Market Notes on Scale, Localization, and China’s Foodservice Outlook

This is an English adaptation of a FoodBud historical article originally published on November 15, 2024.

Over the past two years, the author notes that updates have been intermittent due to a busy schedule, including a recent trip to Vientiane, Laos.

The broad observation: China’s consumer market looked even harsher in 2024. In many categories, scale leaders were becoming stronger, while mid-sized and lower-tier companies were under growing pressure. Companies with scale advantages, such as Yum China and Luckin Coffee, were still pushing GMV to new highs. By contrast, several founders focused purely on China domestic business described a sense that effort alone could not overcome the macro trend.

1. Scale Leaders Are Getting Stronger

In China’s local services, travel, and mobility markets, Meituan remained an example of platform strength. The author argues that, absent antitrust considerations, Meituan could likely have put even more pressure on Ele.me. In in-store services, Meituan was the clear leader. Its hotel and travel business also carved out room despite Ctrip’s strength, which the author attributes to leaders including Chen Liang and “Old K.”

Still, the author does not see Meituan’s hotel and travel business as a major threat to Ctrip as long as core executives such as James Liang Jianzhang remain active. In higher-end hotels, Meituan had not shaken Ctrip’s position. Earlier moves such as acquiring Kuxun and investing in flight-related companies did not become material; that business had effectively been folded into vacation products and was close to negligible.

Meituan’s hotel and travel strength was mainly in the mid- to low-end market. Years earlier, Meituan’s narrative was that as its younger user base aged, it would naturally drive growth in mid- and high-end hotels. The author now sees that as uncertain.

Ctrip, by contrast, appeared to be strengthening its dominance in China’s online travel market. The author also credits James Liang and colleagues with a strong international outlook, noting that Ctrip had been buying overseas assets before the pandemic and that its international business was now developing well. A broader pattern is that category leaders become more profitable, then compete internationally, leaving fewer new domestic opportunities.

Internationally, Uber’s businesses in North America, Europe, and South America were described as strong, with food delivery also performing well. Compared with Meituan, Uber had built a stronger ride-hailing business. After the pandemic, abundant driver supply improved Uber’s bargaining position. The author notes that Uber’s market capitalization was slightly higher than Meituan’s, while Meituan, listed in Hong Kong, traded at a lower PE multiple. Meituan’s international moves, including Hong Kong and Saudi Arabia, were still hard for the author to read, but its China business was becoming increasingly profitable.

The same logic applies offline. In coffee chains, Luckin and Cotti’s intense competition forced many coffee shops out of the market. In a scale battle, Luckin was the clear leader. For many entrepreneurs, the only viable route was differentiation: entering a narrower niche and building a much deeper moat.

2. Foreign Brands Without Strong Localization May Sell or Exit China

Starbucks is the unavoidable example. The author recalls a friend criticizing Starbucks years earlier for arrogance around mobile payments and app experience, including requiring email registration. Only after Luckin’s rise did Starbucks pay more attention to mobile user experience.

In China’s coffee-chain market, Starbucks still had the most stable third-place environment. But Luckin’s RMB 9.9 campaign pushed many consumers to reconsider coffee pricing. If a reasonable price for coffee was RMB 10, the author asks whether Starbucks’ RMB 30 starting price for an Americano was justified by brand and space. At the same time, more coffee and tea chains were developing their own spaces, increasing substitutes for Starbucks’ store environment.

On product innovation, the author is sharply critical, citing beer-flavored products and a chilled espresso product as poor examples.

Financially, Luckin Coffee’s third-quarter net revenue exceeded RMB 10 billion, while Starbucks China’s third-quarter revenue, same-store sales, average ticket, and transaction volume all declined.

Starbucks had also appointed a new CEO in 2024. The author’s view is that when a company’s home market is under pressure and the founder is no longer managing the business, Western corporate behavior can become heavily finance-led. At the right point, selling the China business could become just another deal. The author notes that exits have happened in other categories.

In travel, Expedia was once a strong China-market participant and an investor in eLong. After James Liang returned to Ctrip, Ctrip resolved relationships with Expedia behind eLong and Baidu behind Qunar, ended the price war, and unified the market.

The author contrasts Expedia and Booking Holdings. In the author’s private conversations, Expedia executives are often described as CFO-background operators, and the company increasingly looks like a B2B business. Booking’s CEO Glenn Fogel, by contrast, is described as having strong strategic vision, using investment, acquisitions, and integration to lead the company through multiple growth stages.

Before Booking changed its name, it was Priceline Group. Glenn Fogel originally led strategic investment and bought Booking.com. Because Booking.com became so strong, the group later renamed itself. Booking also invested in Meituan, Ctrip, Didi, Southeast Asia’s Grab, and South Korea’s Yanolja. Expedia also invested in and acquired many companies, but the author sees its outcomes as much weaker.

3. Weak Consumption and Market Vitality

The author says weak domestic consumption and low market vitality became especially clear in the second half of 2024. In conversations with friends, one awkward observation was that today’s university students and young people were socializing less, dating less, buying fewer homes, and having fewer children. Expectations for the market outlook were poor.

Youth unemployment was another concern. Citing public information before China’s National Bureau of Statistics stopped publishing the relevant data, the article notes that China’s youth unemployment rate stayed high and rose month by month in 2023: 17.3% in January, 18.1% in February, 19.6% in March, 20.4% in April, 20.8% in May, and 21.3% in June. From April onward, it exceeded the July 2022 level of 19.9%, repeatedly setting new highs since the data series began in 2018.

The author asks whether giants that have unified many domestic fields really still need so many employees. Booking Group is given as an example: after the pandemic, it found that business continued to operate well after layoffs and became more profitable. Quarterly business still grew, but total headcount barely increased and even continued to be reduced.

Looking at young consumers and spending activity in some Southeast Asian cities, the author says the “time machine” theory can be useful across markets at different development stages. But turning that into a real operating business still requires caution.

Side Note on Foodservice Brands Going Overseas

The author notes that overseas expansion had been a hot topic over the previous two years and encourages founders interested in taking restaurant brands abroad to spend time visiting markets in person. The founder’s personal commitment and local presence can materially affect the probability of execution success. Simply investing some money, granting franchises, and collecting franchise fees was described as uninteresting.

The article ends by recommending a market-inspection activity led by Guanghui, described as a veteran of restaurant-brand overseas expansion, former global franchise director of Mixue Bingcheng, former Singapore and Malaysia general manager, and a founding figure in Sweetlala’s overseas business, with experience in multinational brand operations and market expansion.

Note: market capitalization, PE, investment, acquisition, and forward-looking judgments are historical as of the original November 15, 2024 article.