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China Food and Drink Report Q1 2012
Business Monitor International, Dec 2011, Pages: 123
Business Monitor International's China Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's food and drink industry.
In the event of a pronounced correction in investment spending, a slump in exports and banking sector instability, BMI find it highly unlikely that the Chinese consumer would be able to shoulder the burden of growth. While BMI are bullish on the long-term prospects for the consumer sector, China’s domestic demand rebalancing is likely to be a long, drawn-out process. Nonetheless, the tremendous potential of the Chinese consumer market means that foreign direct investment in the Chinese consumer-facing sectors is likely to be more forthcoming over the coming years as investors look to establish a foothold.
Big consumer investor giants such as Pernod Ricard, Walmart and The Coca-Cola Company are all keen on expanding their presence in China, imbuing greater dynamism into the country’s consumerfacing sectors.
Headline Industry Data
- 2011 food consumption = +13.2%; compound annual growth rate (CAGR) forecast to 2016 = +13.7%
- 2011 alcoholic drinks value sales = +8.6%; CAGR forecast to 2016 = +7.4%
- 2011 soft drinks value sales = +8.1%; CAGR forecast to 2016 = +11.8%
- 2011 mass grocery retail sales = +11.3%; CAGR forecast to 2016 = +8.2%
Key Company Trends
Bullish Yurun And Mengniu: China-based meat processor China Yurun Food Group’s share price has yet to recover since there were massive sell-offs in its shares after rumours spread that research firm Muddy Waters may issue a negative report on the company. While BMI have a cautious outlook on Yurun’s near-term share price performance given the recent market volatility and the sustained impact of commodity price inflation, BMI are bullish on the company over the longer term. From a fundamental perspective, Yurun boasts the highest five-year compound annual average revenue growth among the selected food processing and agricultural players in China and has a healthy operating profit margin, underlining the company’s strong ability to tap the country’s burgeoning food consumption levels. BMI are also bullish on the equity performance of Mengniu. While the dairy giants Mengniu, Inner Mongolia Yili Industrial Group and Bright Dairy & Food are better placed than the smaller dairy producers to grow market share given their financial scale, BMI believe Mengniu has a sharper competitive edge than its rivals thanks to its stronger financial clout.
China Developing A Taste For Premium Alcohol: The sheer size of the Chinese market and a rapid middle class expansion mean that the country will continue to make up a sizeable proportion of the overall foreign sales for global cognac producers such as Remy Cointreau and Hennessy. Around 25% of Hennessy’s overall volumes are generated from China, and it is currently locked in a tight race with Martell for the market leadership spot in the country’s cognac market. China is also quickly developing a penchant for wine. According to a recent report released by International Wine and Spirit Research, China is set to overtake the UK in terms of still, light wine consumption within the next 12 months. Driven by China’s burgeoning appetite for alcohol, Chinese alcohol producer Jiangsu Yanghe has posted US$283mn in net profit for H111, a 69.9% year-on-year (y-o-y) rise.
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