China's F&B sector growth to slow on back of soft economy

Despite the anticipated slowdown, the F&B sector continues to exhibit robust growth.

China's food and beverage (F&B) sector is expected to experience a slowdown in sales growth, dropping to 5% in 2024 from 6.3% in the previous year.

According to S&P Global Ratings’ China Food And Beverage: A Soft Economy Can't Derail The Sector's Solid Growth report, despite the anticipated slowdown, the F&B sector continues to exhibit robust growth, surpassing its forecasted growth rate of 4% to 5% for China's retail sales.

The strong growth in the sector is attributed to increased consumption, driven by a surge in leisure activities such as outdoor adventures and travel.

Except for China Mengniu Dairy Co. Ltd., most rated F&B and catering firms demonstrate substantial rating headroom, supported by improving cash flow and leverage. 

Deflationary trends in raw material costs for packaged food and dairy are also expected to partially offset margin pressures from consumer downtrading. 

Whilst upstream suppliers like hog producers and dairy farmers may experience squeezed margins and cash flows, downstream producers stand to benefit from reduced input costs.

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Moreover, the health and wellness trend continues to gain traction post-pandemic, with consumers showing a preference for non-sugary beverages and immunity-boosting supplements. 

The supplements market in China is anticipated to see normalized but robust growth in the high single digits, following a record-high growth in 2023. 

Restaurant sales are also projected to grow by 6.5% in 2024, outpacing other F&B categories. The growth is attributed to a surge in dining out and increased demand for food delivery services.