China Food & Drink Report Q2 2014 - New Market Report

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 rate of expansion. Indeed, the vast size of China's consumer base, the undeveloped nature of organised retail, the relatively low penetration of services, and the 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.

Headline Industry Data

Full Report Details at
- http://www.fastmr.com/prod/779466_china_food_drink_report_q2_2014.aspx?afid=301

* 2014 food consumption local currency = +9.7%; compound annual growth rate (CAGR) forecast to 2018 = +9.4%.
* 2014 beer volume sales = +8.9%; CAGR forecast to 2018 = +8.7%.
* 2014 soft drinks volume sales = +7.4%; CAGR forecast to 2018 = +6.7%.
* 2014 mass grocery retail sales = +9%; CAGR forecast to 2018 = +9%.

Key Company Trends

Hershey Signals Intent With Chinese Acquisition: Hershey signalled its intention to increase its global exposure, the US confectionary giant agreed in January 2014 to purchase Chinese confectionary producer Shanghai Golden Monkey (SGM) in the largest acquisition of the company's history.

Infant Nutrition Firms To Benefit From Reversal Of One-Child Policy: We noted in December 2014 that the decision by China to relax its one-child policy was a major development for the dairy industry, particularly the infant formula segment. China was already the greatest global opportunity for formula, and the revision of the policy is expected to lead to an additional 2mn-3mn more births per annum, according to James Liang, a Peking University economics professor. Births in 2013 are expected to total 16mn, according to the CIA World Factbook and the UN; this development is particularly good news for market leaders such as Mead Johnson, Nestle and Danone, all of which see China as a monumental long-term opportunity.

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