The hotel receptionist hands me a cup of water as she checks me in. She’s wearing a sweater emblazoned with the words ‘START YOUR JOURNEY WITH A SMILE’. You see this sort of thing more and more in China. Brands are responding to weak consumer sentiment by finding ways of enhancing the customer experience that don’t bump up the price. In this case, giving me an extra-warm welcome. 

Our manager in Beijing

I’m in Beijing for three days of company meetings. But as ever I plan to find out more than just what I hear in the board rooms. This is my eighth visit to China in the past 12 months. Going to different cities as well as to remote areas and speaking to people there, you get a feel for consumer sentiment and trends that you won’t pick up any other way. You also appreciate what’s changed since last time.  

Streets and malls are quieter on this trip than in years gone by, as was the airport when we landed, underscoring the impression of sluggish consumer confidence. So I’m curious to see first-hand how brands are responding.

The hotel manager insists on taking my case to the elevator. She doesn’t know it, but the hotel chain we’re staying at, Atour, is one of my investee companies. I take the opportunity to ask a few questions about the types of guests who stay here and how business is going. We’re granted an impromptu tour, which includes an opportunity to test-squeeze some pillows (happy to confirm: nice and springy). She tells me about the chain’s loyalty scheme and how it’s helping to drive repeat bookings.

Atour is at the higher end of the midscale hotel market but has been rapidly gaining market share by providing a better-quality experience than its peers. Staying here will give me a chance to sample it for myself and see how it stacks up against the competition in a market we believe is ripe for consolidation.

I’m joined on this trip by Eric Zhu and Alex Dong, two of Fidelity’s consumer sector analysts. On the first day of our trip, we’re scheduled to meet the chief operating officer of a company that has so far defied China’s economic headwinds by continuing to grow steadily. Pop Mart, which designs and sells collectible art toys, is one of the few consumer brands that relied more on same-store sales growth in 2023 than on adding new outlets. It’s testament to the emotional resonance the toys have with customers, who will travel specifically to visit a Pop Mart store, meaning the business is less reliant on passing footfall. 

Before heading to Pop Mart’s offices, we visit the company’s new theme park, Pop Land, which opened in late 2023. Beijing is much colder than last time I was here and as we walk around the park, I’m jealous of Eric’s large, fluffy-hooded coat. First impressions are that the park is small. The press has drawn parallels with Disneyland, but while there is an ersatz castle at the centre of the site, Pop Land is a fraction of the size of Disney’s Shanghai resort and, except for one small merry-go-round, it has no rides. 

I’m actually encouraged by this. Management have been disciplined about how much capex goes into the project. As the COO confirms when we meet him later, while the company makes some money from theme park, that’s not its primary purpose. Pop Land is a marketing tool. It’s a way for customers to feel closer to their favourite characters, and a venue for events to create a buzz around the products. Many of the visitors we see there are young children brought along by their Pop Mart collector parents, so the park also seems to us to be a way of encouraging the next generation of customers. 

Is Pop Mart riding the wave of a fad? It’s possible. But brands like Pokémon and Disney show that it’s possible to go on indefinitely if you can successfully refresh your intellectual property. At the company’s offices we’re allowed to see (but not film) the R&D floor. It’s a pop culture skunk works, row after row of designers working on new ideas or on variations for existing characters, desks covered in toys and other source materials. It’s clear that everyone appreciates the imperative of coming up with new IP their customers will love. 

Consumers are demanding more for what they pay

Pop Mart’s ability to forge emotional connections has helped it withstand the drop in consumer confidence. Consumers are increasingly demanding more value for the price they pay, be that emotional or functional. Cosmetics brand Proya, which I visited on an earlier field trip, is another example of a company that has benefited from this trend, gaining market share by offering Chinese consumers a better product at lower or similar prices to international brands. 

High-end names like luxury liquor brand Kweichow Moutai are also insulated to some degree from swings in consumer sentiment, as are low-priced ecommerce platforms like Pinduoduo (PDD). It’s brands in the middle that will struggle, unless they can offer that little something extra.

Of those domestic brands that are growing, some, including PDD (with its Temu platform) and Pop Mart, are also setting their sights overseas, seeking to emulate Japanese and Korean firms of decades gone by. Brand China won’t find going abroad easy, but hardened by lessons learned in a difficult domestic market, Chinese companies have good reasons to start their journey with a smile.