China Food and Drink Report Q1 2013

While we are bullish on the long-term prospects for the Chinese consumer sector, the country’s domestic demand rebalancing is likely to be a long, drawn-out process. An acceleration of household spending driven by sizeable personal savings and rising wages would compensate for a reduction in capital outlay, helping to keep the economy motoring along at its current pace of expansion. Indeed, the vast size of China’s consumer base, the undeveloped nature of organised retail, relatively low penetration of services, and strong scope for premiumisation are all structural positives and underpin our view that private consumption will slowly rise as a share of nominal GDP over the next decade. However, we would take issue with the notion that this process can occur without a material slowdown in headline economic expansion.

Headline Industry Data

? 2013 food consumption = +13.3%; compound annual growth rate (CAGR) forecast to 2017 = +13.3%.

? 2013 alcoholic drinks value sales = +12.7%; CAGR forecast to 2017 = +10.8%.

? 2013 soft drinks value sales = +13.2%; CAGR forecast to 2017 = +10.7%.

? 2013 mass grocery retail sales = +9.3%; CAGR forecast to 2017 = +9.2%.

Key Company Trends

Can Kellogg's Crack China With New Venture?: US-based food firm Kellogg is hoping more Chinese consumers wake up to its breakfast cereals and consume its snacks throughout the course of the day. The firm, known for its cereal brands, has launched another attempt at cracking China, announcing in September 2012 a joint venture with Singapore's Wilmar International Limited to manufacture, sell and distribute cereals and savory snacks in China. In our view, Kellogg is most likely hoping this venture will be far more successful than its last major attempt to gain in a foothold in China; in 2008 it acquired Zhenghang Food Company, which later was acquired by Malaysia-based Munchy Group.

Hershey Looking To Expand: In September 2012, John Bilbrey, the CEO of US confectionery company Hershey, said that the company is surveying options for its next growth wave in China, where it currently operates a joint venture with the South Korean company Lotte Shopping Company. Whether Hershey goes for continuity by growing its manufacturing capacity with Lotte, or decides to go it alone by adding capacity independently, China will play a crucial role in Hershey's ongoing attempts to earn a greater contribution of its annual sales from emerging markets, which currently stands at a relatively modest 15%.

Diageo Eager For Baijiu Growth: In October 2012, drinks giant Diageo confirmed that it is on the lookout for acquisitions in the baijiu category in China, with Andrew Morgan, the firm's president for Europe, revealing that it would use its newly acquired controlling stake in Shui Jing Fang as a platform to acquire other brands.

Risks To Outlook

We expect lacklustre growth in the Chinese economy to continue. There is no sign that the global economy will pick up any time soon, with the eurozone trapped in a prolonged slump and the US muddling through at best. Returning to the hard landing checklist that we put together at the start of the year, we see a mixed but generally weak picture. On the negative side, a contraction in the manufacturing sector has clearly occurred. Problems in the banking sector also continue to be papered over by stealth bailouts, preventing greater instability but undoubtedly coming at the expense of future growth. These will inevitably weigh on consumer sentiment. Of greater concern to us is the ongoing property price correction in the country, which would not only hurt consumer confidence but also dampen consumer purchasing power. Double-digit house price declines are under way, with a slew of private sector data suggesting that there is no end to the decline in activity in the property market.

Table of contents

Chapter - BMI Industry View

Chapter - SWOT Analysis

China Food Industry SWOT

China Drink Industry SWOT

China Mass Grocery Retail Industry SWOT

Chapter - Business Environment

BMI's Core Global Industry Views

Table: Core Views

Asia Pacific Risk/Reward Ratings

Table: Food & Drink Risk/Reward Sub-Factor Ratings, Q (score out of )

Table: Asia Pacific Food & Drink Risk/Reward Ratings, Q

China Food & Drink Risk/Reward Rating

Macroeconomic Outlook

Table: Economic Activity

Chapter - Industry Forecast Scenario

Consumer Outlook

Food

Food Consumption

Table: Food Consumption Indicators - Historical Data & Forecasts, -

Canned Food

Table: Canned Food & Instant Noodle Value/Volume Sales - Historical Data & Forecasts, -

Confectionery

Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, -

Drink

Hot Drinks

Table: Hot Drinks Value/Volume Sales - Historical Data & Forecasts, -

Alcoholic Drinks

Table: Alcoholic Drinks Value/Volume Sales - Historical Data & Forecasts, -

Table: Beer Production & Trade - Historical Data & Forecasts, -

Table: Wine Production & Trade - Historical Data & Forecasts, -

Soft Drinks

Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, -

Mass Grocery Retail

Table: Mass Grocery Retail Sales – Historical Data & Forecasts, -

Trade

Table: Trade Indicators – Historical Data & Forecasts, -

Chapter - Food

Key Industry Trends And Developments

Heinz Targeting Fragmented Soy Sauce Market

Can Kellogg Finally Crack China With New Venture?

Hershey Looking To Expand

Wahaha To Copy Bright Food's International Expansion?

McCormick Targeting Most Attractive Emerging Markets

How China Slowdown Is Playing Out

Yoghurt Sales Soar, But Challenges Remain

Table: Top Producers In China's Yoghurt Sector

Opportunities In Soy Milk

Table: Top Producers In China's Soy Milk Sector

Bright Food Stretches Footprint Into Wine Sector

Dairy Sector On A Bumpy Road To Reputation Recovery

Witnessing Strong Sales Growth But A Weaker Profit Showing

China Remains An Acquisition Magnet

Market Overview

Food Production

Instant Noodles

Confectionery

Trade

Agriculture

Dairy Industry

Organics

Chapter - Drink

Key Industry Trends And Developments

Chinese Wine Producers Building Perception Through Investment

Diageo's European Push Could Be Key In Battle Of Baiju

Asian Demand Driving Rémy Cointreau

Strategic Partnership For Suntory And Tsingtao

Dynamism Brewing In Alcohol Sector

Wine Counterfeiting: The Battle Is On

Market Overview

Soft Drinks

Hot Drinks

Alcoholic Drinks

Beer

Wine

Spirits

Chapter - Mass Grocery Retail

Key Industry Trends And Developments

Tesco Slowing Expansion in China

An Increasingly Competitive Retail Landscape

Market Overview

Leading 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,

Table: Grocery Retail Sales By Type, And

Chapter - Competitive Landscape

Key Players

Table: Key Players In China's Food & Drink Sector

Table: Key Players In China's Mass Grocery Retail Sector

Chapter - Company Profiles

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

Sun Art Retail Group

Chapter - Demographic Outlook

Table: China's Population By Age Group, - (')

Table: China's Population By Age Group, - (% of total)

Table: China's Key Population Ratios, -

Table: China's Rural And Urban Population, -

Chapter - Risk/Reward Ratings Methodology

Table: Rewards

Table: Risks

Weighting

Table: Weighting

Chapter - BMI Food & Drink Industry Glossary

Food & Drink

Mass Grocery Retail

Chapter - BMI Food & Drink Forecasting & Sourcing

How We Generate Our Industry Forecasts

Sourcing

Related research categories

By sector: General drinks

By market: China (in Asia), China (in BRICM)