American consumer giants have one big sales problem: China

BEIJING – One theme emerging from the latest batch of earnings reports from U.S. companies is the drag of the Chinese market.

The Chinese economy – home to more than four times the population of the US – has attracted multinational companies for decades because of its large, fast-growing market. But slower growth and fierce local competition amid tensions with the US are now weighing on corporate profits.

‘Consumer confidence in China is quite weak’ McDonald’s chairman, CEO and director Christopher Kempczinski, said of the quarter ended June 30.

“You see both in our sector and across a wide range of consumer sectors that consumers are very much looking for deals,” he added. “In fact, we’re seeing a lot of switching behavior that’s just about consumers. Whatever the best deal is, that’s where they end up.”

McDonald’s said sales for its international development license market segment fell 1.3% from a year ago. The unit includes China, where the company said sales fell but did not specify by how much.

Chinese companies have also had a hard time. National retail sales rose just 2% in June from a year ago.

In mainland China’s stock market, known as A-shares, gains are likely to have bottomed out in the first quarter and could “rise slightly” in the second half of the year, said Lei Meng, Chinese equity strategist at UBS Securities , in a July post. 23 note.

Several US consumer giants repeated the downward trend in their latest earnings reports.

Apple said sales in Greater China fell 6.5% year-on-year in the quarter ended June 29. Johnson and Johnson said China is a “highly volatile market” and a key business segment that is performing below expectations.

After a ‘strong start’ to the year, General Mills CFO Kofi Bruce said the quarter ended May 26 “demonstrated a real deterioration or downturn in consumer confidence,” impacting store traffic at Haagen-Dazs and the company’s “premium dumpling business.” General Mills owns the Wanchai Ferry brand dumpling.

The company’s organic net sales in China fell by double digits during the quarter.

Regional results also influence longer-term business prospects.

In China, “we do not expect a return to the [double-digit] growth rates we saw before Covid,” Procter & Gamble CFO Andre Schulten said this during an earnings call last week. He expected China to improve over time to mid-single-digit growth, similar to that in developed markets.

Procter and Gamble said its Chinese sales fell 9% for the quarter ending at the end of June. Despite declining birth rates in China, Schulten said the company was able to grow sales of baby care products by 6% and increase market share thanks to a localization strategy.

Hotel operator Marriott International lowered revenue per available room (RevPAR) for the year to 3% to 4% growth, largely due to expectations that Greater China will remain weak, as well as weaker performance in the US and Canada.

Marriott’s RevPAR Greater China fell about 4% in the quarter ended June 30, partly impacted by Chinese choosing to travel abroad on top of a weaker-than-expected domestic recovery.

However, the company noted that it had signed a record number of projects in China in the first half of the year.

McDonald’s also confirmed its goal of opening 1,000 new stores per year in China.

Domino’s said its Chinese operator, DPC Dash, aims to have 1,000 stores in the country by the end of the year. Last week, DPC Dash said it had just over 900 stores at the end of June and expects first-half sales growth of at least 45% to 2 billion yuan ($280 million).

Coca-Cola noted “moderate” consumer confidence in China, where volumes fell in contrast to growth in Southeast Asia, Japan and South Korea. Net operating revenues in Asia Pacific fell 4% year over year to $1.51 billion in the quarter ended June 28.

“There is general macro weakness as the economy as a whole works through some structural issues around real estate, pricing, etc.,” James Quincey, chairman and CEO of Coca-Cola, said at a Coca-Cola meeting . revenue calling.

But he attributed the decline in Chinese volumes “entirely” to the company’s shift from unprofitable water products in the country to sparkling water, juice and tea. “I think the sparking volume in China was somewhat positive,” Quincey said.

The need to adapt to a new mix of products and promotions was a common occurrence in the bottom lines of American companies.

“We have continued to experience more cautious consumer spending and fiercer competition over the past year.” Starbucks CEO Laxman Narasimhan said at a revenue calling. “Unprecedented store expansion and a massive price war across segments at the expense of competition and profitability have also caused significant disruption to the business environment.”

Starbucks reported that same-store sales in China fell 14% in the quarter ended June 30, much steeper than the 2% decline in the US.

Chinese rival Luckin Coffee, whose drinks can cost half the price of one at Starbucks, reported a 20.9% drop in same-store sales for the quarter ended June 30.

But the company claimed sales for those stores rose nearly 40% to the equivalent of $863.7 million. Luckin has more than 13,000 stores, mainly in China.

Starbucks said its 7,306 stores in China saw sales fall 11% to $733.8 million in the same quarter.

Both companies face many competitors in China Cotti coffee at the bottom and Peet’s at the top. The only public revelations about Peet’s Chinese affairs describe it as “strong double-digit organic sales growth“In the first half of the year.

Not all major consumer brands have reported such problems.

Canada goose reported sales in Greater China grew 12.3% to 21.9 million Canadian dollars ($15.8 million) in the quarter ended June 30.

Sports shoe brands also reported growth in China, while warning of a coming slowdown.

Nike reported 7% year-over-year growth in sales in Greater China – nearly 15% of sales – for the quarter ended May 31.

“While our near-term outlook has softened, we remain confident in Nike’s long-term competitive position in China,” said Matthew Friend, the company’s CFO and executive vice president.

Adidas reported 9% growth in sales in Greater China for the quarter ended June 30. The region accounts for approximately 14% of the company’s total net sales.

CEO Bjorn Gulden said on an earnings call that Adidas was gaining market share in China every month, but local brands were providing fierce competition. “Many of them are manufacturers who then go straight to retail with their own stores,” he said. “So the speed that they have and the price value that they have for that consumer was different than before. And we’re trying to adapt to that.”

Skechers reported 3.4% year-on-year growth in China in the three months ended June 30.

“We continue to think China is on the path to recovery,” Skechers CFO John Vandemore said on an earnings call. “We expect a better second half of the year than what we have seen so far, but we are keeping a close eye on things.”

– CNBC’s Robert Hum and Sonia Heng contributed to this report.