Trading up

Last Updated: Fri, Nov 30, 2012 20:50 hrs

China’s consumers are still spending, but some brands are losing their lustre. Yum Brands and Hong Kong listed jeweller Chow Tai Fook have both warned that growth in China is slowing. That’s natural as companies hit a certain size. But quickly shifting Chinese tastes also play a role.

Yum, the parent of Kentucky Fried Chicken, said it expects same store sales in China to fall four per cent year on year. Growing after a 21 per cent revenue gain in 2011 would tough at the best of times, but competition has also started to bite. Kungfu, a Chinese fast-food chain specialising in steamed meals, said its first-half revenue grew 24 per cent year on year, as Chinese fast food junkies opt for something healthier.

Chinese demand for jewellery demand has softened after breakneck growth in the past few years. Chow Tai Fook recorded a decline in overall same store sales of 1.7 per cent in the six months ending in September, after year-on-year growth of 62 per cent for the same period in 2011. Chinese consumers seem to favour more personalised design. That helps brands like Greek jeweller Folli Follie, now backed by Shanghai’s Fosun Group, which saw same-store sales in China up more than 20 per cent in the first half.

Much growth from Chinese consumption now comes from outside China. According to Global Blue, which processes duty-free shopping tax refunds, refunds for shoppers with Chinese passports rose 63 per cent year on year in the first nine months, on the back of a 60 per cent rise in the same period of 2011. Chinese shoppers now account for 24 per cent of total duty-free sales in the European Union, up from an 18 per cent share in the same period last year. Value-driven Chinese consumers are increasingly seeking to take advantage of better prices abroad.

Despite China’s slowing GDP growth, 40 per cent of consumers plan to increase their discretionary spending in the next year, up from 36 per cent in 2011 and 23 percent in 2010, according to a survey from Boston Consulting released in October. But not all consumer goods companies will be winners. As the Chinese trade up from fried chicken and gold bracelets, investors need to adjust their tastes too.

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