Why Walmart sells frogs & Starbucks sells tea

Coffee in China? Not really.

China is a country of tea drinkers. Coffee was almost unheard of.
So when Starbucks — the USA-based coffee and cafe chain — decided to go to China, many questioned why.

In 1999, Starbucks opened its first store in China. They rented out expensive real estate. They put up stores in prominent locations.

Western culture was getting popular among the young. Starbucks was selling that experience. The American Starbucks experience. Coffee, a good place to sit, good ambient music, cheerful baristas behind the counter — all that.

But Starbucks continued to lose money. The Chinese loved tea and not coffee.

Then, they decided to change things a bit. They started offering teas along with coffee. Green tea, particularly was offered in Starbucks China. This opened the doors. Crowds started coming. Starbucks realized they were doing something right.

They made sweeping changes.

Starbucks in the West has individual people coming for a coffee. So the furniture is designed for that audience. In China, people seek the ‘Starbucks experience’ and come in groups. So Starbucks China started changing the furniture to suit larger groups of people.

They introduced even more Chinese items on the menu. They became sensitive to local festivals and celebrations.

And the crowds came in more.

In doing so, the Chinese also developed a taste for coffee — something they would experiment with while being at Starbucks.

Today, there are over 6,000 Starbucks outlets in China.

KFC underwent a similar transformation. They struggled at first. And then they adapted heavily to suit local tastes. Their menu is filled with Chinese items.

Walmart is a departmental store chain that Americans buy everyday supplies from. When they opened up in China, they started stocking extreme items like live frogs (for meat).

Many other Western brands have made monumental changes to their offerings to be able to sell in China.

Car companies, electronics companies, luxury apparel companies — they have all made revolutionary changes to themselves to sell in China.

Now, the question is, if the companies had to change so much going to China, why did they go to China at all?

About 3% of China’s population was middle-class in 2000. Today, it is almost 50%. China’s population was poor. They have gotten richer. That is a lot of people who have something called ‘disposable income’.

Disposable income is what companies are after.

Disposable income is the money left after the cost of all essential expenses has been met.

A man earns Rs 50,000 a month. He spends Rs 15,000 on rent and Rs 15,000 on food and other essentials. He is left with Rs 20,000. This money is called disposable income. This money may be used to buy non-essential goods like fashionable clothes, accessories, etc.

Some of it may be spent on experiences — like watching a movie or eating out at restaurants.

He may also use a part of this money to save and invest for his future.

When people are poor, they do not have disposable income. As income rises, disposable income also rises. People become bigger consumers — they consume more goods and services.

Tourism, food and beverages, cars and bikes, fashion, healthcare, and so on — all these industries see a big bump whenever disposable income rises.

Many countries saw monumental changes in a matter of decades.

Japan went from being war-torn to one of the most technologically advanced nations in the world. China is following a similar path. South Korea did that too. Many Middle Eastern countries became some of the richest countries in the world because they found oil under their soil. There are more examples in Europe, the Americas, and Asia too.

When this happened, the people of these countries changed too. Their behavior and lifestyle showed signs of wealth.

5-star hotel prices in Goa crossing Rs 30,000 per night shows how much demand there is. Not just Goa, most tourist locations in India get overbooked every holiday.

In 2023, many large hotel companies saw double-digit growth in revenues.

Services like restaurants, bars, spas, and movie theatres are seeing many new players entering the field.

People with more money want more help managing money. Something that was not required earlier — banks, investments, insurance, etc. There are around 16,189 private bank branches in India right now. Around 1,200 of those were opened in just the last 1 year.

The number of SIP accounts in India has increased by over 50% in the last 5 years.

Vehicle sales in India have been rising consistently.

10 years ago, 17.83 million vehicles were sold in India. In 2019, it went up as high as 26.28 million vehicles. Then the pandemic hit and slowed things down a bit. In 2023, the total sales stood at 21.2 million.

Even within the cars sold, larger and more expensive SUVs are gaining market share over the years.

There is a reason why Reliance got into fashion: Reliance Retail. It’s the same reason why Tata started Zudio.

With e-commerce, reaching different audiences has become even easier. Sectors like healthcare (gyms, cosmetic clinics, etc) continue to expand into India.

A high-consumption culture has its drawbacks.

In developed countries, many people spend money beyond their means — just to live a certain lifestyle. They even take on debt to support a life they cannot afford.

But as long as most people spend judiciously, and within their means, more disposable income means greater growth. As a country grows richer, its citizens change. We are seeing that in India for some years now.

If you ask an elderly person how much money they spent on fashion, 10 years vs 20 years vs 30 years, you may get a picture of how much people have changed.

India will consume more as India grows richer. The companies making goods and providing services stand to gain from this wave in India.

Of course, nothing is guaranteed.

There are countries that were progressing well and then stopped — something went wrong. It could be politics, international relations, education levels, or something else. But if we Indians do it well, Indians will have more disposable income.

The illustrations used above are made using an AI tool (DALL-E).

Originally published at https://www.linkedin.com.