In the news: Starbucks under attack, GSK's sales fall and Wumart acquisition
October 25, 2013 | BY
clpstaff &clp articles &A CCTV attack against Starbucks has failed, while GSK's sales declined 61% because of the anti-corruption investigation and retailer Wumart takes a minority stake in a Thai supermarket chain
Starbucks expensive – who cares?
The official China Central Television (CCTV) released a global investigative report into how Starbucks charges higher prices in China than it does in other markets. The 23-minute segment formed part of its hour-long news programme on Sunday. CCTV claimed that the price of a tall latte in Beijing is Rmb27 ($4.43), compared to $4.00 in London, $3.26 in Chicago and $2.40 in Mumbai. The government-controlled broadcaster said Starbucks set prices higher in China than in other markets, which discriminated against Chinese consumers.
Source: BBC
Analysis: Bloomberg
Starbucks has become CCTV's next target as the broadcaster asserts its power to assist in China's crackdown on pricing. Previous and successful targets include Apple and Volkswagen, but CCTV did not expect the reaction of 40 million Weibo users to be against the TV station. Users were angry at CCTV for focusing on such a trivial matter, instead of considering issues like air pollution. CCTV clearly picked the wrong target this time and its reputation will suffer. This could be good news for foreign brand owners if a similar reaction occurs after another CCTV report.
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Corruption leads to 61% loss for GSK
Bloomberg reported that third-quarter sales fell by 61% in China because of an anti-bribery investigation launched in June. The allegations centre on GSK bribing hospitals, doctors and officials. The article cited a Barclays analyst as saying there was a dramatic decline in GSK's Seretide lung drug and Flixonase nasal spray, which had led to a rapid acceleration in sales of competitor AstraZeneca's Symbicort inhaler. CEO Andrew Witty said: “We very clearly recognise there is a profound need to earn the trust of the Chinese people again, and we will take every action to do so.”
Source: Bloomberg
Definitely not good news for GSK and the declining sales show how seriously bribery and corruption charges are taken in China. The investigations are still underway and already the company's reputation and balance sheet have taken a beating. Since Xi Jinping took over there has definitely been a change in attitude towards corruption and he has made it clear that what was once tolerated will no longer continue. Companies need to look at their internal polices and relationships with third-parties, otherwise they might end up taking a similar hit.
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Wumart takes minority stake in Thai supermarket chain
Davis Polk, Freshfields and Morrison & Foerster advised on Wumart's minority stake in Thai supermarket chain CP Lotus for HK$2.3 billion. Wumart will take over 36 Lotus supermarkets in Beijing and Shanghai. The stake will see Wumart with 577 stores in Northern and Eastern China. Davis Polk was lead advisor to Wumart and Freshfields advised CP Lotus. Morrison & Foerster represented Ascendent Capital, which facilitated the transaction.
The deal marks the second time this year a foreign supermarket chain has tied-up with a China retailer. In August, Tesco combined its business with China Resources Enterprise to become a minority partner. The interesting aspect of these deals is that China retailers are acquiring stakes in foreign-owned operations in China. This is a trend that is likely to continue as Chinese enterprises want to expand through already-established businesses.
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