Nestlé warns against China’s dreary economy
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Nestlé just became the fourth major Western brand in the past two weeks to report dreary Chinese sales during the year so far.
According to the Swiss food and drink colossus, sales in the Asia, Oceania, and sub-Saharan Africa regions fell by 3.1%. A “slower sales recovery in China” took part of the blame.
Overall sales dropped 2.1%, and the company’s stock opened Friday down by about 3%.
But it’s not the first company to report dreary sales in China in October — and that says something worrying about the country’s economy.
The Indian-owned UK carmaker Jaguar Land Rover described “continued accelerated slowing of economic conditions in China,” paired with damage to 5,800 cars stored at Tianjin during the colossal chemical explosion at the port. Sales of Jaguar Land Rover models slumped by 32% in China.
Yum Brands also struggled to market KFC and Pizza Hut in China. KFC sales rose by only 3% year-on-year, and Pizza Hut sales actually fell by 1%. In a country where economic growth is apparently close to 7%, that’s a pretty miserable performance.
On Thursday, Burberry also reported on discouraging Chinese sales, with overall revenue from the country falling and the share price of the luxury-clothes brand falling 16% at Thursday’s open.
“In a country where economic growth is apparently close to 7%, that’s a pretty miserable performance.”
Nothing much connects KFC, Pizza Hut, instant coffee, Burberry scarves, and Land Rover cars — some products are pitching themselves at China’s growing middle class, while others are focused very much on the most elite sliver of society. Consumption fell or was weaker than expected across the board.
It’s not all doom and gloom; there have been some positive indicators. Retail spending during China’s Golden Week holiday still surged, rising 11% on the previous year.
A note from Goldman Sachs also said that while industrial commodities like iron ore and copper had seen their prices plunge, consumer-focused commodities like gasoline (and coffee) had seen rising demand in China over the past year.
Analysts at the investment bank Jefferies referred to China’s “parallel economies” in a note on Thursday — on the one hand, there’s the “old economy” — industrial- and commodity-focused, reflecting China’s extremely rapid growth during the late-20th century and first 10 years of the 21st.
On the other hand, there’s the new economy — consumer and services-focused, with higher incomes and less of an overwhelming emphasis on exports. The extent to which the country is able to transition from the old to the new will have a major impact, both for China and the Western firms operating there.
Questions & Answers
Q.Which other major Western brands have reported poor sales in China recently, according to Nestlé?
Which other major Western brands have reported poor sales in China recently, according to Nestlé?
Jaguar Land Rover, Yum Brands (KFC and Pizza Hut), and Burberry also reported disappointing Chinese sales in the past two weeks.
Q.What were the specific sales figures for KFC and Pizza Hut in China?
What were the specific sales figures for KFC and Pizza Hut in China?
KFC sales increased by only 3% year-on-year, while Pizza Hut sales actually saw a 1% decline in China.
Q.What is the distinction between China's 'parallel economies' as described by Jefferies analysts?
What is the distinction between China's 'parallel economies' as described by Jefferies analysts?
The 'old economy' is industrial and commodity-focused, while the 'new economy' is consumer and services-focused with higher incomes and less emphasis on exports.
Q.Were there any positive economic indicators mentioned despite the overall gloomy reports?
Were there any positive economic indicators mentioned despite the overall gloomy reports?
Yes, retail spending during China's Golden Week holiday surged by 11% year-on-year, and consumer-focused commodities like gasoline and coffee saw rising demand.
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