Why America’s Biggest Brands Are Failing to Keep Up in China

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Chinese restaurant Tastien looks like a typical American fast-food restaurant, with meals that include a burger, fries, and a drink. However, the wrapper proudly states that this burger is "Made in China."

Tastien, China's answer to McDonald's, features Chinese-inspired designs and branding. Its slogan, "A Chinese burger for a Chinese stomach," emphasizes local pride, blending a McDonald's-like atmosphere with traditional Chinese elements. Tastien represents a growing trend of Chinese brands overtaking their US competitors.

China was once a significant market for American brands, offering immense opportunities in the world's second-largest consumer market with over a billion shoppers. Beijing's premier shopping district still showcases iconic American names like Ralph Lauren, Tom Ford, and Apple. However, challenges are mounting for these brands.

In the first quarter of 2024, Apple saw its smartphone sales in China drop by 19%, while its Chinese rival Huawei achieved a 70% sales increase. Apple's revenue in China fell by 8% to $16.4 billion. Other American companies, such as Estée Lauder and Walmart, have also faced struggles, with Walmart closing over 100 stores in the past five years.

Chinese brands are rapidly expanding, challenging long-standing dominance by US companies. For example, Nike, once a leader in China's sportswear market, is now facing competition from local brands like Anta, which incorporate traditional Chinese culture into their designs. Younger Chinese consumers increasingly prefer homegrown brands, driven by nationalist sentiments and a shift away from the past generation's adoration of Western products.

The coffee industry illustrates this trend vividly. Starbucks, which introduced coffee culture to China, is now facing fierce competition from Luckin Coffee. By offering lower prices and operating with minimal staff, Luckin surpassed Starbucks in 2023 to become China's largest coffee chain by sales and units. While Starbucks remains committed to its premium brand identity, it has experienced an 8% drop in sales, while Luckin’s sales have surged by 41%.

Luckin's rapid expansion, especially in tier-two and tier-three cities, contrasts with Starbucks’ traditional focus on premium locations. In 2023, Luckin opened more stores than Starbucks has across the country, reaching nearly 19,000 locations compared to Starbucks' 7,000.

The dominance of American brands in China, once taken for granted, is under threat. Losing ground in China is a missed opportunity not only in terms of revenue but also in solidifying a presence in one of the world's largest consumer markets. Chinese brands are chipping away at the dominance of their US counterparts, and the future of American companies in China depends on their ability to adapt to this evolving market landscape.

As for Tastien's Chinese burger, the real question is not whether it’s more Chinese or American, but whether it tastes good.