The consumer market in China has shifted markedly since the 1990s, when Western giants such as Häagen-Dazs and Starbucks first entered the country with premium offerings that were unfamiliar to local consumers. At the time, their novelty and aspirational branding allowed for rapid expansion and robust revenue growth. However, with evolving consumer behaviour and intensifying local competition, both companies are now reassessing their long-term strategies in the world’s second-largest economy—including potential business divestments. General Mills, the parent company of Häagen-Dazs, is exploring the sale of its more than 250 retail outlets in China. Starbucks Corporation, which operates over 7,750 locations across the country, is also reportedly testing market interest in its Chinese operations. French sporting goods retailer Decathlon SA has initiated the process of offloading approximately 30% of its local business. These moves reflect mounting pressure from agile Chinese competitors who possess a more intimate understanding of local market nuances. Established international names such as Apple Inc and Nike Inc are increasingly challenged by domestic brands including Huawei Technologies Co, Xiaomi Corp, Anta Sports Products Ltd and Li Ning Co, which have demonstrated a keen ability to adapt to changing consumer demands. China’s economic deceleration following the pandemic has further influenced consumer behaviour, with greater emphasis on value for money and emotional relevance—particularly among younger demographics. “Multinationals face competition from local rivals and shifting demands, especially younger generations prioritising value for money and emotional resonance,” said Chen Jie, Global Head of Mergers and Acquisitions at China International Capital Corp. “To survive and succeed, they must develop localised strategies.” In response, Western consumer brands are tailoring their offerings to align more closely with regional preferences. Häagen-Dazs and Starbucks have launched locally inspired products such as Lunar New Year mooncake ice cream and braised pork-flavoured lattes. In a marked strategic shift, Starbucks has also cut prices on tea-based and Frappuccino beverages in China—a notable departure from its US model, where it is consolidating its menu around core coffee offerings to drive efficiency. The trend extends beyond beverages. McDonald’s Corp has adapted its menu in China to include items like congee and luncheon meat burgers. Yum China Holdings Inc, operator of KFC and Pizza Hut in the region, has integrated Peking duck-style wraps, egg tarts, and durian pizzas into its offerings alongside traditional fast-food staples. Despite having established presences in the country, many multinational companies are now exploring new partnerships as a route to long-term sustainability. “In many cases, these brands have long operating histories in the country, and identifying Chinese partners who can bring skills, technology and capital is another form of localisation,” noted Richard Wong, Head of Asia Pacific M&A at Morgan Stanley. “MNCs continue to view China as a highly important market.” Ongoing economic uncertainty, geopolitical risks and global trade tensions have heightened the need for strategic flexibility. “With this backdrop, some are evaluating strategic options for their assets, including bringing in a minority partner or selling out entirely,” said Weiwen Han, Senior Partner at Bain & Co in Hong Kong. “This trend is particularly clear in sectors such as consumer and retail.” While Beijing has made boosting domestic consumption a key policy priority in pursuit of 5% GDP growth for 2025, recent gains in retail sales—May marked the fastest acceleration since December 2023—have not convinced economists that the momentum is sustainable. “The Chinese market is getting more mature, so there is no more low-hanging fruit with fast growth and development,” said Jean-Christophe Vallat, Managing Director and Head of Industrials and Consumer at BNP Paribas SA. He noted that Chinese consumers remain willing to indulge in small luxuries but are increasingly selective, favouring brands that can meet fast-changing local tastes. Toronto-based Restaurant Brands International Inc, owner of Burger King, is one such example. After acquiring full ownership of Burger King China in February, the company is now working with advisers to identify a new local strategic partner. “There’s a rising number of China operation carve-out deals, which involve introducing local strategic partners through equity restructuring,” added CICC’s Chen. “Such moves could potentially help multinational corporations thrive in China’s market and capture new growth opportunities.” -Bloomberg
