China has been open to Western consumer brands for decades. Those brands still have a lot to learn about Chinese consumers.

MW China has been open to Western consumer brands for decades. Those brands still have a lot to learn about Chinese consumers.

Tanner Brown

Domestic rivals are moving faster, consumers are trading down, and global brands from Starbucks to Costa to Häagen-Dazs are scrambling to adapt - and paying the price when they don't

A Luckin barista prepares a baijiu liquor-flavored latte, formulated in collaboration with the spirits brand Kweichow Moutai. The Chinese coffee chain has not only outrun international rivals in its ability to address its evolving domestic market but this year opened a handful of locations in Manhattan.

For years, multinational brands treated China as a growth engine that only needed time and scale. More stores, broader coverage and brand recognition were supposed to do the work. Today, that assumption is quietly unraveling.

Across retail, food, and consumer services, global companies are discovering that China's consumers have moved faster than they have. Price sensitivity has sharpened, tastes have localized and domestic competitors have learned how to iterate at speed. The result is a market where foreign brands are no longer losing because China is "closed" but because it has become intensely competitive - and unforgiving to those that fail to adapt.

As multinationals operating in China weigh bringing on local partners or selling stakes in their businesses to Chinese entities, those deals themselves are not the story. What forced them is.

That shift helps explain why a growing number of multinational companies are reassessing how they operate in China, including whether to bring in local partners or sell stakes in their businesses. The deals themselves are not the story. The story is what forced them.

Chinese consumers, particularly in lower-tier cities, have grown far more cautious over the past two years as a prolonged property downturn weighs on household confidence. Discretionary spending has become harder to win, and brands that once relied on premium positioning or Western cachet are finding fewer takers.

From the archives (July 2025): Western brands still carry cachet in China's lower-tier cities. So that's where they're turning their attention.

"Western fast-food brands are not cheap food destinations for the Chinese consumer," said Shaun Rein, founder of China Market Research Group. As spending tightens, Rein said, consumers increasingly favor domestic players that are faster to adjust pricing and menus and offer promotions.

The contrast is stark in coffee. Luckin Coffee (LKNCY), written off after an accounting scandal a half-decade ago, has rebuilt itself into a relentless competitor. It now operates several times as many stores in China as Starbucks $(SBUX)$, Peet's $(KDP)$ and Costa $(KO)$ combined, and it has trained consumers to expect frequent promotions, app-based ordering and localized flavors at lower price points. Starbucks remains one of China's best-known foreign brands, but even it has acknowledged that competing in today's market requires a different approach from the one it used a decade ago.

From the archives (March 2020): Audacious Chinese coffee chain Luckin, not content with its quixotic battle against Starbucks, dreams of becoming Amazon, too

Convenience retail tells a similar story. Domestic chain Meiyijia has quietly blanketed neighborhoods across China, vastly outnumbering foreign rivals. Its success is less about branding than execution: tight supply chains, rapid store rollout and merchandise tuned to local demand. For many consumers, it has become the default option, leaving foreign operators struggling to justify higher costs.

The pressure is not limited to mass-market brands. In the ultrapremium segment, consumer caution has been especially punishing. Häagen-Dazs, owned by General Mills $(GIS)$, has spent years cultivating an image as an indulgent treat for China's middle class. But as households rein in discretionary spending, that positioning has become harder to sustain at scale.

What makes this moment different from comparable stages in earlier cycles is that domestic competitors are no longer just cheaper. They are often faster, more data-driven and more willing to diverge from global templates. Menu experimentation, packaging changes, short-term discounts and app-based loyalty programs can be rolled out in a matter of weeks, not quarters.

Foreign brands, by contrast, often remain tethered to global decision-making structures that slow response times. Product changes may require approval from headquarters. Pricing moves may be constrained by global brand guidelines. By the time adjustments are made, local rivals have already moved on.

That dynamic has pushed many multinational companies to rethink not just their growth expectations but their entire operating models in China. Bringing in local partners or investors is increasingly seen as a way to inject speed and market knowledge - not simply to offload risk.

"People are realizing again that it's worth it to have a local partner," said Kane Hu, chief analyst at tech-focused Peak Investment, a boutique brokerage in the western city of Chengdu. Empowered local management, Hu said, is often better positioned to make fast decisions in a market where consumer preferences can shift quickly.

The results of past partnerships help explain the renewed interest. When private-equity firm Carlyle $(CG)$ invested in McDonald's China alongside state-linked partners in 2017, the U.S. fast-food chain $(MCD)$ shifted from a centralized model to one with greater local autonomy. Store count more than doubled, delivery became a major revenue driver and menu changes tailored to Chinese tastes accelerated.

When McDonald's and private-equity partner Carlyle shifted from a centralized model to one marked by greater local autonomy, they demonstrated a recognition that the business needed to align with how Chinese consumers actually behave rather than how global headquarters assumed they would.

Those changes mattered because they aligned the business more closely with how Chinese consumers actually behave - not how global headquarters assumed they would.

Today, that lesson is spreading beyond fast food. From sports retail to healthcare equipment, global companies are grappling with the same question: how to compete in a market where domestic players set the pace, consumers demand constant adjustment and loyalty is increasingly transactional.

Publicly, most multinationals say they remain committed to China. In practice, that commitment is being redefined. Instead of direct control, it may increasingly mean shared ownership, localized governance and a willingness to let go of one-size-fits-all strategies.

China's consumer market is still enormous. But it is no longer patient. And for foreign brands that fail to keep up, the price of standing still is becoming painfully clear.

More Tanner Brown dispatches:

Penny pinchers are putting the squeeze on the all-powerful Chinese central government

China's reclusive young 'rat people' stay in bed all day and gnaw away at the country's economic prospects

Weight loss has become the hottest new Chinese consumer craze

How China's aging boom turned into an investment story

China's courtyard workshops are generating revenue figures in the millions and reviving rural economies

-Tanner Brown

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December 23, 2025 07:51 ET (12:51 GMT)

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