How L Catterton could turn Chinese brands into global powerhouses

As luxury group LVMH navigates a slowdown in China’s luxury market, L Catterton – the private equity firm LVMH formed with Catterton and Groupe Arnault in 2016 – has been significantly bolstering its presence in the region. Through strategic investments made in 2023 and 2024, L Catterton is providing LVMH with a crucial avenue to strengthen its influence and mitigate the challenges posed by a slowdown in luxury consumption. Deploying capital from its Asia fund as well as the RMB-denominated fund it established in 2022, L Catterton has rapidly accelerated its investment in homegrown Chinese brands. For example, L Catterton's Asia fund has taken stakes in companies like plant-based protein drink maker Viee (2024), soft drink brand Genki Forest (2021), premium tea chain Heytea (2021), pet food brands Partner Pet (2023), beauty brand Marubi (2013). L Catterton also acquired a majority position in Shanghai-based gym chain Will’s (2018) and minority stakes in outdoor advertising firm Asiaray (2015) and luxury e-commerce platform Secoo (2019). Meanwhile, the newer RMB-denominated fund invested in collagen company Trautec Medical in 2023. This investment strategy stands out for two reasons: it prioritizes accessible consumer brands over the traditional high-end luxury types in LVMH’s portfolio, and targets growing segments like beauty, personal care, pet care, fitness, and food and beverage – all areas where LVMH’s expertise can make a significant impact. A pathway to go global L Catterton’s financial backing enables Chinese portfolio brands to grow domestically while paving the way for global expansion. This strategy benefits the Chinese brands and indirectly provides LVMH with a strong hedge against luxury market volatility. A prime example of this is L Catterton’s 2021 investment in popular Shenzhen-based tea chain Heytea, which has helped fuel Heytea’s global expansion beyond its network of more than 3,400 stores in Greater China. Today, Heytea operates international outposts in Australia, Canada, Malaysia, Singapore, South Korea, the UK, and the US, and recently launched a Paris pop-up to capitalize on the Paris 2024 Olympics. Heytea’s global expansion is notable for its dual focus: targeting overseas Chinese communities in places like London’s Chinatown and Flushing in New York City, while also establishing a presence in high-profile areas like Mayfair and Soho in London, New York’s Times Square, and Seoul’s Gangnam district. This strategy broadens Heytea’s appeal among locals unfamiliar with Chinese tea or brands, and enhances its prestige within China. This international expansion is crucial as Heytea faces stiff competition at home. Despite its robust growth, Heytea has struggled to keep up with Mixue Ice Cream & Tea, which has opened 15,000 stores in the past 18 months, bringing its total to over 36,000 outlets. Similarly, competitors like bubble tea chain GoodMe, ChaPanda, and Auntea Jenny are rapidly expanding, each pursuing IPOs to capitalize on their respective 9,000, 7,900, and 7,600-store footprints. Additionally, Shanghai-based Chagee has overtaken Heytea in store count, opening 3,500 locations across China, Malaysia, Thailand, and Singapore in the past 18 months. Given these domestic challenges, the credibility and buzz generated from Heytea’s global expansion are vital. Over the past two years, successful collaborations with global names like Japanese streetwear brand Fragment Design (2022), Finnish textile and home furnishing brand Marimekko (2024), British bicycle-maker Brompton (2024), and LVMH-owned Fendi (2023) have helped Heytea position itself as not just a drinks company but an aspirational lifestyle brand on the global stage. Having already rolled out a successful collaboration with Fendi, Heytea could replicate this model with other LVMH brands, much like Chinese coffee chain Manner did last year with Louis Vuitton. This strategy could help Heytea build its reputation among global audiences and stand out from its domestic competitors, just as it helps LVMH promote its brands to a younger Chinese audience. How does it benefit LVMH? L Catterton’s investment strategy in China aligns with LVMH’s need to cultivate new consumer bases, compete with Kering and Richemont, and secure its position in less saturated markets. By focusing on early-stage consumer brands in the beauty, personal care, and food and beverage sectors, L Catterton is laying the groundwork for these companies to achieve both domestic dominance and global scale. For LVMH, these investments act as a strategic hedge against luxury market volatility, both in China and globally. By diversifying into high-growth consumer segments in China, LVMH can stabilize revenue streams and reduce reliance on high-end luxury sales, which are more vulnerable to economic fluctuations. More importantly, L Catterton’s involvement in emerging Chinese brands provides LVMH with valuable insights into the trends and innovations shaping one of the world’s biggest and most influential markets. By supporting the international expansion of brands like Heytea, LVMH taps into new demographics and geographies, integrating these emerging brands into its global luxury ecosystem. This approach elevates Chinese brands on the international stage while enriching LVMH’s portfolio with partnerships that resonate with younger, more diverse consumer groups across the globe. It’s a simple yet effective approach: LVMH leverages L Catterton’s strategic investments to secure a competitive edge by promoting high-potential Chinese brands. This approach not only strengthens their influence in China, but also drives global innovation, keeping LVMH ahead of rivals like Kering and Richemont.

How L Catterton could turn Chinese brands into global powerhouses

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Published August 20, 2024

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How L Catterton could turn Chinese brands into global powerhouses