Nestle just became the fourth major western brand in the last two weeks to report dreary Chinese sales during the year so far.
According to the Swiss food and drink colossus, sales in the Asia, Oceania and sub-Saharan Africa (AOA) regions fell by 3.1%. A “slower sales recovery in China” took part of the blame.
Overall sales dropped 2.1%, and the company’s stock opened down by about 3%.
But it’s not the first company to report dreary sales in China in October — and that says something worrying about the country’s economy.
UK-based and Indian-owned Jaguar Land Rover noted the “continued accelerated slowing of economic conditions in China,” paired with the damage to 5,800 cars stored at Tianjin during the colossal chemical explosion at the port. Sales of Jaguar Land Rover models fell slumped by 32% in China.
Yum! Brands also struggled to market KFC and Pizza Hut in China. KFC sales rose by only 3% year-on-year, and Pizza Hut sales actually fell by 1%. In a country where economic growth is apparently close to 7%, that’s a pretty miserable performance.
On Thursday Burberry was the major western firm to report on discouraging Chinese sales, with overall revenue from the country falling, and the share price of the luxury clothes brand falling 16% at the open.
Nothing much connects KFC, Pizza Hut, instant coffee, Burberry scarves and Land Rovers — some products are pitching themselves at a large section of the Chinese population, the country’s growing middle class, while others are focused very much on the most elite sliver of society. Consumption fell or was weaker than expected across the board.
It’s not all doom and gloom — there have been some positive indicators. Retail spending during China’s Golden Week still surged, rising 11% on the previous year.
A note from Goldman Sachs also noted that while industrial commodities like iron ore and copper have seen their prices plunge, consumer-focused commodities like gasoline (and coffee) had seen rising demand in China over the last year.
Analysts at investment bank Jefferies referred to China’s “parallel economies” in a note on Thursday — on the one hand, there’s the “old economy” — industrial and commodity-focused, reflecting China’s extremely rapid growth during the late 20th century and first 10 years of the 21st.
On the other hand, there’s the new economy — consumer and services-focused, with higher incomes and less of an overwhelming emphasis on exports. The extent to which the country is able to transition from the old to the new is going to have a major impact, both for China and the western firms operating there.
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