The opening a few weeks ago of Luckin Coffee in Robinson Road is a reminder of both the expansion of China’s homegrown businesses internationally and also that we often know very little about the structure of the Chinese domestic market.
Often, we have lots of ill-founded ideas that do not stand the test of reality. Take, for instance, the idea that Chinese are lactose-intolerant so there is only a limited market for milk products. A visit to any supermarket in China reveals shelves stocked with a mouthwatering array of yoghurt and other milk-based products. Cheese is not so popular — it faces stiff competition from soft soybean products.
Not all Western tastes transfer to China and not all Chinese tastes transfer to Western markets, but the list of these incompatible items is shorter than many believe.
Discussions about tea and its arch-rival, coffee, in China often bring up popular brands Starbucks and Hey Tea. These are names most likely to be recognised by Westerners, but they are far from the most popular beverage brands in China when measured by the number of outlets.
The top position is taken by MiXue Ice Cream and Tea. That’s a bit of a surprise because Western marketers would believe that as a very sweet dairy product, ice cream is not popular in China. This chain is no newcomer to the market as it started in 1997 in Zhengzhou. Now, it has more than 236,150 stores in 367 cities across China, and operates in 12 countries with more than 3,000 stores.
Next is Luckin Coffee with around 13,255 stores in 316 cities in China. The Robinson Road outlet in Singapore is one of only its 18 international stores. Luckin Coffee, sometimes derided as a poor imitation of Starbucks, was founded in Beijing in 2017. It has certainly become a consumer presence, but with only 13,255 stores, it is a dwarf beside MiXue Ice Cream and Tea.
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In third place is ChaPanda from Chengdu with more than 8,000 stores in 346 cities. Cotti Coffee follows with 7,400 stores in 327 cities. A rocketing success story, the chain was founded in August 2022 as China was preparing to emerge from Covid-19 restrictions. The success gives lie to the idea that the Chinese economy is in rapid collapse. Cotti Coffee has 28 countries in its portfolio.
Five places down the list, we find the much-vaunted US chain, Starbucks. It has 7,000 stores in 299 cities, with an outsized footprint in Shanghai where it has more than 1,100 stores. Western commentators like to believe that Starbucks brought coffee to China and that it is the largest purveyor of the beverage. However, it has a relatively small footprint compared with other beverage competitors, particularly as Starbucks would like us to believe that it is the leading figure in this industry that can teach the world how to sell coffee in China.
HeyTea (3,300 stores in 299 Chinese cities and operating in Singapore, Canada and the UK) ChaGee (3,400 stores in 239 cities and more than 70 stores in Malaysia, Thailand and Singapore) and NaiXue Tea (1,700 stores in 179 cities) round out the leaders in the tea and coffee beverage industry in China.
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The depth of the consumer market is often underestimated by those thinking about doing business in China. For every product you think about exporting to China, you can be sure that there is already a well-established competitor or two. They are not copycats taking your ideas. They simply fill the same niche as your business fills in your own market, so you will need to shoulder competition out of the way.
Technical outlook of the Shanghai market
The Shanghai Index moved sideways over the past week before plunging to new lows. This is a significant break below the consolidation area around 2,880. There is weak support near 2,780. There is stronger historical support near 2,670.
The downtrend shows no evidence of weakening. The long-term group of averages in the Guppy Multiple Moving Average (GMMA) Indicator remain well separated, showing consistent selling by investors.
Traders have also remained despondent, with the short-term group of averages maintaining wide separation. The fall below the support level near 2,920 and the failure to rally above it present a bearish outlook for the index.
The index has moved below the November 2022 spike low. Historically, the next support level is near 2,800.
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There are three possible resistance points which limit the ability of the market to move to the upside. The first resistance feature is the lower edge of the long-term group of averages. The second resistance feature is the value of the upper edge of the long-term group of moving averages. The third resistance feature is the value of the long-term downtrend line, currently near 3,000.
The period leading to Lunar New Year often includes strong selling as investors “sweep” last year’s bad luck out the door. Traders in particular remain alert for signs of consolidation and rebound opportunities but these are all short-term.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia China Business Council
