The snapshot captures a McDonald’s outlet in Yichang, Hubei Province, China, as of July 30, 2024.
Recent financial disclosures have revealed a clear pattern: American companies are grappling with diminishing returns in the Chinese market.
China’s vast market, with a population four times that of the United States, has long been a magnet for international companies, due to its size and growth potential. However, the ongoing economic slowdown, combined with intense domestic competition and strained relations between the United States and China, is now impacting the profits of these multinational companies.
Christopher Kempczinski, McDonald’s chairman, CEO and director, highlighted the decline in consumer behavior in China during the quarter ended June 30, noting a significant shift toward frugality across various consumer sectors. “Consumers are definitely bargain hunters, and that behavior is changing where they choose to spend,” he said.
McDonald’s International Markets Development License segment, which includes its operations in China, saw sales decline 1.3 percent from a year earlier, although specific figures for China were not disclosed.
Chinese companies are also under pressure. Domestic retail sales in June rose just 2% year-on-year.
The A-share market likely hit its lowest earnings in the first quarter, with a modest recovery expected in the second half of the year, according to Lei Meng, China equity strategist at UBS Securities, as reported on July 23.
The downward trend was echoed by several U.S. consumer giants in their latest earnings updates. Apple’s sales in Greater China fell 6.5% year over year for the quarter ended June 29, while Johnson and Johnson described the Chinese market as highly unpredictable and underperforming.
General Mills also faced setbacks, with CFO Kofi Bruce reporting a significant decline in consumer engagement, which affected its Haagen-Dazs stores and Wanchai Ferry brand premium dumpling operations during the quarter ended May 26. The company’s organic net sales in China saw a double-digit decline.
Procter & Gamble CFO Andre Schulten, on a financial call last week, tempered expectations for China’s growth, expecting a gradual improvement to mid-single-digit increases, bringing it closer to developed markets. Despite a 9% overall sales decline for the quarter ended in June, the company managed to achieve a 6% increase in its baby care segment through strategic localization.
Marriott International also revised its revenue expectations due to expected weaker performance in Greater China, reducing its expected RevPAR growth to 3-4% for the year.
Despite the challenges, some companies reported positive developments. Marriott highlighted a record number of projects signed in China in the first half of the year, and McDonald’s reiterated its expansion plan to open 1,000 new locations annually in China.
Local market dynamics continued to pose challenges, as highlighted by Coca-Cola’s report on consumer sentiment in China, contrasting with growth elsewhere in Asia. The company’s Asia-Pacific net operating revenue declined 4% year-over-year in the quarter ended June 28.
Starbucks and its competitors faced stiff competition, with Starbucks reporting a 14% decline in same-store sales in China for the quarter ended June 30. In contrast, Canadian Goose and athletic footwear brands such as Nike and Adidas reported growth, reporting varying impacts across industries.
This comprehensive overview illustrates the complex landscape facing U.S. companies in China, characterized by both challenges and opportunities for growth.
