China Food and Drink Report Q4 2011

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China Food and Drink Report Q4 2011 Published on September 2011

Report Summary We maintain our view of a slowdown in domestic demand in China over the latter half of 2011. Inflationary pressures are proving stickier than we previously expected, prompting local consumers to keep their purse strings tighter over the coming quarters. Our Country Risk team is expecting price declines in the Chinese property market over the medium term, which would provide another negative impetus to consumer spending. Despite our relatively subdued outlook in China's near-term domestic demand, we stress that the country's domestic demand prospects still compare very favourably to its regional peers, underlining the strong rewards on offer. Over the next decade, we expect FDI in the Chinese consumer-facing sectors to be more forthcoming as investors look to establish a foothold. Big names 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 consumer-facing sectors. Headline Industry Data - 2011 Food consumption = +13.2%; CAGR forecast to 2015 = +14.7% - 2011 Alcoholic drinks value sales = +9.6%; CAGR forecast to 2015 = +8.9% - 2011 Soft drinks value sales = +15.0%; CAGR forecast to 2015 = +15.1% - 2011 Mass grocery retail sales = +11.3%; CAGR forecast to 2015 = +11.0% Key Company Trends China Garnering Strong Attraction From Multinationals: Swiss food giant Nestlé has launched a US$1.7bn offer for a 60% stake in Chinese snack and candy producer Hsu Fu Chi. By acquiring Hsu Fu Chi, Nestlé would be able to develop a stronger presence in the Chinese confectionery market, where it could subsequently launch an expansion push into the other Asian markets. Should Nestlé launch an offer for Hsu Fu Chi, the acquisition may receive regulatory scrutiny from the Chinese authorities given the massive size of the deal. Also looking to capitalise on the Chinese consumer growth story, Yum! Brands, a major multinational fast food chain, is planning to acquire all outstanding shares in the Chinese hotpot restaurant operator Little Sheep to further expand its Chinese presence. Banking On Dynamic Value Sales Growth In Chinese Alcohol: Trans-Asian brewer Asia Pacific Breweries (APB) plans to offload its stakes in Chinese brewers Jiangsu DaFuHao Breweries and Shanghai Asia Pacific Brewery to China Resources Snow Breweries for SGD162mn (US$133mn) as it looks to put itself in the best possible position to benefit from a rapidly accelerating premiumisation momentum in the country. Meanwhile, Belgium-based brewer Anheuser-Busch InBev (AB InBev) has plans to broaden the distribution of beer brand Stella Artois in China as it looks to grow its presence in one of the most dynamic growth opportunities worldwide. By concentrating the distribution of Stella Artois in the urban cities of Beijing, Shanghai and Guangzhou, AB InBev is going for the top-end of the market, where very dynamic momentum in middle-class evolution is quickly fuelling consumers' appetite for higher-value products and super-premium brands.

Table of Content BMI Industry View .... 7 SWOT Analysis 9 China Food Industry SWOT ....... 9

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>> Get this Report Now by email! China Drink Industry SWOT .... 10 China Mass Grocery Retail Industry SWOT ....... 11 Business Environment ... 12 BMI's Core Global Industry Views ........ 12 Table: BMI's Core Views For The Food & Drink Industry .. 19 Asia Pacific Risk/Reward Ratings . 20 Table: Asia Pacific Food & Drink Risk/Reward Ratings ' Q4 2011........ 24 China Food & Drink Risk/Reward Rating ...... 25 Macroeconomic Outlook ...... 26 Table: China - Economic Activity ..... 28 Industry Forecast Scenario ...... 29 Consumer Outlook ...... 29 Food. 34 Food Consumption . 34 Table: Food Consumption Indicators ' Historical Data & Forecasts ..... 35 Canned Food 35 Table: Canned Food ' Historical Data & Forecasts ... 36 Instant Noodles ...... 36 Table: Instant Noodles ' Historical Data & Forecasts 37 Confectionery 37 Table: Confectionery ' Historical Data & Forecasts .. 39 Trade ........ 40 Table: Food & Drink Trade Balance ' Historical Data & Forecasts ...... 41 Drink 41 Hot Drinks .... 41 Table: Hot Drinks ' Historical Data & Forecasts ....... 42 Table: Tea ' Historical Data & Forecasts. 43 Alcoholic Drinks .... 44 Table: Alcoholic Drinks ' Historical Data & Forecasts ....... 46 Table: Beer ' Historical Data & Forecasts ........ 46 Table: Wine ' Historical Data & Forecasts ...... 47 Soft Drinks .... 47 Table: Soft Drinks ' Historical Data & Forecasts ....... 48 Table: Carbonated Soft Drinks ' Historical Data & Forecasts ...... 49 Mass Grocery Retail ... 49 Table: Grocery Retail Sales by Format ..... 52 Table: Mass Grocery Retail Indicators ' Historical Data & Forecasts ... 52 Food ....... 53 Key Industry Trends and Developments . 53 China Garnering Strong Attraction From Multinationals..... 53 Domestic Players Increasingly Looking Offshore ........ 54 A Mixed Bag Of Results .. 54 Market Overview ........ 55 Food Production .... 55 Instant Noodles ...... 56 Confectionery 56 Trade ... 57 Agriculture .... 57

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>> Get this Report Now by email! Rice Production ..... 58 Dairy Industry ........ 59 Organics ....... 61 Drink ...... 62 Key Industry Trends and Developments . 62 Banking On Dynamic Value Sales Growth In Chinese Alcohol ...... 62 Expansions Will Not Be All Plain Sailing For Multinationals ........ 63 Hot Drinks And Soft Drinks Sectors Attracting Investments . 63 Market Overview ........ 64 Soft Drinks .... 64 Hot Drinks .... 67 Alcoholic Drinks .... 68 Beer ..... 68 Wine ..... 69 Spirits... 69 Mass Grocery Retail ........ 71 Key Industry Trends and Developments . 71 Sun Art's Strong Debut Reflects Investor Appetite ....... 71 Multinational And Domestic Retailers Building A Stronger Presence In China ........ 72 Carrefour's Woes In China To Hamper Its EM Ambitions ... 73 Market Overview ........ 73 Leading MGR Players .... 75 Table: Structure of China's Mass Grocery Retail Market ' Estimated Number of Outlets . 77 Table: Structure of China's Mass Grocery Retail Market ' Sales by Format (US$bn) ....... 77 Table: Structure of China's Mass Grocery Retail Market ' Sales by Format (CNYbn) ...... 77 Table: Annual Average Store Sales by Format ' 2010 77 Competitive Landscape .. 78 Key Players ........ 78 Table: Key Players in China Food & Drink Sector ..... 78 Table: Key Players in China's Mass Grocery Retail Sector . 79 Company Analysis....... 80 Food .... 80 Hsu Fu Chi ... 80 Tingyi (Cayman Islands) Holding ..... 83 China Foods Ltd (Formerly China National Cereals Oils And Foodstuffs) ...... 86 NestlĂŠ China . 90 China Mengniu Dairy Company ....... 93 Drink .... 96 Tsingtao ........ 96 Wahaha 98 Kweichow Moutai Co.....101 Mass Grocery Retail ......103 Carrefour .....103 Lianhua Supermarket Holdings .......105 BMI Methodology . 108 Food & Drink Business Environment Ratings ........108 Table: Returns ......109 Table: Risks .110

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>> Get this Report Now by email! Weighting .110 Table: Weighting ..111 How We Generate Our Industry Forecasts ....112 Sourcing .......113 BMI Food & Drink Industry Glossary ..114 Food & Drink .......114 Mass Grocery Retail ......114

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