China Food and Drink Report Q3 2011

Stubborn inflationary pressures and expected weakness in the Chinese property market are preventing the country’s domestic demand sector from realising its full potential in 2011. While China’s near-term domestic demand prospects look bright, particularly when compared to the region’s emerging market economies, the continued intensity of inflation is already filtering through to lower consumer confidence, pointing towards a moderation of consumer spending growth over the coming quarters. Longer term, China remains the envy of many in terms of domestic demand potential and will continue to feature strongly on investors’ radars, thanks to the country’s favourable demographic profile and dynamic economic growth. Indeed, bearing out the attractiveness of the Chinese consumer story, big consumer goods players like Wahaha, Unilever and Yum Brands have all expressed their intentions of establishing a stronger foothold in the market.

Headline Industry Data

- 2011 Food consumption = +17.2%; forecast to 2015 = +79.2%
- 2011 Alcoholic drinks sales = +16.1%; forecast to 2015 = +64.2%
- 2011 Soft drinks sales = +16.7%; forecast to 2015 = +61.1%
- 2011 Mass grocery retail sales = +11.3%; forecast to 2015 = +51.6%

Key Company Trends
Drinks Producers Stretching Their Footprint To The Retail Sector – With ambitions to become one of the world's top 500 companies within the next five years, Chinese soft drinks producer Wahaha plans to open 100 department stores in the country to contend with China's distribution challenges. By setting up its own retail stores, Wahaha is looking to gain better control over the distribution of its products and better entrench its products across the country. Similarly, looking to address the distribution challenges in the Chinese market, New Zealand dairy producer Natural Dairy Holdings is planning to launch a chain of around 3,000 stores across China.

China Featuring Strongly On Investors’ Radars – Anglo-Dutch conglomerate Unilever launched CNY300mn (US$45.8mn) worth of yuan-denominated bonds in Hong Kong as it prepares to beef up its presence in China. With China being a key emerging market for Unilever, the company clearly wants to entrench itself deeper in the Chinese market and is expected to plough in the proceeds from its bond issue to support its expansionary ambitions. Multinational fast food player Yum Brands is eyeing a stronger foothold in China as well. Yum Brands is to divest its Long John Silver and A&W All-American Food restaurants in the US and will deploy the freed-up capital towards its business expansion in China.

Key Risks To Outlook
Sticky Inflationary Pressures – Stubborn consumer price inflation is a risk to our near-term consumer outlook. Fast-accelerating food inflation remains the primary driver of headline inflation and these sticky inflationary pressures could potentially discourage consumer spending in food and drink products. More worrisome, however, is the prospect of an extended monetary tightening cycle into H211. Should inflationary pressures remain elevated and consequently prompt the People’s Bank of China to engage in further monetary tightening in H211, discretionary spending will take a strong hit. SHOW LESS READ MORE >

BMI Industry View

SWOT Analysis
China Food Industry SWOT
China Drink Industry SWOT
China Mass Grocery Retail Industry SWOT

BMI Business Environment Ratings

BMI’s Core Global Industry Views
Table: BMI Food & Drink Core Views
Asia Pacific Risk/Reward Ratings

Table: Asia Pacific Food & Drink Risk/Reward Ratings -Q3 2011
China Food & Drink Risk/Reward Rating

Macroeconomic Outlook

Table: China – Economic Activity

Industry Forecast Scenario

Consumer Outlook
Food
Food Consumption
Table: China Food Consumption Indicators - Historical Data & Forecasts
Canned Food
Table: China Food Sub-sectors - Historical & Forecast Sales Data
Instant Noodles
Table: China Food Sub-sectors - Historical & Forecast Sales Data
Confectionery
Table: China Confectionery Sub-sectors - Historical & Forecast Sales Data
Trade
Table: China Food & Drink Trade Balance - Historical Data & Forecasts
Drink
Hot Drinks
Table: China Beverage Industry Sub-Sectors - Historical & Forecast Sales Data
Alcoholic Drinks
China Beverage Industry Sub-Sectors - Historical & Forecast Sales Data
Soft Drinks
Table: China Beverage Industry Sub-Sectors - Historical & Forecast Sales Data

Mass Grocery Retail
Table: China MGR Retail Indicators - Historical Data & Forecasts
Table: Grocery Retail Sales by Format - Historical Data & Forecasts
Food

Key Industry Trends and Developments

Yum Well-Entrenched In China’s Exciting Domestic Demand Story
Dairy Sector Blighted By Safety Scandals, But Long-Term Outlook Still Bright
China Featuring Strongly On Investors’ Radars
Bright Food Struggling To Satisfy Its Global Ambitions

Market Overview
Food Production
Instant Noodles
Confectionery
Trade
Agriculture
Rice Production
Dairy Industry
Organics
Drink
Key Industry Trends and Developments
Wahaha Diversifying Beyond The Drinks Sector
Gradual Consolidation Of Chinese Beer Sector Remains In Play
Rising Production Costs Feeding Into Higher Prices
China Growing Its Appetite For Higher-Value Brands

Market Overview
Soft Drinks
Hot Drinks
Alcoholic Drinks
Beer
Wine
Spirits

Mass Grocery Retail
Key Industry Trends and Developments
Carrefour’s Woes In China To Hamper Its Emerging Market Ambitions
China Figuring Prominently On Retailers’ Radars
Foreign Retailers Plagued With Negative Publicity
Market Overview
Leading MGR Players
Table: Structure of China's Mass Grocery Retail Market by Estimated Number of Outlets
Table: Structure of China's Mass Grocery Retail Market - Sales by Format (US$bn)
Table: Structure of China's Mass Grocery Retail Market - Sales by Format (CNYbn)
Table: Annual Average Store Sales by Format - 200

Competitive Landscape
Consumer Share Price Analysis
Table: Shanghai Consumer Index Breakdown and RHS: Hang Seng Consumer Index Breakdown (Top Ten Companies)

Key Players
Table: Key Players in China Food & Drink Sector - 201
Table: Key Players in China's Mass Grocery Retail Sector - 201
Company Analysis
Food

Hsu Fu Chi
Tingyi (Cayman Islands) Holding
China Foods Ltd (Formerly China National Cereals Oils And Foodstuffs)
Nestlé China
China Mengniu Dairy Company

Drink
Tsingtao
Wahaha
Kweichow Moutai Co

Mass Grocery Retail

Carrefour
Lianhua Supermarket Holdings

BMI Methodology
Food & Drink Business Environment Ratings
Table: Returns
Table: Risks
Weighting
Table: Weighting
How We Generate Our Industry Forecasts
Sourcing

BMI Food & Drink Industry Glossary

Food & Drink
Mass Grocery Retail

- Hsu Fu Chi
- Tingyi (Cayman Islands) Holding
- China Foods Ltd (Formerly China National Cereals Oils And Foodstuffs)
- Nestlé China
- China Mengniu Dairy Company
- Tsingtao
- Wahaha
- Kweichow Moutai Co
- Carrefour
- Lianhua Supermarket Holdings