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Big News

Li-Ning and Sequoia Join Hands, Embarking on an "Alliance" for Overseas Expansion

"Self-reliance" requires a large investment and comes with high risks. Seeking external partners has become a more cost-effective approach for brands to expand overseas.

Recently, Li-Ning issued an announcement stating that it has established a joint venture with Sequoia. Overall, the difference in the shares between the two parties is not significant, and they are almost evenly matched: Li-Ning Company and Li Ning himself collectively hold 55% of the shares in the new company, while Sequoia China holds a total of 45%.

From the perspective of the cooperation content, Sequoia is not just providing funds. The announcement states that the company will exclusively develop and operate the Li-Ning brand business in other regions (including selling Li-Ning brand products), including the design, manufacturing, procurement, distribution, wholesale, logistics, retail, and marketing of Li-Ning brand products, as well as other related businesses.

According to the content of the announcement, both investment parties will utilize their respective resources to assist the joint venture group in establishing an independent operating capability, achieving the long-term development of the Li-Ning brand overseas, and seeking an IPO opportunity in the future.

As the domestic consumer market gradually becomes a red ocean with limited growth space, the overseas expansion of Chinese enterprises has become a very clear trend. However, the overseas market is fragmented and complex. Chinese enterprises face many challenges when solely relying on building their own teams and supply chains. It is also difficult to truly establish an understanding of the overseas market through acquisitions and financial investments. Now, partnering with a strong investor who is familiar with the local market environment is undoubtedly a better path.

If the previous acquisition of Kappa was mainly to expand its sales in China, then in recent years, Li-Ning has gradually increased its focus on the overseas market through acquisitions, and not just limited to the sports industry. Since 2020, Li-Ning's Extraordinary China has successively acquired the casual clothing brand Bossini in Hong Kong, China, the Italian luxury brand Amedeo Testoni, and the British footwear brand Clarks with a century-old history.

Obviously, these acquisitions have not helped Li-Ning truly establish a brand presence overseas, as their products do not carry the Li-Ning label and logo. Directly selling mature domestic products to overseas consumers is prone to problems of acclimatization. Collaborating with Sequoia, which understands the local market and is close to the industry, to develop more targeted products is obviously a more appropriate approach.

Sequoia has also been deeply involved in the consumer industry. In the direction of overseas consumer spending alone, Sequoia China has invested in the cross-border e-commerce giant SHEIN and deeply participated in the enterprise's development, becoming a key institutional shareholder of SHEIN; in the case of Amer Sports, the parent company of Arc'teryx, which is targeting the overseas market, as well as Pop Mart and Kaiyou in China, Sequoia is also an important investor; in addition, behind cross-border e-commerce companies such as Aukey, which has spread listing news, the overseas electric bicycle brand Aventon, and the global leading technology footwear brand group Miracle Miles, there is the presence of Sequoia.

With the joining of Sequoia, the certainty of Li-Ning's overseas expansion has increased significantly.

Cheaper than Saizeriya, Has Pizza Hut's WOW Store Made the Right Move?

Pizza Hut's WOW Store, which claims to offer "pizzas starting from 19 yuan and snacks starting from 9 yuan," has opened 100 stores in just half a year. The 100th store is located in Beijing, which is also the first Pizza Hut WOW Store in Beijing.

Unlike the high consumption of hundreds of yuan in Pizza Hut's large stores, in the "one-person dining" scenario, the average customer spending at Pizza Hut WOW Store may be as low as the 30 to 40 yuan range, with significantly cheaper and more people-friendly prices.

The menu of the store uploaded on Dianping shows that the product prices at Pizza Hut WOW Store range from 9 yuan to 55 yuan. The highest-priced item, the Ordinary裝 Cheese and Beef Pizza, is 55 yuan. The main promoted items include the Hawaiian Flavor Pizza at 25 yuan, the Tuscan Style Baked Snails at 19 yuan, the Italian Style Spaghetti Bolognese at 17 yuan, and the Quadruple Icy Lemonade at 9 yuan. In addition, the main courses such as steak, cheese-baked salmon, and chicken drumstick steak start at 19 yuan, rice and noodles start at 15 yuan, other pizzas start at 19 yuan, and snacks such as Korean-style fried chicken and cheese-baked corn start at 9 yuan.

As consumers' concept of affordable consumption gradually deepens, and the trend of "seeking bargains" intensifies, many catering brands have been involved in the price war. Unlike most brands that directly reduce prices, Yum China has formulated a more complex but also more long-term strategy for Pizza Hut: launching an affordable sub-brand. Yum China's execution ability is also very impressive. In May this year, Pizza Hut's WOW Store began to open the first batch of pilot stores in Guangzhou, Chongqing, Xi'an, and other places. As of the end of July, Pizza Hut has launched more than 100 WOW Stores.

In terms of pricing strategy, it is obviously referring to the price range of Saizeriya, known as the "沙县 of Western Cuisine" (with an average per capita consumption of 40 yuan), and even slightly lower; in terms of location selection, it avoids first-tier cities such as "Beijing, Shanghai, Shenzhen, and Hangzhou," and instead starts from opening stores in new first-tier cities that have a certain understanding of Western cuisine but where Western cuisine stores are relatively less saturated, to test the market response; in terms of product selection, it basically avoids stepping on mines, and are all standard must-order items of Western fast food; in terms of location selection, some stores are renovated from old Pizza Hut stores, basically able to accommodate the middle-class families that have reduced their expenses and downgraded, and more stores are opened in more sinking places, perhaps changing the situation where Pizza Hut previously had more stores in high-tier cities and fewer in low-tier cities.

Pizza Hut has reached a point where it has to change. Financial report data shows that from 2018 to 2022, only in 2021 did Pizza Hut's revenue achieve year-on-year growth, and the other four years were in negative growth. In the first half of 2024, Pizza Hut achieved a revenue of 1.135 billion US dollars, a year-on-year decrease of 1.39%. Although it is a slight year-on-year decline but still continuously opening new stores, Pizza Hut seems to be struggling to grow.

The main reason is the high average customer spending. According to data from Zhaimen Can Yan, among pizza categories, Pizza Hut has a relatively high average customer spending, reaching 68.17 yuan, while Jumbos Pizza is only 32.5 yuan, and Domino's is between the two at 57.78 yuan.

In contrast, Saizeriya, with the success of affordable Western catering, has made a lot of money in the Chinese market in recent years, also helping its total revenue to increase significantly. Its 2024 fiscal year annual report (ending in August 2024) shows that the operating profit of the Asian business centered on China increased by 38% year-on-year to 11.6 billion yen, accounting for about 80% of the overall operating profit.

Pizza Hut, which has been operating in the Chinese market for many years, certainly does not want to miss this new growth opportunity.

The US Inflation and the Slow Recovery in China Make L'Oréal's Life Difficult

The general environment remains sluggish, and the lives of beauty giants still haven't improved much.

As one of the leading companies in the industry, L'Oréal is the first to be affected. Data shows that in the first three quarters of 2024, L'Oréal's sales reached 32.4 billion euros (approximately 248.6 billion yuan), with a year-on-year growth of only 6%. Looking at Q3 alone, the situation is even worse. L'Oréal achieved sales of 10.285 billion euros (approximately 78.9 billion yuan) in this quarter, with a year-on-year growth of 3.6%, which is lower than the 6% growth predicted by analysts.

The Scientific Beauty Division, which L'Oréal has placed high hopes on and heavily invested in in recent years, has performed in a way that has greatly surprised analysts. The financial report shows that the Skin Science Beauty Division, which houses five major brands (La Roche-Posay, CeraVe, SkinCeuticals, Vichy, and DECLEOR), saw its sales increase by only 0.8% year-on-year in Q3, far lower than the 10.8% expected by analysts and also far lower than the overall 11.3% growth in the first three quarters.

According to overseas analysts, this is highly related to the inflation in the US market. Several brands within this division have performed poorly in North America. The reason is that North American consumers with tight budgets have a low desire to purchase brands within this division. Especially compared to other brands, the unit prices of brands such as SkinCeuticals are already very expensive, and brands that were originally affordable, such as CeraVe and La Roche-Posay, have also seen significant price increases after inflation.

L'Oréal's growth rate in various regional markets, image from L'Oréal's announcement

The Chinese market has always been an important engine for L'Oréal's overseas growth. Now, it has become a poor performer, which has also led to L'Oréal's lack of growth momentum. L'Oréal's sales in North Asia decreased by 3% year-on-year, becoming the only region with a decline in the first three quarters. L'Oréal stated in the announcement that in mainland China, the beauty market performed poorly due to the impact of consumer confidence (negative growth already occurred in Q2). Under such circumstances, sales in the first nine months have shown a slight decline.

Sales growth in various markets, image from L'Oréal's announcement

The lack of improvement in the performance of the Chinese market has somewhat caught L'Oréal off guard. Recently, in a media interview, L'Oréal Group CEO Nicolas Hieronimus described L'Oréal's performance in the Chinese market as "unexpected turmoil."

The core problem is that skin care products are not selling well in China. In the North Asian market, this category accounts for about 40% of L'Oréal's total sales, but sales have been declining in the past two years. Even though hair care and perfume have maintained double-digit growth in this market, their volume is relatively small, and the contribution to sales is limited.

L'Oréal Group stated that the key task in China in Q4 is to reverse the downward trend in sales, and "Double 11" has become the key to achieving this goal. Currently, L'Oréal China has increased its investment in Double 11, such as launching a promotional activity of "Buy One Get More Than One," participating in Li Jiaqi's warm-up program "Offer for All Girls," and making commercial placements on platforms such as Xiaohongshu.

For its long-term development in China, L'Oréal hopes that the government can introduce more consumption incentive measures and stated that it will seek further growth in China through product innovation and expansion into the lower-tier markets.

Returning to the Original Intention, Starbucks Gives Up the Price War

Promotional activities such as "Buy One Get One Free" and "50% Off" may become a thing of the past for Starbucks stores.

Since Brian Niccol became the new leader of Starbucks, the company is launching a new round of reforms, and the first to be targeted is the "low-price strategy" led by the former CEO Laxman Narasimhan. According to reports from Huxiu, in markets such as North America, Starbucks has completely canceled activities such as "Buy One Get One Free" and "50% Off" that Laxman Narasimhan strongly promoted. Other markets will also follow suit.

Laxman Narasimhan once believed that after the dramatic changes in the macro environment, Starbucks needs to "frequently send coupons based on the APP to drive the consumption frequency of users." However, the consistently sluggish performance this year indicates that this strategy is not effective. In addition, after the pandemic, a bunch of low-cost coffee brands with an average price of several yuan have emerged. In multiple markets, Starbucks' discounted prices have no advantage.

What's worse, the "low-price strategy" has damaged the consumption ecosystem that Starbucks has built over the past few decades. Whether in China or the United States, opening social media, one can see various expressions of dissatisfaction with the current environment of Starbucks: "Uncles and aunts occupying seats and playing cards in Starbucks" and "Drug addicts and homeless people gathering (in the United States)." A star Starbucks store in New York even permanently closed as a result.

Brian Niccol is determined to overthrow all of this. Recently, he proposed to "fundamentally change the strategy" and prematurely detonated the "financial landmine" from the previous leadership period. Brian Niccol described the preliminary financial results for the fourth fiscal quarter of 2024 (the 13 weeks ending September 29, i.e., the natural year Q3) and the full-year results, stating that the results reflect challenges in the customer experience, but emphasizing that the management is formulating a plan to return to Starbucks' original intention. Starbucks also announced the suspension of the release of the 2025 fiscal year performance guidance to give the new leader more time to reverse the business.

The obvious decline in customer traffic and the weak income in the North American market have led to a 7% decrease in Starbucks' global same-store sales in Q3. The consolidated net income decreased by 3% to 9.1 billion US dollars, and the GAAP earnings per share was 0.80 US dollars, a year-on-year decrease of 25%. For the full fiscal year 2024, Starbucks' global same-store sales decreased by 2%, the consolidated net income increased by 1% to 36.2 billion US dollars, and the GAAP earnings per share was 3.31 US dollars, a year-on-year decrease of 8%. In addition, unlike the North American market where the average customer spending is still increasing, the Chinese market has also experienced a decline in the average customer spending, which is due to the extremely fierce local competition.

After the release of this fiscal year's warning, Starbucks' stock price once dropped by 7% after hours.

In response to these unprecedented and challenging problems, Brian Niccol, who has been in office for less than two months, recently released a video of about 6 minutes at Starbucks' headquarters in Seattle. He stated that Starbucks has been focused on "Starbucks Rewards" customers (members) rather than communicating with all customers, but this situation is rapidly changing. Starbucks will design more targeted marketing plans for different users instead of simply reducing prices; Starbucks will put the brand first and simplify the overly complex menu, correct the pricing structure, and ensure value for money. Specifically, in markets such as North America, he has told the middle and senior management: "We need to improve the store experience, adjust the products, increase the repurchase rate of users, rather than relying on low prices to increase the consumption frequency, and return to the original market share as soon as possible."

Increasing member repurchases rather than reducing prices to serve everyone is highly consistent with Starbucks China's current strategy.

14.6 Billion Bottles of C'estbon, Supporting a Market Value of Nearly 40 Billion Yuan

China Resources Group has welcomed its 18th IPO - "China Resources Beverage" officially listed on the Hong Kong Stock Exchange on October 23.

How profitable is bottled water? Zhong Shanshan of Nongfu Spring has repeatedly become the richest person by selling water, with a net worth surpassing that of many Internet giant founders. The parent company of C'estbon Mineral Water, China Resources Beverage, in an environment where IPOs are difficult to push forward, launched its Hong Kong listing plan in April this year and successfully entered the capital market in just half a year.

On the listing day, China Resources Beverage opened 13.5% higher at HK$16, with a total market value close to HK$40 billion, making it the second-largest IPO in Hong Kong this year, second only to Midea. In the public