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Chinese firms use Singapore as test bed for global

expansion

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Price wars and weak demand drive Chinese firms abroad

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Singapore's strategic location aids Chinese brands'

expansion

plans

By Claire Fu and Xinghui Kok

SINGAPORE, Oct 13 (Reuters) - A record number of Chinese

restaurants and cafes have flooded Singapore over the past year,

using the island as a test bed for global expansion as they

escape pallid consumer demand, extreme price competition and

super-squeezed profit margins back home.

Well-known firms such as Luckin Coffee and bubble

tea major Mixue ( MXUGF ) joined hotpot and mala restaurant

operators in the post-pandemic surge overseas, hoping to draw on

the cachet of the internationally oriented city-state in a trend

that industry experts and executives expect to accelerate.

"It's really tough to operate in China now, so many brands

are choosing to expand abroad," said Josie Zhou, overseas

general manager of Hunan cuisine restaurant Nong Geng Ji, which

picked Singapore for the first stage of its global push.

Persistent price wars are forcing Chinese food and beverage

firms to explore new growth models abroad, said Joanna Jia,

Singapore manager of bubble tea chain ChaPanda, which opened two

franchisee tearooms in the city in July and plans two more.

Weak demand has stifled growth in China since the end of

COVID-19 lockdown almost three years ago. A long-time property

market slump and U.S. tariffs on Chinese goods have exacerbated

price wars in sectors as varied as food and beverages,

e-commerce and autos, intensifying deflationary pressure.

In going global, culturally similar Singapore has long acted

as a stepping stone for Chinese firms and is a country keen to

develop relationships with major economies including China at a

time when the top economy, the U.S., is raising trade barriers.

About 85 Chinese food and beverage brands were operating

around 405 outlets in Singapore as of August, more than double

the 32 brands running 184 outlets in June last year, showed data

from consultancy Momentum Works.

That record growth comes even as local operators including

low-cost hawker stalls, mid-sized firms and even Michelin-star

restaurants grapple with rising costs and lower consumer

spending - just as firms do in China.

Officials at Chinese brands said they are confident of their

Singapore prospects as they can draw on the lean business models

and supply chain management that helped them survive at home

where a record 3 million restaurants went bust last year.

Tearoom chain Chagee ( CHA ), for instance, can prepare an

iced milk tea with customised amounts of ice and sugar in just

eight seconds with the help of machines built by in-house

developers, said Jonathan Ng, Chagee's ( CHA ) director of government

and public affairs for the Asia-Pacific region.

Such nimble processes and quickly adapting to change in

consumer preference by offering a wider variety of drinks at far

lower prices helped brands such as Luckin and Mixue ( MXUGF ) blunt growth

of Western rivals including Starbucks ( SBUX ) in China.

Starbucks' ( SBUX ) market share in the world's second-largest

economy - home to more than a fifth of its cafes - slumped to

14% last year from 34% in 2019, showed data from researcher

Euromonitor International. The U.S. company is looking to sell

some of its Chinese operations.

"The Singapore market may be tough, but the mainland market

is brutal - and they survived," said Maybank China economist

Erica Tay.

These ready-made models, however, have drawn the ire of

local businesses. Singapore Tenants United for Fairness,

representing 700 business owners, in a June statement on

LinkedIn, said domestic companies struggle to compete.

"When an SME from China is often even bigger than our local

large enterprises, it should be clear that our small businesses

are not on a level playing field with such players. In fact, we

are not even in the same stadium," the cooperative said.

GATEWAY SINGAPORE

Traditionally a bridge between Eastern and Western cultures,

Singapore is an ideal gateway for expansion with its 6.1 million

predominantly Chinese population, said officials at Chinese

firms. It is also a wealthy, fashionable place so having a

presence there is for good branding, they said.

"If we can build up our brand in Singapore, the brand

awareness can go to Malaysia and Vietnam, even Indonesia," said

ChaPanda's Jia.

Some smaller Chinese names are often backed by deep-pocketed

investors allowing them to outbid local rivals for prime

locations.

Michelin-starred Yong Fu from Shanghai, for example, entered

Singapore last year with investment of S$10 million ($7.72

million).

The sum covered renovation and provides liquidity for

rental, staff and other operational costs such as a wine cellar

for about five years, said Ye Cheng Zhong, a Yong Fu director

and one of three investors.

With Singapore as phase one, he plans to take Yong Fu to

London at the end of the year then New York and Paris next year.

Investment from large Chinese conglomerates, however, has

pushed up rent, particularly in high-traffic areas where the

supply of commercial space is tight, said Ethan Hsu, head of

retail for real estate firm Knight Frank.

Moreover, the influx of Chinese restaurants "dilutes the

organic culinary fabric of Singapore," said food critic KF

Seetoh.

Still, such factors are unlikely to stop Chinese companies'

flight from the price wars back home.

"The competition here will only intensify," said Nong Geng

Ji's Zhou.

($1 = 1.2954 Singapore dollars)