Shifting tides for Chinese brands: Transsion stumbles outside Africa and Cafe de Coral turns around

“As Africa develops, the way consumers look at life is very likely aligning more with the way consumers in more developed parts of the world look at life” – on the challenges confronting leading African smartphone maker Transsion

Key Takeaways:

• Transsion’s dominance in Africa is facing severe pressure as bigger Chinese smartphone makers target the market
• Cafe de Coral is fighting back against changing consumer dining habits and an influx of Mainland chains in its home Hong Kong market

By Doug Young and Rene Vanguestaine

We’re currently witnessing a fascinating intersection of shifting consumer behavior and the expanding reach of Chinese businesses. While they are quite different in terms of product, both the global smartphone market and the local Hong Kong fast-food dining scene are being rapidly reshaped by fierce competition, changing demographics, and evolving consumer tastes. Whether it’s tech giants vying for emerging markets or local food stalwarts defending their home turf, established players are finding that past success doesn’t guarantee future dominance.

Let’s start with Transsion (688036.SH), one of China’s biggest smartphone makers that probably isn’t known to many outside of Africa. The company, behind brands like Itel and Tecno, has been listed in Shanghai since 2019. It recently renewed its application for a Hong Kong listing after an earlier bid expired, putting the company’s global expansion story back into focus.

Transsion rose to prominence by targeting Africa back in 2008 — an era that almost sounds like a lifetime ago in the fast-moving cellphone world. They became incredibly successful because they targeted the African market with laser focus. Their phones featured long battery life to cope with unreliable electricity, and they provided support in local languages. At the time, larger rivals like Xiaomi (1810.HK), Oppo, and Vivo skipped the continent. It made perfect sense for those brands to focus on the enormous Chinese market, where they could produce at scale for hundreds of millions of consumers with similar tastes and a single shared language, rather than navigating the vast diversity of African nations.

But the landscape is shifting, and Transsion’s latest prospectus presents a mixed picture. While it’s still growing in Africa, the pace has slowed, and its footprint is shrinking in other emerging markets like Southeast Asia and Eastern Europe. Notably, Transsion hasn’t even made any serious attempts in its home market. Meanwhile, the Chinese government is putting more emphasis on commercial cooperation and trade with Africa. With the domestic Chinese market largely saturated, brands like Xiaomi and Vivo are realizing that standards of living in many African nations are rising. As Africa develops, local consumers are adopting lifestyles more aligned with developed regions. It’s the perfect time for massive Chinese competitors, armed with huge scale and deep R&D resources, to move in, inevitably growing to the detriment of the established player.

It’s an industry that’s become quite mature and highly commoditized. While Apple (AAPL.US) and Samsung (005930.KS) remain kings of the premium tier globally, Chinese names dominate everything else. Even in massive emerging markets like India, which some say is 10 or 20 years behind China, local manufacturing champions haven’t emerged. Vivo, Oppo, and Xiaomi are doing remarkably well there, proving companies with established scale can prosper in the market. We don’t see this hierarchy changing dramatically; the real drama will be watching how these Chinese brands compete against each other.

Changing tastes and new rivals challenge Hong Kong dining

From smartphones, we’ll pivot to the Hong Kong dining scene with Cafe de Coral (0341.HK), a household name that has dominated the city’s fast-food landscape for decades. The company suffered a steep decline in profits for a year and a half before things started to rebound a little in its latest six-month period through March. The early turnaround of Cafe de Coral reflects broader, systemic shifts in the city’s dining habits.

Chief among its hurdles are evolving dining trends. Food delivery is becoming more prominent, and people are simply dining out less. In response, Cafe de Coral is downsizing its average restaurant footprint to align with the growing preference for takeout. We think this is a smart strategy to manage costs in a weaker demand environment, and it may have helped restore short-term profits. However, it doesn’t solve the core issue of a shrinking dine-in customer base.

Furthermore, the company is battling a new generation of cheaper cafeteria-style rivals and a wave of Mainland Chinese chains setting up shop in Hong Kong. It’s a theme we’ve seen playing out over the last decade: China is churning out its own slick, price-competitive fast-food chains.

There’s also a significant geographical shift at play. Hong Kongers are increasingly crossing the border to Shenzhen over weekends and holidays. There are cases of locals taking day trips specifically to get a massage and eat at local restaurants that offer quality food at significantly lower prices. As long as the exchange rate remains relatively stable, this habit is likely here to stay. Finally, we’re looking at a structural demographic shift. With a very low birth rate, Hong Kong’s population growth relies primarily on immigration from the Mainland, supported by business talent schemes. As the Pearl Delta Greater Bay Area integrates Shenzhen, Zhuhai, Hong Kong and other parts of Guangdong province, these newer residents — and even longtime Mainland expats — naturally favor familiar Mainland brands over local Hong Kong ones. It’s a formidable headwind, and traditional stalwarts will need more than just a smaller footprint to maintain their dominance.

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China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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