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Viewing report
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China Food and Drink Report Q3 2011
Business Monitor International, May 2011, Pages: 120
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.
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