1、 Event overview
On December 23, Zhejiang Guyuelongshan Shaoxing Wine Co.Ltd(600059) announced a price increase of 5% – 20%; In December 25th, the price of Baijiu rose 20-50 yuan per bottle. Previously, many food and beverage companies such as Foshan Haitian Flavouring And Food Company Ltd(603288) , Sanquan Food Co.Ltd(002216) , Zhengzhou Qianweiyangchu Food Co.Ltd(001215) , Chacha Food Company Limited(002557) , Shanghai Bairun Investment Holding Group Co.Ltd(002568) announced price increases.
2、 Analysis and judgment
The rise in operating costs is the direct cause of this round of “price rise”
We believe that there are three main reasons for this round of product price rise: first, the rise in the price of raw and auxiliary materials is a direct driving factor. The epidemic affected the global supply chain system and the inflation spillover of fiscal and monetary easing in European and American countries, resulting in a sharp rise in the prices of upstream bulk raw materials and energy, For example, the prices of palm oil (up + 27.81% year to date, the same below), molasses (+ 23.14%), sunflower seeds (+ 39.39%) and other raw materials have increased significantly, while the prices of corrugated paper (+ 20.66%), pet plastics (+ 58.76%) and other packaging materials have also increased significantly. Superimposed with the increase of labor and transportation costs, the operating costs of enterprises are significantly under pressure, and it is expected to relieve the pressure by raising prices.
Second, enterprises take the initiative to get out of the “price war” and pursue high-quality development: for example, the competition pattern of dairy products, beer and other industries is stable, the channel competition tends to ease, low-cost and high-cost channels such as community group purchase and live delivery return to rationality, and the cost investment is more efficient. For example, the sales cost rates of Yili and Mengniu in the first three quarters of 2021 decreased by 1.83pct/2.57pct respectively year-on-year.
Third, the independent choice of brand positioning strategy in market competition. The long-term trend of upgrading the consumption demand side of Chinese residents remains unchanged, and the short-term difficulties will also be overcome. With more full employment of residents and the improvement of disposable income in the future, it will inevitably lead to the continuous growth of consumption capacity. Each brand will adjust its price strategy according to its own strategic positioning.
The price increase of head brands may have a demonstration effect. Under the overall recovery of consumption, the industry is structurally prosperous
The price increase of industry leading brands may drive relevant enterprises in the industrial chain to follow. More enterprises have the expectation of price increase, but it is also necessary to consider the balance between enterprise cost and market demand. Enterprises with bargaining power will benefit more and continue to pay attention to the price increase. The recent central economic work conference emphasized the multi-directional policy support for relevant industries. We believe that with the normalization of epidemic prevention and control, residents’ consumption confidence and willingness will gradually recover, and consumption will show an overall recovery trend. At the same time, under the effect of price increase, some sub industries are expected to usher in a simultaneous rise in volume and price, showing the characteristics of structural prosperity.
3、 Investment advice
Based on our relatively optimistic outlook on the consumer demand side, At the same time, the current PE (TTM) of the food and beverage industry is about 46 times, which is near the average value (45 times) in recent two years. Some sub sectors have been lower than the historical average, such as beer (the valuation quantile is about 34%, the same below) and soft drinks (33%) ； Second, the main line of high elasticity under the effect of price increase, giving priority to brand leaders with moat attribute, relevant stocks with high downstream price acceptance and expected growth in consumption, recommended Tsingtao Brewery Company Limited(600600) , Chacha Food Company Limited(002557) ; The third is the main line of long-term consumption upgrading. It is suggested to pay attention to the consumer goods industry and leading companies with brand barriers and strong bargaining power.
4、 Risk tips:
The epidemic has repeatedly affected residents’ consumption ability, the cost of raw and auxiliary materials and energy has risen more than expected, and food safety problems
