Tag: Business

China’s coffee consumption growth slows

Luckin Coffee, the largest coffee chain in China, posted 1.2% company-owned same-store sales growth for 4q25, which is weak.

During earnings call, Luckin says China’s coffee market is still in a rapid growing phase – is that so?

I think there is still room, but current “coffee intensity” is already like in a mature stage.

Starbucks reward members (35mn) consume 3-5 cups per month.

Luckin members consumes close to 342mn cups per month in 2025 (4.1bn cups annually) and close to 100mn monthly transacting consumers, which translate to over 3 cups per customer per month approximately.

Why there is still room (but may be hard to penetrate)?

1) Luckin’s 450mn customer base means there could be 1.5x to 2x room in China, excluding children and elderly.

2) If Starbucks can get 16k stores in US, Luckin may get up to 4x of that which is over 60k stores in China, or 2x from current 30k stores.

3) Starbucks Reward member is an underestimation of active consumers of Starbucks, which could be like 70-90mn. 4x of that gives you 210-360mn potential which is 2-3x from current 100mn for Luckin.

Why hard to penetrate?

1) lower-hanging fruit / easy regions already have footprint.

2) China has more “layers” of consumers; thus hard to have one-size-fit-all offering. There are more competitions in China. Can’t handle price sensitive and premium customers together.

AI to disrupt games?

AI has created chaos in many areas, including the gaming industry.

Google Genie was a case in point a few weeks ago.

TakeTwo (-10%), Roblox (-10%), and Unity (-20%) all down after Google debuts AI Game Creation Tool
byu/Rukuba inValueInvesting

However, I don’t think code alone is what makes a game successful.

Many successful games are like basketball or soccer.

It’s a cultural and social thing.

Shooting is fun but that’s not basketball is all about.

I bet AI can create and update new games easily but it’s the same for sports.

There can be new “sports” coming up – they can be fun to play as well. However, the number of players, the audience, the whole league/industry around a classic sport are the moat.

In the pre-AI era, I don’t think the studio that has top-tier coders is guaranteed to have blockbuster games.

$RBLX $TTWO $TCEHY

Big capex is not longer welcomed

US big tech continue to post higher capex outlook for 2026 and those figures are surprisingly large.

However, you now start to negative reactions.

1/ Their own stocks respond negatively

2/ Nvidia stock, which presumably is a beneficiary for higher capex, hasn’t responded very positively

#Why capex is less welcomed?

1/ It could just be higher inflation across the chain. higher price for infrastructure, power equipment and construction workers etc. Therefore, it’s a less-efficient use of money

2/ Investors don’t see immediate growth. The 2026 growth outlooks, which should be supercharged by already massive capex in 2025, is not impressive enough. Investors fear that marginal incremental growth coming from additional capex looks small, at least in the current year.

Xiaomi smartphone GP may drop 30% given rising memory cost

Some simple calculation:

Xiaomi smartphone GPM was 12.6% in 2024, with 192bn revenue.

Xiaomi sold 1.64 billion smartphones that year.

The GP per handset is about 147 RMB in 2024

Across different smartphone models, memory cost is different, ranging from 50-500 per handset.

But in a nutshell, it’s about 12-18% of BOM.

It’s could be about 150 memory cost per handset for Xiaomi, which is similar to GP per handset.

Then if memory cost is rising 50-100%, the entire GP per handset could be at risk.

To offset, Xiaomi may increase prices for customers.

And as a large customer for memory chips, it may not receive full mark-up immediately.

In the end, maybe 1/3 of the memory cost impact of 120 need to be absorbed by Xiaomi.

Then GP per handset could be more like 100-110 RMB.

And as the price increases, volume could be impacted, plus the RMB appreciation recently (two-thirds of Xiaomi smartphone volume is overseas).

Total impact to Xiaomi smartphone GP could be like 65-75bn, or 25-30% negative impact from 2024 level.

Alibaba hits out in all directions

a) Delivery

Since 2025, Alibaba used massive subsidies to compete with Meituan.

b) Micro-loan facilitation

In 2025, the industry faced regulatory crackdown on high fees or high APR, while Alibaba’s Ant Group operates at lower APR segment.

c) OTA

Trip.com (previously CTrip), the leader in China OTA, is targeted by regulators recently for antitrust issues.

d) PDD

In e-commerce, the industry faced some scrutiny and PDD is being probed.

Another reason why old is new and new is old

Please see previous post on Old economy is new and new economy is old.

Here is another reason why this happened.

In the era of AI, robots and space, the TAM is beyond human beings.

The electricity is not only consumed by human, but will also by AI agents and robots.

Robots and AI agents will be the “new population” in physical and virtual forms.

Robots and AI agents will have their own identity, wallet, etc.; robots will need additional space to house.

If we will become multi-planet, we will be building a lot more, which will require a lot of manufacturing capacity, materials, power etc.

Thus, old can become new.

Meanwhile, the human being population may not increase that much.

Those human consumption categories will not increase with the “new population”.

Consumer internet probably won’t have dramatically increased TAM, as the ultimate demand comes from human beings.

Thus, new can become old.

Some will keep being “old”.

E.g. Robots and AI agents will not consume alcohol/baijiu.

Old economy is new and new economy is old

Part of the previous “old economy”, such as industrials (e.g. heavy manufacturing), material (e.g. mining), utilities (e.g. electricity) are becoming the new “new economy” due to AI and related investments.

Indeed, AI isn’t just an app-layer story; it’s a capex + physics story.

They’re on the critical path of AI expansion, and they’re supply-constrained enough to earn economic rents.

Meanwhile, part of the previous “new economy” is becoming old, like software, e-commerce etc.

Software is less scarce, with AI-assisted coding and commoditized building blocks

E-commerce matured in many markets. China is the prime example. China’s gov reported e-commerce (physical goods) growth has been below 10% for 4 consecutive years since 2022.

Popmart, holidays and 犒赏经济

Recently, 犒赏经济 has become a hot topic in China. The related articles try to show resilience in consumption and suggest a way to lift consumption.

While I agree with the necessity of this concept, as consumption in China needs to upgrade to “quality consumption” as some may say, I think 犒赏经济 is also trying to avoid some other key issues.

1/ key examples of 犒赏经济 are also lipstick effect.

Usually these articles argue that the rise in blind box toy sale like Popmart is a form of 犒赏经济.

However, if you think about it, Popmart toy is also like high-end brand lipsticks – people are replacing large item luxury purchases (handbags etc.) with smaller items ($20).

The desire to buy luxury products still exist during a bad economy, but people choose to buy stuff that have less impact on their financials.

One common use case of Popmart toy is to attach it to luxury handbags. Adding the “attachment” makes people feel that the handbag is “new” , thus somehow replacing the need to buy a new one.

Other examples of 犒赏经济 can also be lipstick effect.

Buying a nice dessert on the way back home? That’s a replacement for a much more expensive dinner out.

2/ 犒赏经济 tolerates other negative effects on overall consumption like stress or off-times.

Some part of the 犒赏经济 is not to celebrate in my opinion.

The mental stress is usually mentioned as a cause of rise in 犒赏经济, but is that a good thing? Are economists going to argue that in order to drive 犒赏经济, more people need to feel the stress?

Plus, these articles avoided discussions of long working hours and short holidays.

Long working hours is limiting dinner consumption and other 夜间经济.

In most companies in China, young people only get 5 days of annual leave per years. In additional, many companies will ask why you take a leave, and there is no such thing as getting paid for unused leaves. I bet many European people would say that like hundreds of years ago.

In 1936, France introduced law for 2 weeks of paid leave for all workers. This is on top of 9 days of national holiday at that time. The 2 weeks was further raised to 3 weeks in 1956, to 4 weeks in 1969, and to 5 weeks in 1982.

Wonder why concert is more popular than traveling? Because concert is usually in the city or a weekend trip that doesn’t involve taking a leave.

Let me just stop here.

Overall there are huge potentials in consumption in China I believe, and the quality consumption is the way to go. But some limiting factors need to be addressed first.

Gree is not competitor of Midea, Xiaomi is

Midea has over 400mn billion rmb revenue in 2024.

Xiaomi is climbing over 400 billion rmb revenue in 2025.

Midea’s typical gross margin is ~25%+, Xiaomi is also over 20%.

Midea net income margin is higher at ~9-10%, Xiaomi is now ~8-9%.

Both have over CNY 40bn net income in 2025.

Both have diversified business lines. And Xiaomi is entering the core home appliance segment globally.

Both have potential in future robotics business. [Xiaomi’s robot] [Midea’s robot]

Due to Xiaomi cars, Xiaomi is revenue growth is fast, projected to be ~30% in 2025. Midea revenue growth rate in 2025 is ~10%.

Xiao may compound faster, as

1/ Midea has ~70% dividend payout, while Xiaomi doesn’t pay any.

2/ Xiaomi has higher growth momentum, driven by cars.

3/ Xiaomi employees are more software and AI-focused.

Meanwhile, Gree has a smaller revenue base of ~below 200 bilion rmb, less than half of Xiaomi or Midea.

Gree does enjoy a higher net income margin of high-teens in 2024, but that may turn out to be a sign of underinvestment in talents and future development.