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Given the high savings rate of the Chinese consumer, private consumption will be an outperformer to the manufacturing, investment and external sectors of China in 2012. A high savings rate means that the household sector is relatively well cushioned from any negative economic shock to the investment sector, and consumer spending should stay relatively firm. That said, the consumer will not emerge unscathed from the economic downturn as the negative shock to housing wealth is likely seriously to subdue domestic demand growth. 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 companies such as SABMiller, Wal-Mart and Nestlé are all keen on expanding their presence in China, which will imbue greater dynamism into the countrys consumer-facing sectors.

Headline Industry Data

- 2012 food consumption = +12.5%; compound annual growth rate (CAGR) forecast to 2016 = +11.1%
- 2012 alcoholic drinks value sales = +8.9%; CAGR forecast to 2016 = +8.9%
- 2012 soft drinks value sales = +10.7%; CAGR forecast to 2016 = +8.7%
- 2012 mass grocery retail sales = +9.3%; CAGR forecast to 2016 = +7.4%

Key Company Trends

2012 A More Challenging Year For Domestic Dairy Producers

With elevated raw material costs continuing to put pressure on their bottom line, major Chinese dairy companies such as Mengniu and Beijing Sanyuan Foods have introduced price hikes in a bid to protect their profit margins. The introduction of price increases by some of the major Chinese dairy producers would compound pressures on the sector, which was recently impacted by a milk contamination scandal at Mengniu. In December, excessive toxin levels were discovered in a batch of Mengnius milk products, which was attributed to mouldy fodder fed to its milk cows. Although no other cases of milk contamination have been reported, Mengnius contamination incident inevitably triggered ripple effects through the Chinese dairy industry, with consumers raising doubts about the reliability of domestically produced dairy products. With higher prices of domestic dairy brands and heightened consumer sensitivity over product quality of domestically produced consumer goods, China could potentially see a greater influx of foreign dairy brands in 2012.

Banking On Premiumisation Dynamics

UK alcohol giant SABMiller plans to trial its international premium beer brand Miller Genuine Draft in China through its local joint venture CR Snow Breweries as it seeks to ride on the countrys growing premiumisation trend. Although CR Snow does not yet possess a nationwide presence across China, we believe its previous efforts to expand distribution and strengthen market position have put it in a favourable position to pursue growth in the premium beer market segment. Also looking to ride on the growing premiumisation momentum in China, Dutch brewer Heineken is to concentrate on promoting its premium beer in order to maximise profits.

Click for Report details:China Food and Drink Report Q2 2012