Walmart has three Sam’s Clubs in Beijing, including this one in Daxing District. The company plans to open five more in the capital city.
Evelyn Cheng | CNBC
BEIJING — Some are trying to create characters as memorable as Mickey Mouse. Others are launching lessons on how to cook steak. Still others know Chinese parents will pull out all stops for their kids.
It’s all a bet on the Chinese middle class, a consumer force McKinsey analysis predicts could reach 550 million in three years — that’s more than one-and-a-half times the entire U.S. population today.
American consumer giants and a slew of Chinese companies are now angling for a piece of the largest middle class market in the world.
For Shanghai-based Pearl Studio, China‘s imminent rise as the world’s largest movie market means the timing is right for Chinese-themed animated films. The company emerged last year from a joint venture with DreamWorks Animation, and a group led by CMC Capital Partners.
Pearl’s first original film “Abominable” — which is set in modern-day China — was released in the U.S. on Sept. 27. It will be released in China on Oct. 1, the start of the week-long National Day celebrations.
Consumption overall is robust, and you see what is driving that, it’s new consumers entering the middle class, and that is the primary driver of growth in the China market.
senior partner, McKinsey
“We believe China now is the other country that has the opportunity to build that world-class family entertainment company,” CEO Frank Zhu said in an interview with CNBC last month. “We believe China will soon have our own Mickey Mouse because of this booming of the whole entertainment industry, the booming of the consumer.”
“Abominable” is co-produced with DreamWorks and distributed outside China by Universal Pictures. The movie tells the story of teenagers who help a yeti return to its home by traveling across China. In addition to distributing the film domestically, Pearl’s monetization plans include partnerships with McDonald’s, Alibaba, Chinese hotel chain Huazhu and online education platform Xueersi (which operates under the New York-traded TAL Education).
In his conversation with CNBC, Zhu was even more excited about Pearl’s next film, “Over the Moon,” which is a retelling of a Chinese legend directed by Glen Keane of “The Little Mermaid.” The animated musical is set for release next year in Chinese theaters and on Netflix.
The optimism comes despite a slowdown in China’s box office growth, not to mention the overall pressure on the economy and ongoing trade tensions with the U.S. But Chinese government policy announcements this summer to boost consumption makes it clear. For China’s economy today, the consumer is a critical opportunity – and source of growth.
“Consumption overall is robust, and you see what is driving that, it’s new consumers entering the middle class, and that is the primary driver of growth in the China market,” Daniel Zipser, senior partner at McKinsey, said in a phone interview earlier this month about an upcoming report.
Retailers find new ways to mix online and offline shopping
Walmart sees its chance now as well. The American retail giant has been in China for more than 20 years, but it is stepping up investment in the country with plans to build at least 14 more Sam’s Club membership stores by 2022, for a total of 40 to 45 locations.
Many existing stores, meanwhile, are getting renovations. Those upgrades include the installation of steak-cooking stations with a dedicated chef to teach members the best way to sear a piece of imported beef – using the store’s recommended seasonings and skillet.
Overall, Walmart spent more than 400 million yuan ($56 million) in the past 12 months to upgrade its China stores, Daniel Shih, chief of corporate affairs for the company in China, said in a phone interview with CNBC earlier this month. He added that in the next decade or two, Walmart plans to invest 8 billion yuan in supply chain development.
An assistant chef shows customers how to prepare steak at a Sam’s Club in Beijing’s Daxing District.
Evelyn Cheng | CNBC
Already, Sam’s Club is using a multitude of depot centers to roll out one-hour delivery to its more than 2.6 million members in China. More than 290 Walmart stores also offer one-hour delivery through strategic partner Dada-JD Daojia, according to the online platform.
The other key to the company’s growth, especially Sam’s Club, is product quality, Shih said, noting how friend groups and social media influencers play an important role in driving sales (Sam’s in China delivered double-digit comparable sales growth last fiscal quarter).
In China, Sam’s Club stores feature an array of overseas brands highly sought after by Chinese tourists, as well as domestically selected products under an in-house brand. Management added that some popular items, such as a durian layer cake, were created by domestic staff.
(Chinese consumers) demand fast delivery. … In this market you really have to be great and good (in both online and offline) in order to be competitive.
chief of corporate affairs for Walmart in China
Buying more ‘Made in China’
The high level of local influence speaks to a growing trend for success in China: homegrown brands.
Last week, Nike reported strong sales in the country. But on installment purchase site Fenqile, the e-commerce company said the sales growth of Chinese sneaker brand Huili is far outpacing that of Nike and Adidas. Sales of Chinese fashion brands and beauty products also more than tripled in August, Fenqile said. Comparison with other brands wasn’t available.
Some of these domestic names have popped up seemingly overnight.
Makeup company Perfect Diary launched just over two years ago on Alibaba’s Tmall e-commerce platform. The start-up targets the generation born in the mid-1990s or later with marketing campaigns featuring popular Chinese singers and partnerships with institutions such as London’s British Museum.
Perfect Diary said it became the first cosmetics brand to achieve sales volume of more than 100 million yuan in 2018 during the Nov. 11 shopping holiday. The company is also launching physical stores, with plans to quadruple its physical stores to 40 by the end of this year, and 600 in three years.
The list of ways in which multi-billion-dollar corporations beyond Apple and Starbucks are seizing growth in the Chinese consumer can go on. Here are some examples:
- Kentucky Fried Chicken parent Yum China said it has “invested heavily“ in the “booming” coffee market, becoming the second largest retailer by cups sold at more than 90 million servings.
- Video streaming site iQiyi said that thanks primarily to its original variety shows and television dramas, in June, it became the first online video platform to attract more than 100 million paying subscribers from a single-country market. Netflix said it had about 60 million paid members in the U.S. at the end of June, out of 151.6 million subscribers worldwide.
Disclosure: Universal Pictures and CNBC are both subsidiaries of NBCUniversal.
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