2018: The Rise and Fall As the year-end traditional sales peak season approaches, many categories including baijiu, milk, and beverages are seeing price increases. However, due to social upgrades and changing consumption habits, previously popular industries are now experiencing a 'continuous decline,' showing signs of slow growth or even recession. Recently, Nandu reporters reviewed multiple statistical data including China Quality Consumption Experience and found that FMCG products such as high-sugar beverages, instant noodles, biscuits, and beer were in a declining range in terms of consumption trends and production volumes last year. Industry experts point out that due to these changes in consumption trends, related FMCG industries are also adjusting to the situation, including product upgrades and price adjustments, which are current strategies adopted by the FMCG industry, especially by some major players, to cope with industry changes. According to Nandu reporters, due to changes in consumption scenarios, habits, and demographics, consumption trends for FMCG products such as biscuits and instant noodles are declining. But from the overall FMCG industry perspective, which FMCG products are experiencing declining consumption trends? In this regard, Wang Hong, Deputy Director of the User Work Department of the China Association for Quality, told Nandu reporters yesterday that the consumption trends of Chinese consumers for FMCG products in 2017 have been clearly presented in the '2017 China Quality Consumption Experience Research Results' recently released by the User Committee of the China Association for Quality. From the overall food and beverage industry perspective, the American Customer Satisfaction Index (ACSI) is higher than the China Customer Satisfaction Index (CNCSI). In other words, the extent to which Chinese food and beverage products meet customer quality needs still lags behind that of the United States. Specifically, in terms of the China Customer Satisfaction Index, biscuits/wafers, instant noodles, puffed food, carbonated beverages, tea beverages, candies, chocolate, baijiu, and beer all scored below 80 points. Among these, instant noodles, tea beverages, and puffed food scored the lowest, with scores of only 75.9, 76.2, and 77.4 points respectively. In terms of the China Customer Recommendation Index, biscuits/wafers, tea beverages, instant noodles, fruit juice, puffed food, chocolate, carbonated beverages, and candies scored below 30 points. Among them, tea beverages scored the lowest at only 19.9 points, while instant noodles, fruit juice, and chocolate also scored below 22 points. High-Sugar Beverages and Instant Noodles Recommendation Index Continues to Decline Due to the Upgrade of the Big Health Concept In fact, with the country's high emphasis on food safety, food and beverage products on the market can now meet customers' needs in terms of safety and reliability, while taste, quality, brand, and health will become the main concerns of future customers. In the view of the China Association for Quality, this trend is a manifestation of the upgrade of the big health concept into a mainstream health trend. Taking the beverage industry as an example, the association's User Committee's 2017 beverage industry consumer satisfaction survey report showed that as early as 2016, consumers' preference for high-sugar, high-calorie beverages had been continuously declining. This trend is not only occurring domestically but also abroad. Affected by consumers' growing demand for sugar-reduced products and the stimulation of bottled water and energy drinks, the $16.6 billion US fruit juice beverage industry has indeed been significantly impacted, with sales falling 7.5% year-on-year and volume declining 12% in the past year alone. Data from Chicago market research firm IRI showed that in the 52 weeks ending October 8, 2017, sales of refrigerated orange juice in all US channels contracted 4.5% year-on-year, totaling a decline of over $2.94 billion. Regarding the consumption trend of fruit juice beverages, the China Association for Quality's previous analysis stated that consumer preference and recognition have been continuously declining in recent years. For fruit juice beverages, consumers are not only more picky about taste and quality, but the development of juicers and slow juicers also gives consumers more alternatives, including the simplest and most direct option of eating fruit. Biscuits Sales Decline Due to Difficulty in Innovation and Upgrade Although changing consumption trends have had some impact on the biscuit industry, the slowdown in the domestic biscuit industry has been a consensus in recent years. Data shows that the biscuit market continuously declined in mid-2017 and the third quarter. According to the latest data from Nielsen, in the first half of 2017, the overall biscuit market sales declined 0.9% year-on-year. In the third quarter of 2017, although the overall biscuit market sales increased 1.1%, sales volume declined 2.4% year-on-year, showing a significant decline in volume. In China, Mondelez, a well-known international company whose main business is biscuits, resumed growth in the third quarter. Although its biscuit business improved, it only achieved single-digit growth. Another food giant, Master Kong, disclosed in its latest data that its convenience food business saw a 0.56% year-on-year decline in revenue in the third quarter of 2017. In addition, local listed biscuit company Jiashili Group Co., Ltd. also revealed in its 2017 interim report that total sales volume decreased by approximately 1,680 tons year-on-year. Dali Group's 2017 semi-annual report also showed that its biscuit business growth was only 4.2%. Regarding the reasons for the slowdown or even decline, Jiashili Group's management believes it is mainly due to fierce competition in the snack market and a significant decrease in consumers' overall spending. Zhu Danpeng, a commentator on China's food industry, told Nandu reporters in an interview that the decline in the biscuit industry is mainly caused by the consumption side. 'After consumption upgrade, biscuits are seen as a low-end category. The overall innovation and upgrade space for the biscuit industry is limited, but the consumption side is continuously upgrading. The innovation and upgrade of the biscuit industry cannot match the upgrade of the consumption segment, making it easily replaced. Therefore, we can see that the larger the traditional biscuit enterprise, the weaker its growth.' Beer Shift to 'Luxury' Leads to Decline in Production Nandu reporters learned that the beer industry also experienced a 'decline' this year. In the China Customer Recommendation Index, none of the 15 Chinese and foreign beer companies surveyed scored above 60 points. According to data from the National Bureau of Statistics, the total beer production in China in 2017 was 44.015 million kiloliters, a decrease of 0.7% compared to the previous year. Nandu reporters also found that beer production has been declining year after year since 2014. Compared to the peak production of 50.615 million kiloliters in 2013, last year's production decreased by 6.6 million kiloliters, a cumulative decline of about 13%. In the industry's view, the decline in production of some FMCG products is related to consumption trends and other factors, which also cause a decrease in production of some products. Does beer also exhibit such a phenomenon? Industry insiders answer in the affirmative. Zhou Maohui, President of the Beer Branch of the Guangdong Provincial Alcoholic Drinks Industry Association, told Nandu reporters that from the perspective of the entire beverage industry (including alcoholic beverages), the diversification of beverage choices at the consumer end is a factor affecting the decline in beer production. From a single industry perspective, policy factors (such as drinking restrictions), product structure adjustments, and the rise of craft beer are manifestations of the consumer market, which also have a certain impact on the decline in beer production. In the industry's view, in recent years, beer has gradually transformed from a 'fast-moving consumer good' sold in bulk in restaurants to a 'luxury item' consumed in small quantities in high-end venues and bars. The consumption scenario and attributes are undergoing a 'quiet' change. Zhu Danpeng told Nandu reporters that from the consumption side, consumers' thinking about beer consumption has changed from 'quantity' to 'quality.' From the sales terminal perspective, under the same volume, the profit returns from selling mid-to-high-end products are much higher than low-end products, which makes terminals more inclined to sell the former. 'This series of phenomena has also forced the industry to adjust towards mid-to-high gross profit products, which has led to an increasingly obvious overcapacity of mid-to-low-end products. In fact, the decline in production is more concentrated in mid-to-low-end products,' Zhu Danpeng said. Countermeasures Transformation and Upgrade Become Consensus Affected by the above changes in consumption trends, more and more enterprises are beginning to join the adjustment of product structure. Due to the impact on high-sugar beverages, more and more enterprises are now laying out low-sugar, sugar-free beverages, and functional drinks. Xiangxue Asia Beverage Company launched a new functional drink in June last year and plans to expand to the national market within five years. In addition, according to C'estbon, a company mainly engaged in packaged water, it also upgraded both the product function and brand image of its sports drink 'Magic' last year, focusing on a new product that can supplement amino acids, trying to differentiate from similar products, and increasing market channels and terminal construction. In terms of instant noodles, to cope with market changes, leading enterprises in the industry are also increasing their transformation efforts. According to a person familiar with Master Kong, the company launched 'pot-boiled ramen' in 2016, which requires cooking, and in 2017, it piloted DIY noodles in Shanghai. Unlike 'pot-boiled ramen' which uses fried noodle cakes, the noodle cakes of DIY noodles have been changed to a steaming process. According to this person, the initial product appeal of DIY noodles was not convenience but health. This product is an important new product developed by Master Kong for families pursuing quality of life, and will be launched in Guangdong and other places in 2018. Although the biscuit industry is declining, related enterprises are not 'sitting still.' A person in charge of Yujia, the company behind Royal Crown cookies, revealed that the group has introduced various biscuit categories such as thin crisps to enrich its biscuit portfolio. In marketing, it has started sports marketing and invited popular celebrity Lu Han to endorse its new biscuit brand, hoping to gain more young people's favor. He believes that against the backdrop of overall decline in the biscuit market, enterprises should compete on quality rather than quantity. It is reported that Mondelez has reshaped its biscuit business (mainly Oreo) and introduced the Belvita biscuit brand in China. Similarly, to cope with the 'dividend' brought by consumption upgrade, domestic beer giants have also begun to take action. According to previous reports by Nandu reporters, from the end of last year to early January this year, Yanjing Beer, Tsingtao Beer, and China Resources Snow have all started to raise product prices. In the industry's view, this is a price increase made by beer giants to obtain better product profit margins. Nandu reporters: Ma Jianzhong, Huang Fangfang, Beibei, intern Huang Mingyuan Longteng Source: Southern Metropolis Daily -END-