Updates from the Fight for One Billion Chinese Consumers

Transcription

1 Updates from the Fight for One Billion Chinese Consumers or What Everyone is Getting Wrong About Chinese Moms, Uber, and Starbucks July 27, 2018

2 Class Summary in Two Slides 5 min What Everyone Is Getting Wrong About 45 min Case: Luckin Coffee Break 15 Min The Macau Hockey Stick Alwaleed Buys a Hotel The Awkward China-MENA Love Affair 1

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4 Value-Add and Inbound Development Deals Management Reputable Capital What Value Do You Add? Foreign Capability Govt Relations Local Capability 3

5 Class Summary in Two Slides 5 min What Everyone Is Getting Wrong About 45 min Case: Luckin Coffee Break 15 Min The Macau Hockey Stick Alwaleed Buys a Hotel The Awkward China-MENA Love Affair 4

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8 Chinese Moms Are the World s Most Important Consumers 7

9 Point 1: Chinese mothers are the major driving force behind increasing Chinese household consumption. Point 2: Chinese mothers are deeply focused on the health and safety of their one child. Point 3: Chinese mothers are rising as consumers in their own right. Point 4: Many of the biggest China consumer stories are actually stories about Chinese moms. Point 5: Chinese moms are going global. 8

10 Uber Won Big In China 9

11 Lesson 1: First mover advantage is really important. Lesson 2: Have a concrete advantage. Lesson 3: Have deep pockets and a long-term commitment to win. Lesson 4: Don t go it alone. 10

12 Apple Is Vulnerable in China 11

13 Starbucks Is Not Being Aggressive Enough in China 12

14 Point 1: The amazing thing about Starbucks China is not just the consumer trend. It is that plus the absence of a major China competitor. Point 2: CEO Howard Schultz is not being aggressive enough in China. Point 3: Changing consumer behavior is what Wall Street should worry about. Point 4: Management is still largely untested in China. Point 5: Get bigger as fast as you can, while you can. 13

15 Class Summary in Two Slides 5 min What Everyone Is Getting Wrong About 45 min Case: Luckin Coffee Break 15 Min The Macau Hockey Stick Alwaleed Buys a Hotel The Awkward China-MENA Love Affair 14

16 Enter Luckin Coffee Founded November Did soft launch around February By Qian Zhiya, former COO of UCAR Opened +500 stores in 13 cities, served 1.3M customers (Starbucks has 3,200 in 139 cities) CEO cites 4 to 5 cups of coffee per capita consumption in mainland China compared with 750 in Europe, 400 in the United States and 200 per capita Japan and South Korea Taste customized for Chinese consumers Cheaper about 25RMB per latte vs. 35RMB for Starbucks. 15

17 Pick a Fight With a Famous Company Getting huge press Aggressive and very fast management Says goal is to beat Starbucks in China Has accused Starbucks of monopolizing the market. Has taken them to court over market manipulation. 16

18 Positioned as New Retail for Coffee An Internet business model. Targeting two pain points: high prices and inconvenience of purchase. Digital Can only order via app or model payment Place orders by app and pick up later (frees up tables) First purchase free, winning coupons by referring friends, buy two and get one free. 17

19 Positioned as New Retail for Coffee Delivery Concentrated in business districts. Partnered with SF Express delivery in 30 minutes Big funding and aggressive Originally attracted 1B RMB of funding. Subsidizing drinking coffee. Series A closed. $ M making them a unicorn. 18

20 Who Are the Competitors? Starbucks offering affordable luxury product plus location to meet and talk. +60% of the market? McDonalds McCafe a cheaper version. Tons of locations. Mostly about the product. 6% of market? Other smaller retail coffee chains (Costa, Bene, Bo Coffee, etc. ) similar to Starbucks but fewer in less high traffic and high visibility locations Coffee plus food restaurants (UBC Coffee) Tea and take-out locations - offering a product but not a location to relax 19

21 Can They Beat Starbucks? Do They Need To? 1. Starbucks grinds you down with larger real estate spend (high visibility and high traffic locations) and larger marketing spend. Does digital and / or delivery change either of those strengths? How? Is this just a really smart toaster? 20

22 Can They Beat Starbucks? Do They Need To? (continued) 2. Is there room for everyone in a high growth market? At a lower price point? 3. Is this mostly about management and funding? 21

23 Class Summary in Two Slides 5 min What Everyone Is Getting Wrong About 45 min Case: Luckin Coffee Break 15 Min The Macau Hockey Stick Alwaleed Buys a Hotel The Awkward China-MENA Love Affair 22

24 Waleed Buys a Kunshan Hotel In 2007, Waleed purchased 100% of a 387 room Kunshan hotel for $58M. The hotel had opened in By his development group (Kingdom Hotels International) are listed in Dubai and London and have hotels across Asia, Africa and MENA 23

25 Is he a strategic or financial player? Is he local or foreign here? 24

26 What Are His Strengths and Weaknesses? 3 Management Reputable Capital What Is Your Advantage? Foreign Capability Govt Relations Local Capability 25

27 He Immediately Turns It Into a Swissotel 26

28 #2 and #3: Was It Cheap and Did He Have An Advantage? 1 2 Is the Company: Great? Good? Is the Company Cheap? ( is there a market inefficiency?) 3 Reputable Capital What Is Your Advantage? Management Foreign Capability 27

29 Why Did He Buy and Fix? He thought it was a potentially good company He could use reputation and foreign management and brand to: Gain access to a private deal Increase its value (get it cheap) Secure longer-term control He thought it was cheap relative to what it would be worth after rebranded and repositioned into the luxury market. 28

30 #2 and #3. Did It Work??? $58M $10M MP LT t -LT t 0 t NT t LT 29

31 Waleed Sells a Kunshan Hotel In 2011, Alwaleed sold 100% of the hotel for $61M Alwaleed: "We are delighted to realize value of this investment amid a buoyant transactions environment in growth markets." 30

32 Was This the Holy Grail? 1. Emerging market trend / hockey stick 2. Scalable business model 3. Limited competition 4. Advantages at the deal level 31

33 Contact Information: Jeffrey Towson LinkedIn: Jeffrey Towson