Bottom line: Upbeat reports from leading pork producer Smithfield and aircraft giant Boeing show that consumer-focused companies should continue to thrive despite China’s slowing economy, while policy-driven state-run firms could suffer more.
Boeing ups China aircraft outlook
A couple of upbeat new reports from aircraft giant Boeing (NYSE: BA) and leading global pork producer Smithfield are providing an interesting contrast to broader forecasts of gloom and doom for China’s slowing economy. In the first instance, Boeing has upgraded its 20 year forecast for aircraft demand in China, while the second has Smithfield has saying its exports to China rose 45 percent in the first half of this year.
Each of these stories is slightly different, but both point to a growing divide in the Chinese economy that has big implications for the nation’s major industries. On one side of the aisle are companies like Boeing and Smithfield, which make products and services directly tied to consumer demand. Such products and services are part of the so-called “real economy” and are things that the market really wants. These should be able to continue thriving even if China’s economy slows. Read Full Post…
Bottom line: Yum’s new leadership change marks the start of a new period of sustained same-store sales growth for KFC in China, which could include a spin-off of the company’s China business over the next 2 years.
Yum names new China head
Market wisdom often says that China is too big to ignore for most multinationals, despite the market’s complexities and many restrictions. Now a new trend is emerging that says China is too big and complex to be run as part of a company’s bigger global operations, and needs to be split off into a separate unit for major global firms.
That’s the interpretation some are making following Yum Brands’ (NYSE: YUM) naming of a new China chief, and growing speculation that the parent of the KFC and Pizza Hut chains will spin off its China business into a separate company. In this case, Yum’s naming of Micky Pant as CEO of Yum Brands China comes as KFC is in the midst of a major overhaul for its largest market outside the US. Read Full Post…
Bottom line: Macy’s slow move into China reflect the company’s extremely conservative approach to overseas expansion, and is more designed as a PR exercise to deflect attention from its flagging performance at home.
Macy’s
Macy’s forms China joint venture
US retail giant Macy’s (NYSE: M) is looking to China as tonic for its sputtering sales at home, with the company trumpeting a major new e-commerce venture in partnership with 2 major local players. I had a slight sense of deja vu when I saw this latest series of announcements, since I could have sworn I’d seen Macy’s name appear in some China-related headlines before.
A quick check revealed the company did make a timid move into China e-commerce back in 2012, when it invested $15 million in a company called VIPStore, which was set to offer some of Macy’s private label products in its Omei.com site. (previous post) Reports a year later said Macy’s was once again looking to go into China, saying it was eying an online presence rather than build traditional brick-and-mortar stores. (previous post) Read Full Post…
Bottom line: Pepsi’s launch of a new oat-based dairy drink in China using an online promotion looks like a smart and savvy marketing move to tap growing consumer demand for healthier beverages.
Pepsi rolls out China oat drink
PepsiCo (NYSE: PEP) is taking aim at increasingly health-conscious Chinese consumers with its introduction of a new oat-based dairy drink to the market. This particular new drink, which is called Quaker High Fiber Oats Dairy Drink, is also tapping Chinese fondness for online purchasing through a tie-up that will see it sold exclusively at first through a partnership with e-commerce giant JD.com (Nasdaq: JD).
This launch seems quite gimmicky, aimed as much at gaining publicity as it is at introducing a product that consumers will really want. But that said, Chinese consumers do seem to love a good gimmick, especially when it involves hip and trendy online activity. That fact has been reflected in the huge success of Single’s Day, an online shopping extravaganza created by Alibaba (NYSE: BABA), and the phenomenal success of smartphone maker Xiaomi, which for its first few years sold all of its products online only. Read Full Post…
Bottom line: Alibaba’s new tie-up with Suning looks logical on the surface but is likely to run into problems due to overlap in the 2 partners’ businesses, which could lead to conflicts and an ultimate dissolution of the partnership.
Alibaba, Suning in massive new tie-up
I’m officially labeling today as “O2O Day” in China, as a recent wave of online-to-offline (O2O) tie-ups reaches a crescendo with news of a $4.6 billion investment by e-commerce giant Alibaba (HKEx: BABA) in traditional electronics retailer Suning (Shenzhen: 002024). Media aren’t really commenting on the size of the deal that will give Alibaba a 20 percent stake of Suning, but to my knowledge it’s the largest such deal in China Internet history and also quite possibly the largest ever by a Chinese tech company.
All that said, I’ll be quite blunt and add my view that I don’t completely understand the logic behind this particular deal and thus wouldn’t expect it to yield very strong returns. On the surface it looks like a classic O2O deal, combining Alibaba’s strength in online retailing with Suning’s in traditional retailing. But a closer look show this deal could be set for a bumpy ride for a number of factors, which I’ll discuss shortly. Read Full Post…
Bottom line: Aggressive spending on O2O initiatives by China’s traditional and online retailers is likely to produce a new boom-bust cycle, and companies should consider more M&A as part of their plans.
Retailers spend millions on O2O
Online-to-offline retail services, often called O2O, have become the flavor of the day for traditional and web-based Chinese retailers over the last year, with at least 3 major new announcements coming out on the topic late last week. Two involved big internal campaigns to boost O2O services at electronics retailer Gome (HKEx: 493) and traditional supermarket chain Renrenle (Shenzhen: 002336), while a third saw e-commerce giant JD.com (Nasdaq: JD) make a major investment in traditional retailer Yonghui Superstores (Shanghai: 601933).
Those efforts come just a week after leading search engine Baidu (Nasdaq: BIDU) reported disappointing quarterly earnings due to heavy spending on O2O, and more generally as O2O has become a buzzword for nearly all of China’s major traditional and online retailers. The activity surge reflects realization that leading retailers of the future will operate a hybrid model that uses both online and offline channels to sell products and services. Read Full Post…
Bottom line: Baidu’s tie-up with a major Japanese noodle chain looks like a smart move to build up its fledgling takeout dining business, though it will need to do more to win back investors concerned about its aggressive spending on O2O investments.
Baidu ties with Ajisen Ramen
A week after its stock was hammered by concerns about big spending on its online-to-offline (O2O) services, leading search engine Baidu (Nasdaq: BIDU) has found a major new ally for that part of its business in Japanese noodle chain Ajisen Ramen (HKEx: 538). This particular deal will see the Hong Kong-listed Ajisen and another investor pump $70 million into Baidu’s takeout dining service, providing a major supporter not only due to the investment but also the chain’s strong presence in major Chinese cities.
Baidu’s stock is still recovering from a hammering last week that saw the shares fall by nearly 20 percent to a year-low after it reported anemic 3.3 percent profit growth in its latest reporting quarter due to heavy spending on O2O services. (previous post) Such services include things like buying takeout restaurant food online, and purchasing items from real-world stores through group buying sites. Read Full Post…
Bottom line: New Oriental’s special dividend sends a signal that it has no plans to de-list from New York, even as short-sighted companies like Qihoo continue buyout plans in pursuit of higher valuations in China.
New Oriental awards special dividend
Nearly 2 weeks after the last US-listed Chinese companies announced plans to privatize, education specialist New Oriental (NYSE: EDU) is sending a different signal that indicates it has no plans to abandon its New York listing anytime soon. That signal comes in a footnote to New Oriental’s newly announced quarterly earnings, in which it declares a rare special dividend — something you wouldn’t expect a company to do if it was planning to soon de-list.
At the same time, software security specialist Qihoo (NYSE: QIHU) is reaffirming its previous plans to push ahead with its privatization scheme, even as investors remain skeptical that this particular deal could fall apart. Qihoo is easily the largest of China’s companies looking to privatize so far, and clearly investors are worried that the company won’t be able to complete its buyout worth nearly $10 billion due to the recent market volatility in China. Read Full Post…
Bottom line: Retailers like Yum and Mondelez are increasingly suffering from weak China sales due to a local slowing economy, and are unlikely to return to rapid growth of previous years over the short- to medium-term.
Mondelez in China shuffle
Two separate stories involving major western food retailers paint a gloomy picture for the China market, which is losing momentum in tandem with the country’s slowing economy. One headline has Yum Brands (NYSE: YUM), operator of the KFC fast food chain, announcing results that continued to be weak in this year’s second quarter, despite a major overhaul for its China operation and the fading impact of a major food safety scandal a year ago. The other news has Mondelez International (Nasdaq: MDLZ), maker of Oreos cookies, reportedly making major adjustments to its China operations, in a move that one insider says is the equivalent of lay-offs. Read Full Post…
Bottom line: KFC’s and McDonald’s latest moves to add high-tech elements to their China stores are a savvy way to update their images, and could help to attract a younger trendy crowd that has abandoned both chains in recent years.
KFC links up with Alipay
Leading global fast food chains McDonald’s (NYSE: MCD) and KFC (NYSE: YUM) are both in the headlines as we head into the heart of summer, each trying new high-tech approaches to reignite their faltering China stories. Announcement of these latest initiatives seems especially appropriate right now, as we’re approaching the first anniversary of a food safety scandal that dealt a major blow to both chains in China.
KFC’s deal will see it pair up with Alibaba (NYSE: BABA) to offer its affiliated Alipay electronic payments service at hundreds of its China stores. The McDonald’s news is similarly high-tech, and will see the chain extend its new state-of-the-art hamburger customization program to the China market. Read Full Post…
Bottom line: Suning’s Japanese expansion and receipt of a new license to build and operate a private broadband network are both positive developments, but also reflect a lack of quick progress in transforming its core China-based retail business.
Suning in Japanese expansion
A couple of new reports involving Suning (Shenzhen: 002024) made me realize it’s been quite a while since I’ve written about this company that is trying to transform from a traditional retailer to a major e-commerce player. Both reports are interesting and noteworthy, though neither is related to its e-commerce drive, which doesn’t appear to be going anywhere quickly.
One of the deals involves Suning’s purchase of a money-losing Japanese electronics seller 5 years ago, and will see it now plow several billion yuan into a major expansion of the Laox chain of home appliance stores. The second deal has Suning named as one of 4 companies to receive licenses to build broadband networks to offer services under a newly announced pilot program to open the sector to private money. Read Full Post…
