TAIPEI — According to research released by Morgan Stanley on Sunday, Chinese consumer spending won’t return to pre-Covid levels any time soon. This presents a challenge for global companies like Starbucks.
People are not just becoming more careful, but they also have more options now.
Three variables, on the expenditure side, are having a negative impact on Chinese consumers this year, according to Morgan Stanley analysts.
First, unlike the United States and other nations across the world in the wake of Covid, China has not given consumers stimulus payments.
Second, according to the experts, 30 million service sector jobs that would have existed before Covid have been removed due to regulatory changes and pandemic limits.
The survey stated that around 20 million of those jobs are projected to return later this year and next. However, economists predict that it would take longer to recover the remaining 10 million people because of Beijing’s crackdown on property, internet technology, and education.
Third, despite government efforts to curtail speculation, the housing market has continued to be weak.
The Morgan Stanley analysts said that in the past, even as late as the first half of 2021, real estate sales had taken the lead in the rebound.
Between 2020 and 2022, Covid-19 and the actions taken to regulate it hurt China’s economy. Growth has only slightly rebounded after those limitations were abruptly lifted in December.
Morgan Stanley analysts predict a rise in consumer spending in China of 4.8% next year, which is 0.5 percentage points less than before the epidemic, after a predicted 9% comeback this year.
According to experts, Starbucks’ same-store sales in China could increase by roughly 7% this year. According to the study, it is still “down roughly low-teens” from 2019 levels.
tougher local market
Growing local competition also makes it more difficult for foreign businesses to compete.
The U.S. coffee giant is actually “least favored to lever China’s recovery,” according to the Morgan Stanley analysts’ selections for U.S. “restaurants” stocks.
According to the Morgan Stanley analysis, the number of coffee shops, largely local brands, increased in China by 16% in April over the same month last year. MNCs like SBUX have been losing market share as a result, despite continuing to open outlets quickly.
“Concepts like Luckin, Cotti, and Tim Hortons, which are still relatively new but are expanding quickly, provide increased competition for the brand.
According to the corporations, Tim Hortons entered the nation in 2019 and now has more than 600 sites, while China-based Luckin Coffee has more than 9,000 shops. The website of the brand-new coffee company Cotti advises consumers against attempting to mimic the company.
In September 2022, Starbucks launched its 6,000th location in mainland China.