Until recently, the easiest way to make money in China was selling discretionary goods that were not discreet. Aspirational brands from Burberry to Jaguar Land Rover profited nicely from consumerism unleashed.
That era is over, and many foreign investors who once made bold bets on Chinese baubles are cowering before a stock market crash and a wobbly economy. But the Chinese consumer has not stopped spending; he or she is spending differently. Retail sales growth for July was up one-tenth from a year earlier. A significant slowdown from the 23 per cent pace reached during the 2008 stimulus, but as buyers start to differentiate between goods there will be opportunities to outgrow the market. Those frightened by China’s current meltdown — everyone, that is — will look to defensive consumer staples.
A recent report from consultants Bain and Kantar Worldwide argues that China’s shoppers will pay up for quality when choosing everyday items. Foreign brands have been winning in some premium segments. As the Chinese trade up, beer makers such as Budweiser and Heineken have taken share from local producers. Last year, domestic market leader China Resources Enterprise’s beer turnover rose by 5 per cent, but profit from the division declined by nearly one-fifth as competition forced more promotional activities. Still, in recent interim results CRE’s average selling price also benefited from the shift towards premium products.