and profits by focusing directly on consumer,” OC&C said in a release. “They launched a new dedicated app to expand its reach, resulting in direct sales more than doubling in size and accounting for 40% of total revenue.” Besides being a staple at business dinners in China, Moutai tried to branch out with co-branding in chocolate, ice cream and coffee. Jefferies’ other top picks to play the Chinese consumer next year include: Miniso, a US retailer of low-cost home goods and toys, with a projected increase of more than 30% from Wednesday’s close. China Pet Foods, a Shenzhen-listed pet food exporter poised to tap a growing domestic market, is forecast to rise more than 20% from Friday’s close. Gongniu, a Shanghai-listed hardware store operator – with “no exposure to property and exports” – and predicted an improvement of around 30% from Friday’s close. Overall it was a difficult year for domestic and international brands alike in China, despite some market share from domestic brands, which are often less expensive. P&G management said in an earnings call in October that total market volume for China — it’s largest market outside North America — was “down over the past few quarters between 7% and 9%,” according to a FactSet transcript. But the company said it expects the Chinese market to “return to mid-single digit growth” in coming periods. P&G and many analysts are quick to point out the longer-term growth potential of China’s hundreds of millions of new middle-class homes. “China’s consumer sector is set for a steady upward trend with compelling middle-income demographics. People have more money and want to spend on things that make them happy,” said Andy Mantel, a long-time China investor and CEO of Hong. Congo-based Pacific Sun Advisors. However, he expects that the global expansion of Chinese consumer brands will be limited by trade restrictions, while the domestic market is large enough for the companies to grow. In addition to slowing growth, it’s an increasingly difficult market to crack. The gap between winners and losers is widening, McKinsey’s Daniel Zipser said in a report on Friday. The firm analyzed 80 publicly listed consumer companies with a majority of revenue from mainland China. About 20 of the companies saw double-digit growth in revenue — while about 10 saw double-digit declines, the study found. “Success seems to be tied to innovation in brand launches and business models, and quick, nimble responses to changing market and consumer dynamics,” said Zipser, a senior partner in Shenzhen for McKinsey and leader of its Asian consumer and retail practice. “Factors such as high-quality products, high-quality brands and quick, insightful responses to market changes will continue to be key success indicators,” he said. – CNBC’s Michael Bloom contributed to this report.
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