The prospect of an investment-led hard landing in China remains our overriding concern, and consumer
activity would clearly not be able to escape unscathed from a sharp correction in exports and investment
given the correlated nature of the Chinese economy. Any retrenchment in the export processing and
construction industries, which are major employers of Chinese labour, would inevitably lead to an
erosion of consumer confidence and dampen out-of-home consumption. Nonetheless, looking beyond the
near-term demand uncertainties, China remains a very attractive market for consumer-facing players as
reflected in its pole position in our risk/reward ratings. The immaturity of the Chinese market translates
into a higher-margin environment for consumer goods investors, although the rapid emergence of
competition is increasingly eroding the operating margins of domestic companies.
Headline Industry Data
An Increasingly Competitive Retail Landscape – Lawson plans to get more aggressive in its expansions
across China, with a penchant for acquisitional growth. Lawson currently has about 355 stores in China
and aims to set up around 10,000 stores by 2020. This is an ambitious goal, in our view, which probably
explains why Lawson is opting for inorganic growth in the Chinese market. Lawson is reportedly in
discussions with at least three MGR operators in China. By pursuing M&As in China, Lawson could reap
instant distribution scale and greatly expedite its expansions across the market. AEON plans to inaugurate
stores in China’s fast growing inland regions, such as Jiangsu and Zhejiang provinces. The retailer
expects to register a rise in its sales by 30 times to JPY3.6trn (US$43.79bn) in China by 2020.
Meanwhile, China-based supermarket chain Suguo Supermarket is set to more than double its
workforce in 2012 as part of its attempt to carry out a huge expansion of its store network.
Witnessing Strong Sales Growth But A Weaker Profit Showing – Chinese dairy producer China Mengniu
Dairy reported strong revenue growth of 23.5% for the year ending December 2011, in line with BMI’s
view that the company’s sturdy fundamentals would leave it strongly placed to rebuild its reputation and
outperform the broader industry. While the majority of food producers in China are struggling to contend
with the impact of inflationary pressure on their bottom lines, Mengniu has coped admirably.
The company maintained its gross profit margin at 25.7% and improved its net profit margin from 4.1% in
FY2010 to 4.3% currently. Want Want, meanwhile, reported a 31.3% increase in its overall revenues for
the year ending December 2011. However, amid an inflationary environment in 2011, Want Want’s
profitability has come under greater pressure. Although Want Want has reported a 17% increase in its
2011 profit, which was largely supported by its strong revenue growth, we observed that its gross profit
margin fell by 2.8% to 34.8% in FY2011 as it faced higher costs of key raw materials such as sugar,
wheat, palm oil and milk powder.
Risks To Outlook
We continue to expect lacklustre growth in the Chinese economy in 2012. There is no sign that the global
economy will pick up anytime 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 underway, with a slew of private sector data
suggesting that there is no end to the decline in activity in the property market.
Food and Drink Market Report of China Q3 2012
Published: June 2012 No. of Pages: 115 Price: US $ 1175
Table of Contents
activity would clearly not be able to escape unscathed from a sharp correction in exports and investment
given the correlated nature of the Chinese economy. Any retrenchment in the export processing and
construction industries, which are major employers of Chinese labour, would inevitably lead to an
erosion of consumer confidence and dampen out-of-home consumption. Nonetheless, looking beyond the
near-term demand uncertainties, China remains a very attractive market for consumer-facing players as
reflected in its pole position in our risk/reward ratings. The immaturity of the Chinese market translates
into a higher-margin environment for consumer goods investors, although the rapid emergence of
competition is increasingly eroding the operating margins of domestic companies.
Headline Industry Data
- 2012 food consumption = +12.0%; compound annual growth rate (CAGR) forecast to 2016 =
- +10.6%
- 2012 alcoholic drinks value sales = +9.5%; CAGR forecast to 2016 = +8.7%
- 2012 soft drinks value sales = +11.4%; CAGR forecast to 2016 = +8.7%
- 2012 mass grocery retail sales = +8.8%; CAGR forecast to 2016 = +7.4%
An Increasingly Competitive Retail Landscape – Lawson plans to get more aggressive in its expansions
across China, with a penchant for acquisitional growth. Lawson currently has about 355 stores in China
and aims to set up around 10,000 stores by 2020. This is an ambitious goal, in our view, which probably
explains why Lawson is opting for inorganic growth in the Chinese market. Lawson is reportedly in
discussions with at least three MGR operators in China. By pursuing M&As in China, Lawson could reap
instant distribution scale and greatly expedite its expansions across the market. AEON plans to inaugurate
stores in China’s fast growing inland regions, such as Jiangsu and Zhejiang provinces. The retailer
expects to register a rise in its sales by 30 times to JPY3.6trn (US$43.79bn) in China by 2020.
Meanwhile, China-based supermarket chain Suguo Supermarket is set to more than double its
workforce in 2012 as part of its attempt to carry out a huge expansion of its store network.
Witnessing Strong Sales Growth But A Weaker Profit Showing – Chinese dairy producer China Mengniu
Dairy reported strong revenue growth of 23.5% for the year ending December 2011, in line with BMI’s
view that the company’s sturdy fundamentals would leave it strongly placed to rebuild its reputation and
outperform the broader industry. While the majority of food producers in China are struggling to contend
with the impact of inflationary pressure on their bottom lines, Mengniu has coped admirably.
The company maintained its gross profit margin at 25.7% and improved its net profit margin from 4.1% in
FY2010 to 4.3% currently. Want Want, meanwhile, reported a 31.3% increase in its overall revenues for
the year ending December 2011. However, amid an inflationary environment in 2011, Want Want’s
profitability has come under greater pressure. Although Want Want has reported a 17% increase in its
2011 profit, which was largely supported by its strong revenue growth, we observed that its gross profit
margin fell by 2.8% to 34.8% in FY2011 as it faced higher costs of key raw materials such as sugar,
wheat, palm oil and milk powder.
Risks To Outlook
We continue to expect lacklustre growth in the Chinese economy in 2012. There is no sign that the global
economy will pick up anytime 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 underway, with a slew of private sector data
suggesting that there is no end to the decline in activity in the property market.
Food and Drink Market Report of China Q3 2012
Published: June 2012 No. of Pages: 115 Price: US $ 1175
Table of Contents
BMI Industry View 6
SWOT Analysis 8
China Food Industry SWOT ... 8
China Drink Industry SWOT .. 9
China Mass Grocery Retail Industry SWOT 10
Business Environment .. 11
BMI’s Core Global Industry Views ... 11
Table: BMI’s Core Views . 21
Asia Pacific Risk/Reward Ratings . 22
Table: Asia Pacific Food & Drink Risk/Reward Ratings, Q312... 26
China Food & Drink Risk/Reward Rating 27
Macroeconomic Outlook ... 28
Table: China Economic Activity, 2011-2016 ... 31
Industry Forecast Scenario .. 32
Consumer Outlook 32
Food .. 35
Food Consumption ... 35
Table: China Food Consumption Indicators, 2009-2016 . 36
Canned Food ... 36
Table: Canned Food And Instant Noodles, 2009-2016 37
Confectionery ... 37
Table: Confectionery, 2009-2016 39
Trade . 40
Table: Food & Drink Trade Balance, 2009-2016 41
Drink . 41
Hot Drinks ... 41
Table: Tea And Coffee, 2009-2016 .. 42
Alcoholic Drinks .. 42
Table: Alcoholic Drinks, 2009-2016 45
Table: Beer, 2009-2016 ... 45
Table: Wine, 2009-2016 ... 46
Soft Drinks ... 47
Table: Soft Drinks, 2009-2016 . 50
Mass Grocery Retail . 51
Table: MGR Sales, 2009-2016 . 53
Food 54
Key Industry Trends And Developments ... 54
China Remains An Acquisition Magnet 55
Foreign Consumer Firms Facing Expansion Headwinds . 56
Market Overview ... 57
Food Production .. 57
Instant Noodles 57
Confectionery ... 58
Trade 58
Agriculture ... 58
Dairy Industry .. 59
Organics .. 61
Drink 63
Key Industry Trends And Developments ... 63
Wine Counterfeiting: The Battle Is On . 64
Starbucks Shifting Focus To Smaller Cities . 65
Market Overview ... 66
Soft Drinks ... 66
Hot Drinks ... 68
Alcoholic Drinks .. 69
Beer . 69
Wine . 71
Spirits ... 73
Mass Grocery Retail .. 75
Key Industry Trends And Developments ... 75
An Increasingly Competitive Retail Landscape 75
Sun Art Facing Demand Headwinds, Walmart Struggling With Rising Competition ... 76
Market Overview ... 77
Leading Players ... 79
Table: Structure Of China’s Mass Grocery Retail Market By Estimated Number Of Outlets, 2004-2011 ... 80
Table: Structure Of China’s Mass Grocery Retail Market – Sales By Format, 2004-2011 (US$bn) 81
Table: Structure Of China’s Mass Grocery Retail Market – Sales By Format, 2004-2011 (CNYbn) ... 81
Table: Annual Average Store Sales By Format, 2011 .. 81
Table: Grocery Retail Sales By Type, 2012 And 2021 . 82
Competitive Landscape 83
Key Players ... 83
Table: Key Players In China’s Food & Drink Sector 2012 .. 83
Table: Key Players In China’s Mass Grocery Retail Sector 2012 ... 84
Company Profiles .. 86
Food . 86
Hsu Fu Chi ... 86
Tingyi (Cayman Islands) Holding 88
China Foods Ltd (Formerly China National Cereals Oils And Foodstuffs) . 90
Nestlé China. 93
China Mengniu Dairy Company .. 96
Drink 99
Tsingtao ... 99
Wahaha .. 101
Kweichow Moutai Co . 103
Mass Grocery Retail .. 105
Carrefour ... 105
Sun Art Retail Group . 107
Risk/Reward Ratings Methodology ... 109
Table: Rewards .. 109
Table: Risks ... 110
Weighting 110
Table: Weighting 110
BMI Food & Drink Industry Glossary 111
Food & Drink 111
Mass Grocery Retail .. 111
BMI Food & Drink Forecasting And Sources . 113
How We Generate Our Industry Forecasts 113
Sources .. 114Table: BMI''s Core Views . 21
Table: Asia Pacific Food & Drink Risk/Reward Ratings, Q312. 26
Table: China Economic Activity, 2011-2016 . 31
Table: China Food Consumption Indicators, 2009-2016 . 36
Table: Canned Food And Instant Noodles, 2009-2016 . 37
Table: Confectionery, 2009-2016 . 39
Table: Food & Drink Trade Balance, 2009-2016 . 41
Table: Tea And Coffee, 2009-2016 . 42
Table: Alcoholic Drinks, 2009-2016 . 45
Table: Beer, 2009-2016 . 45
Table: Wine, 2009-2016 . 46
Table: Soft Drinks, 2009-2016 . 50
Table: MGR Sales, 2009-2016 . 53
Table: Structure Of China''s Mass Grocery Retail Market By Estimated Number Of Outlets, 2004-2011 . 80
Table: Structure Of China''s Mass Grocery Retail Market – Sales By Format, 2004-2011 (US$bn). 81
Table: Structure Of China''s Mass Grocery Retail Market – Sales By Format, 2004-2011 (CNYbn) . 81
Table: Annual Average Store Sales By Format, 2011 . 81
Table: Grocery Retail Sales By Type, 2012 And 2021 . 82
Table: Key Players In China''s Food & Drink Sector 2012 . 83
Table: Key Players In China''s Mass Grocery Retail Sector 2012 . 84
Table: Rewards . 109
Table: Risks . 110
Table: Weighting. 11
SWOT Analysis 8
China Food Industry SWOT ... 8
China Drink Industry SWOT .. 9
China Mass Grocery Retail Industry SWOT 10
Business Environment .. 11
BMI’s Core Global Industry Views ... 11
Table: BMI’s Core Views . 21
Asia Pacific Risk/Reward Ratings . 22
Table: Asia Pacific Food & Drink Risk/Reward Ratings, Q312... 26
China Food & Drink Risk/Reward Rating 27
Macroeconomic Outlook ... 28
Table: China Economic Activity, 2011-2016 ... 31
Industry Forecast Scenario .. 32
Consumer Outlook 32
Food .. 35
Food Consumption ... 35
Table: China Food Consumption Indicators, 2009-2016 . 36
Canned Food ... 36
Table: Canned Food And Instant Noodles, 2009-2016 37
Confectionery ... 37
Table: Confectionery, 2009-2016 39
Trade . 40
Table: Food & Drink Trade Balance, 2009-2016 41
Drink . 41
Hot Drinks ... 41
Table: Tea And Coffee, 2009-2016 .. 42
Alcoholic Drinks .. 42
Table: Alcoholic Drinks, 2009-2016 45
Table: Beer, 2009-2016 ... 45
Table: Wine, 2009-2016 ... 46
Soft Drinks ... 47
Table: Soft Drinks, 2009-2016 . 50
Mass Grocery Retail . 51
Table: MGR Sales, 2009-2016 . 53
Food 54
Key Industry Trends And Developments ... 54
China Remains An Acquisition Magnet 55
Foreign Consumer Firms Facing Expansion Headwinds . 56
Market Overview ... 57
Food Production .. 57
Instant Noodles 57
Confectionery ... 58
Trade 58
Agriculture ... 58
Dairy Industry .. 59
Organics .. 61
Drink 63
Key Industry Trends And Developments ... 63
Wine Counterfeiting: The Battle Is On . 64
Starbucks Shifting Focus To Smaller Cities . 65
Market Overview ... 66
Soft Drinks ... 66
Hot Drinks ... 68
Alcoholic Drinks .. 69
Beer . 69
Wine . 71
Spirits ... 73
Mass Grocery Retail .. 75
Key Industry Trends And Developments ... 75
An Increasingly Competitive Retail Landscape 75
Sun Art Facing Demand Headwinds, Walmart Struggling With Rising Competition ... 76
Market Overview ... 77
Leading Players ... 79
Table: Structure Of China’s Mass Grocery Retail Market By Estimated Number Of Outlets, 2004-2011 ... 80
Table: Structure Of China’s Mass Grocery Retail Market – Sales By Format, 2004-2011 (US$bn) 81
Table: Structure Of China’s Mass Grocery Retail Market – Sales By Format, 2004-2011 (CNYbn) ... 81
Table: Annual Average Store Sales By Format, 2011 .. 81
Table: Grocery Retail Sales By Type, 2012 And 2021 . 82
Competitive Landscape 83
Key Players ... 83
Table: Key Players In China’s Food & Drink Sector 2012 .. 83
Table: Key Players In China’s Mass Grocery Retail Sector 2012 ... 84
Company Profiles .. 86
Food . 86
Hsu Fu Chi ... 86
Tingyi (Cayman Islands) Holding 88
China Foods Ltd (Formerly China National Cereals Oils And Foodstuffs) . 90
Nestlé China. 93
China Mengniu Dairy Company .. 96
Drink 99
Tsingtao ... 99
Wahaha .. 101
Kweichow Moutai Co . 103
Mass Grocery Retail .. 105
Carrefour ... 105
Sun Art Retail Group . 107
Risk/Reward Ratings Methodology ... 109
Table: Rewards .. 109
Table: Risks ... 110
Weighting 110
Table: Weighting 110
BMI Food & Drink Industry Glossary 111
Food & Drink 111
Mass Grocery Retail .. 111
BMI Food & Drink Forecasting And Sources . 113
How We Generate Our Industry Forecasts 113
Sources .. 114Table: BMI''s Core Views . 21
Table: Asia Pacific Food & Drink Risk/Reward Ratings, Q312. 26
Table: China Economic Activity, 2011-2016 . 31
Table: China Food Consumption Indicators, 2009-2016 . 36
Table: Canned Food And Instant Noodles, 2009-2016 . 37
Table: Confectionery, 2009-2016 . 39
Table: Food & Drink Trade Balance, 2009-2016 . 41
Table: Tea And Coffee, 2009-2016 . 42
Table: Alcoholic Drinks, 2009-2016 . 45
Table: Beer, 2009-2016 . 45
Table: Wine, 2009-2016 . 46
Table: Soft Drinks, 2009-2016 . 50
Table: MGR Sales, 2009-2016 . 53
Table: Structure Of China''s Mass Grocery Retail Market By Estimated Number Of Outlets, 2004-2011 . 80
Table: Structure Of China''s Mass Grocery Retail Market – Sales By Format, 2004-2011 (US$bn). 81
Table: Structure Of China''s Mass Grocery Retail Market – Sales By Format, 2004-2011 (CNYbn) . 81
Table: Annual Average Store Sales By Format, 2011 . 81
Table: Grocery Retail Sales By Type, 2012 And 2021 . 82
Table: Key Players In China''s Food & Drink Sector 2012 . 83
Table: Key Players In China''s Mass Grocery Retail Sector 2012 . 84
Table: Rewards . 109
Table: Risks . 110
Table: Weighting. 11
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