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China Food and Drink Report Q4 2009
Business Monitor International, Sep 2009, Pages: 91
The 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 light of the current economic downturn and reduced capital expenditure, we have recently cut our forecast for 2009 mass grocery retail (MGR) sales growth in China, as discussed in BMI’s recently published China Food & Drink Report for Q409. However, despite the slowing down of industry expansion, forecast sales growth and opportunities still remain impressive.
While we had initially maintained an 11.2% year-on-year (y-o-y) growth forecast for Chinese MGR sales, expecting consumer demand to remain resilient supported by aggressive discounting, we have now cut our y-o-y growth forecast to 6.9%. According to our current forecasts, total MGR sales in China are expected to grow by 66.2% to 2013. In the long term, the sector is poised to benefit spectacularly from China’s continued economic growth, while its present state of relative immaturity also allows for considerable growth opportunities.
Nevertheless, the first quarter of 2009 saw the Chinese economy grow at its slowest pace since quarterly records began in 1992 as collapsing exports and retreating consumers resulted in real GDP growth slowing to 6.1% y-o-y. Retail sales growth continued to decelerate in March, slowing to a 27-month low of 14.7% y-o-y after recording growth of 15.2% in the first two months of 2009. While this remains a fairly robust figure, it nonetheless marks a sharp slowdown from the 21.6% average growth posted in 2008 and we expect consumer spending to continue to slow throughout the rest of the year as consumers tighten their belts.
While industry news in recent years has been dominated by expansion plans, more recently a number of retailers have been closing underperforming outlets and scaling back their short-term expansion plans. For example, Japanese retailer AEON postponed by 12 months plans to increase its network to 100 stores by February 2011 (requiring 72 new openings). While AEON was quick to blame the delay on construction problems, stating it was not indicative of reduced expenditure, this move nevertheless set off alarm bells.
However, it is not all bad news, as a number of major retailers are still pushing ahead with expansion plans. Taiwan-based supermarket chain RT-Mart announced plans to launch 25 new outlets in China during 2009, and Canada’s Metro announced plans to open four new cash & carry outlets this year. Meanwhile, Dutch retailer SPAR International unveiled its ambition of becoming one of China's leading retailers, starting with plans to treble its store network and to open new distribution centres in Shandong and Guangdong. Unwilling to rest on its laurels as one of the country’s leading retailers, America’s Wal- Mart has also been steadily increasing its store network, and also announced that it is piloting a convenience store format in the country, for which we expect a rapid, widespread roll-out in the second half of the year. Therefore, despite the somewhat dampened short-tern outlook for China’s MGR sales, the long-term outlook and opportunities remain very positive.
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