Brokerage Report

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The following is the Report on China’s beverage industry in 2020 From Puyin International recommended by And this article belongs to the classification: Brokerage Report.

China’s beverage industry is a trillion level scale, with long slopes and thick snow. The future growth is mainly driven by product upgrading and category change. The single product strategy is no longer applicable. Beverage enterprises need to rely on product and category matrix to grasp the opportunity of category change, expand market share and enhance industry position. Under the trend of de saccharification and high-end beverage consumption, we are particularly optimistic about the three subdivisions: natural water and natural mineral water (lifestyle upgrade, pay attention to the source); sugar free tea (the general trend); bubble water (increasingly popular). In addition to strengthening channel penetration and new product development, in the long run, we expect that local head companies with abundant free cash flow will seek more M & A transactions, with extended growth to enhance revenue growth. It is suggested that investors should arrange all categories, all channels, R & D and marketing strength, or have the leading edge in the trend category. Buy new products (hk.962), focus on new products (hk.962; focus on new products in China), and focus on the cultivation of new products (hk.322; focus on the cultivation of new products in China).

Trillions of market competition is fierce, trend category is the winner’s fertile land

China’s beverage market has reached the level of trillion, which is an important component of the large consumption industry. The track is spacious and competitive. We believe that under the main trend of de saccharification and high-end, timely layout and grasping the opportunity of category change are the key to the continuous expansion of market share and promotion of ranking of beverage enterprises.

Scale and growth rate. According to Frost & Sullivan, the retail sales of China’s beverage market will reach RMB 991.4 billion in 2019, and the market capacity is expected to exceed RMB 1.3 trillion in 2024, with a five-year compound annual growth of 5.9% from 2019 to 24 (consistent with the compound annual growth of 2014-19). Among them, sugar free tea, coffee drinks, natural water and natural mineral water have become the fastest growing beverage sub categories. Frost & Sullivan predicts that their five-year compound annual growth rates from 2019 to 24 will reach 22.9%, 20.8% and 14.9% respectively. We believe that this fully demonstrates the core consumption trend of de saccharification and high-end in China’s beverage market.

Category structure and our preferences. Packaged drinking water is currently the largest category in China’s beverage market. According to Frost & Sullivan, packaged drinking water accounts for more than 20% in 2019 (expected to exceed 25% in 2024); according to Euromonitor, packaged drinking water accounts for nearly 35% of the total beverage market in 2019. The second category is tea drinks, while other categories include juice, carbonated drinks and energy drinks. We are optimistic about the trend of sub categories include: 1, natural water and natural mineral water (income increase, more emphasis on water, praise pure natural, no additives; the proportion of home consumption increased); 2, sugar free tea (health awareness increased; the general trend); 3, bubble water (Health demands superimposed higher taste requirements, increasingly popular); 4, coffee (from style consumption to daily consumption), etc.

Channel structure. In China’s beverage market, the proportion of traditional channels is still the largest, but its importance is gradually declining (49% in 2014: 44% in 2019). Frost & Sullivan predicts that the proportion of traditional channels will further drop to 38% in 2024, while the proportion of supermarket convenience stores, e-commerce, express and emerging channels will rise (it is expected to increase from 42% in 2019 to 47% in 2022), and the catering channel will stabilize at 14-15%.

Market concentration. According to Frost & Sullivan’s statistics of retail sales in 2019, the market share of the top five and top ten enterprises is 30.9% and 42.5% respectively. In our opinion, the reason why the overall concentration is not high and the number of seats changes frequently is that none of the beverage enterprises keep leading in all beverage categories. By category, carbonated drinks (duopoly: Coca Cola and Pepsi) and tea drinks (top three: Master Kang, Tongyi and nongnongnong Shanquan) are highly concentrated, while fruit juice drinks are the most dispersed (low and medium concentration juice growth is weak, NFC juice is still under cultivation, and there is no absolute winner in the juice market).

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