Chinese Companies are Increasingly Venturing Outside of China

Chinese aren’t big coffee drinkers.

At least, not yet.

While coffee drinkers knock back around 120 cups of coffee per year, the average consumption for China is only one cup a year. In cities, the average is a bit higher, five cups…a year.

Remember, Chinese are traditionally tea drinkers.

But interest for coffee in China is growing.

While coffee consumption around the world is growing at a meek 2% per year, according to SPR coffee, China’s coffee intake is increasing at a 30% rate. With a population of 1.3 billion, the potential in China is enormous.

That’s why Starbucks [NASDAQ: SBUX] has been expanding into China. Starbucks has had a presence in the country for 20 years. They have over 3,600 stores, and are looking to further expand quickly. Impressively, Starbucks opens a store in China every 15 hours.

Starbucks has also recently opened a virtual store in China. There you can get gifts, merchandise, and yep, you guessed it, your own coffee delivered to you in under 30 minutes.

Yep, Starbucks delivers in China.

Starbucks has partnered with Chinese Alibaba [NYSE: BABA] to offer Alipay, a mobile network platform and Ele.me for delivery.

Starbucks’ virtual competitor

Yet Starbucks is facing some growing competition there.

Looking to also expand coffee culture is Chinese company Luckin Coffee [NASDAQ: LK].

The company went public last week, listing on the US’s NASDAQ.

According to the company, they are the second largest coffee chain in China when you take into account number of stores and coffee cups sold.

The company has been around for a little over a year and has gone from nine stores to a whopping 2,370 in that time frame. In comparison to Starbucks, Luckin sets up a new store every 5 hours.

And they are doing things quite a bit differently from Starbucks.

Instead of setting up stores where you can hang out, the majority are small kiosks for pick-up and delivery. Most stores are located in high-traffic, high-coffee demand areas, key places to make delivery quick. They promise a delivery in 17 minutes on average.

There are no cashiers or cash taken. Everything is done through an app.

The company say that technology is their main business. It’s the reason why Luckin Coffee decided to list on NASDAQ.

Form their prospectus:

Technology is at the core of our business. With our centralized technology system, we are able to simplify and standardize our operations, which allows us to improve operational efficiency and quickly expand and scale up our business. We leverage big data analytics and AI to analyze our customer behavior and transaction data, which enables us to continuously enhance our products and services, implement dynamic pricing and improve customer retention.

The other thing is price. Their coffee price point is much lower than Starbucks.

But, I am not telling you about Luckin so you can invest. The company may have a lot of potential for growth, but it’s also burning money as it expands and because of its heavily discounted coffee prices.

Increasingly, Chinese companies are expanding to the West. Luckin Coffee is only in China, but the fact that they decided to list in the NASDAQ is interesting.

Chinese companies are keen to grow globally

Luckin Coffee also has Tencent Holdings Ltd. [HKG: 0700] as a partner.

Tencent owns Weixin, or WeChat as we know it in the Western world. WeChat is kind of a super app. It has become one the most powerful ecosystem in China and what every app strives to be: everything for everyone.

The ‘super app’ allows you to do almost everything: from social networking to booking a doctor´s appointment to making payments. The platform has over one billion daily active users — in comparison, Facebook has 1.56 billion —and has seen spectacular growth.

Chinese companies are increasingly heading overseas, keen to grow globally outside of China. And the mobile chat service is slowly catching on outside of China.

WeChat is expanding into Europe, offering more services to Chinese tourists and nationals abroad.

The app is also starting to catch on in Australia.

During the Australian election we saw more candidates using WeChat to reach voters.

From Reuters:

Australia’s longest-serving government politician, conservative Kevin Andrews, is campaigning on Chinese social media app WeChat to fight off a challenge from a Chinese-speaking rival in Saturday’s election. […]

‘Although the WeChat platform figured only sparingly in the last election, it is a major campaign tool this time, as politicians employ Chinese speakers to run channels in areas where large numbers of voters speak Mandarin and Cantonese.

According to CNN, there are 1.2 million Australians of Chinese descent, and 60% of Mandarin speakers use WeChat to get their news.

My point is, Chinese companies are increasingly venturing into the rest of the world…

Stay tuned for more on this tomorrow.

Best,

Selva Freigedo,
Editor, Markets & Money


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find, in her opinion, the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money