To understand today’s frugal Chinese consumers, let’s look at the fierce price war between coffee giants.
Luckin Coffee, a popular Chinese chain, rose to fame and opened 10,800 stores offering lower prices than Starbucks. But now, Cotti Coffee, an upstart rival opened by the same two people who founded Luckin, is beating Luckin on prices.
Cotti has opened stores near Luckin stores and charges, in some cases, 1 yuan, or 15 cents, less for the same drink. This year, Cotti began a campaign to reduce latte prices to 9.9 yuan, or $1.38, prompting Luckin to lock in that price for two years. Cotti then reduced latte prices again to 8.8 yuan.
The strategy is working. In less than a year since its founding, Cotti has opened more than 5,800 stores, selling an average of more than 400 cups of coffee per day per store, the company said.
“We don’t want consumers to hesitate over price when they want coffee,” Li Yingbo, an executive at Cotti Coffee, said in a statement.
The dispute over coffee prices captures a trend among Chinese consumers who are spending less and saving more to counter a sagging economy plagued by a failing real estate sector and a drop in exports.
The shift toward less spending is a worrying sign for Chinese leaders. To stimulate growth, policymakers are counting on an increase in domestic consumption as an alternative to the boom-or-bust cycle of infrastructure spending and real estate investment that has left local governments and developers awash in debt.
“The Chinese don’t actually have much money in their pockets, so the policy of relying on people’s consumption to promote China’s economy has not been successful,” said He-Ling Shi, an economics professor at Monash University. , in Melbourne, Australia. “With people cutting back on spending, it’s even less likely.”
For consumers like Chen Xixi, 33, an administrator at a university in Hubei province, there is reason for caution. She is reducing her expenses since her husband’s income from her job in the financial industry fell by two-thirds after the pandemic and China’s regulatory crackdown.
Instead of buying coffee at Starbucks, Chen said, choose between Luckin and Cotti based on “whichever is cheaper.”
“I don’t know why I want to save money, but I feel like having some money would make me feel more secure,” Chen said.
When China lifted its “zero Covid” restrictions in December, it anticipated the economy would rebound thanks to pent-up demand. But confidence began to wane due to a deepening housing crisis and a continuing series of disappointing economic indicators.
Faced with an uncertain outlook, the Chinese are saving more. Household bank deposits increased by 1.6 trillion dollars in the first half of this year, the largest jump in a decade, the Government reports. The rise in savings is particularly notable because Chinese banks lowered interest rates on deposits in early June, hoping to encourage consumers to spend or invest more.
Some Chinese companies see an opportunity in the new frugal approach.
Pinduoduo, a discount shopping website, said revenue grew 63 percent in the first half of 2023 from a year earlier.
Wang Chao, 29, had to drastically cut his expenses because he is living on unemployment insurance after losing his job in May.
Wang is struggling to find another job in the logistics industry because many companies have failed.
“All I can do is reduce my consumption to survive,” he said.
By: Claire Fu and Daisuke Wakabayashi
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6950679, IMPORTING DATE: 2023-10-23 20:20:08
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