At a time when major domestic e-commerce platforms are setting off a vigorous promotion trend of Singles Day, Michelle Cheng and other Goldman Sachs Group analysts have released a report describing six key trends in China's consumer market.

1. Industries hit hard by the epidemic, such as offline retail, restaurants and hotels, have recently shown a steady recovery, while daily consumption has also shown resilience.

two。 As people's daily life gradually steps into the normal track in the post-epidemic era, the internal marketing channel has also been improved, and the growth rate of household consumption has slowed down. However, individual companies still have opportunities to expand their products or channels in the home consumption category.

3. Overall, as the average selling price (ASP) rebounded steadily, the profit situation tends to be positive, and the cost pressure on enterprises has been reduced. Product quality or product mix is still the key driving force to improve ASP.

4. Industry leaders have raised their store expansion targets to low-line cities and take advantage of their preferential lease conditions.

5. Because of China's first-in-first-out on the epidemic, Chinese exporters are recently benefiting from disruption to the global supply chain. However, some companies say they are facing labor shortages and rising wage costs.

6. The improvement of the distribution system is helpful to improve the channel efficiency and help the company to lay out low-line cities and gain market share.

I. steady recovery of all offline industries

Industries hit hard by the epidemic, such as retail, catering and tourism, have recovered steadily since the beginning of this quarter.

Retail trade：

Sales of mall tenants at Wharf in Hong Kong recovered strongly during the National Day and maintained a momentum of growth after the festival. Sales of luxury brands remain strong, and medium-sized brands are gradually catching up.

Among them, Li Ning Co. Ltd. increased sales growth from 10% to 20% in October by increasing discounts; pre-sales of Anta Singles Day are hot, and some brands have achieved triple-digit growth.

Catering：

Haidilao International Holding has regained the average turnaround rate of 80 per cent in first-tier cities compared with the same period last year. Taier, which is owned by 99 Mao, has seen same-store sales growth become positive since July; even if the contribution rate of delivery sales has dropped from 15 per cent in July to 10 per cent in October, same-store sales growth in October has returned to 89 per cent of last year's level, and same-store sales growth in July has returned to 80 per cent of last year's level.

Snow Beer said that sales continued to increase, especially thanks to the recovery of internal marketing channels. Budweiser expected the recovery trend in the third quarter to continue and the performance of superior products would be unusually outstanding. Feihe Milk Powder said that given the benign inventory level, the target for the second half of 2020 will be maintained and the market share is expected to reach 30 per cent in 2023; snacks said that sales growth in October was close to the 20 per cent growth rate in the third quarter.

Hotel:

Huazhu Hotels Group said the demand-side recovery was earlier than the company expected, with low-line cities bearing the brunt.

Household appliances:

Midea Electric said sales growth in the fourth quarter was expected to be similar to that in the third quarter, thanks to higher air-conditioning prices and strong export orders. Sophia Furniture said orders increased rapidly in September and October, and sales growth prospects were stable in the fourth quarter.

Cosmetics:

Pelaiya said that the pre-sale of Singles Day this year is better than last year, and the two rounds of promotions this year will help reduce logistics pressure. Although the recovery paths of first-tier cities are different from those of low-tier cities, between the north and east and south, and between shops in tourist areas and other normal areas, the gap has narrowed.

Second, the growth rate of household consumption slows down.

As consumers' lifestyle gradually tends to normal, the growth of household consumption tends to slow down. Sales of instant noodles fell in the third quarter of 2020 compared with last year, according to Nielsen.

Sales of Yihai self-heating small hot pot slowed in the third quarter; Zhong Ju said that the restaurant turnover rate fell by 20% in the first half of the year, and it is hoped that this year's turnover rate will be less than 10% compared with the same period last year. Snow Beer said that beer sales in most restaurants are returning to normal. the night market is also recovering rapidly.

However, although the household consumption trend tends to normalize, Goldman Sachs Group also sees a number of growth opportunities from category expansion or distribution penetration. For example, Yum China began to launch a new ready-to-eat brand, Kaifeng Cuisine, a new series of fast-cooked prepackaged foods; Master Kang and Yihai are expanding the range of fast food. High-quality products are still popular in the market, as evidenced by Master Kang's recent increase in market share in the field of instant noodles.

Stable price trend and controllable cost pressure; product mix is the key driving force of hybrid ASP

Master Kang said the pressure had eased as the rising price of palm oil (the main raw material for noodles) offset the decline in the cost of empty PET bottles and white granulated sugar (the main raw material for beverages).

Snow Beer will continue to promote potential product structure upgrading, as the driving force of ASP, high-quality products perform well. Budweiser's "high-end" China strategy through investment in marketing activities, channels and product innovation will continue to expand its product portfolio in high-end and ultra-high-end market segments.

The price of Mengniu's MSD raw milk increased in the third quarter, but the product structure and low refund rate offset the cost pressure, driving the solid growth of gross profit in the third quarter.

Considering the stable or downward trend of raw material prices, Anjing is very unlikely to rise and can share some of the costs and benefits with distributors. Yum China earlier lowered his commodity cost inflation target and lowered his 2020 inflation target to the lowest consumption level.

In view of the lower total cost of raw materials per unit in 2021 (10% less than in 2020) and the appreciation of the RMB, gross profit margin is expected to remain high; management's long-term goal is net profit of 16%.

The cost-cutting measures implemented by the boss will continue to improve profit margins in the fourth quarter, and it is unlikely that raw material costs will rise sharply next year. Midea said that compared with the fierce pricing competition between last year and Gree, this year's pricing trend is better than last year.

Retail prices will also be driven by product portfolios, such as higher efficiency and high quality air conditioners.

Li Ning Co. Ltd. believes that with the further improvement of the manufacturer's suggested retail price and medium-term discount level, management expects to increase the discount level by the fourth quarter of 2023, and ASP will achieve growth in 2020 and 2021.

Management expects net profit margins to rise by 1.5 percentage points a year by 2023, while Shenzhou says the impact of recent increases in Chinese cotton futures prices is limited because raw material costs and trading volumes have been locked in.

However, Haidilao International Holding said potential ASP increases could help offset deleveraging pressures and rising labour costs. In addition, Haidilao International Holding is also trying to manage its cost structure and is willing to look for potential third-party suppliers for better pricing and new product supply.

Fourth, speed up store expansion by focusing on low-line cities

Haidilao International Holding has once again taken the lead in store expansion and is expected to open nearly 500 stores this year, higher than Goldman Sachs Group's estimate of 440. Supported by recent IPO earnings and supply chain infrastructure, Yum China is likely to accelerate KFC's expansion next year to explore 800 potential new towns after raising its 2020 expansion guidance ahead of third-quarter results.

Taier, which is owned by Jiumaojiu, reached its target of 80 new stores this year in October, and the contract rental costs signed by Taiji this year will fall by 10-15%.

Low-line cities are the focus of big brands. Haidilao International Holding predicts that the number of stores in second-and third-tier cities will increase in the long run. Yum China launched a lower ASP portfolio to meet the affordability of consumers in low-line cities.

The boss also hopes to be more competitive in pricing through the reform of the distribution system to infiltrate low-tier cities.

5. Export orders rise, so that there is a labor shortage.

Due to supply chain disruptions in other countries, additional orders have been returned to China. Shenzhou reiterated that compared with the first half of 2010, the outlook for order growth in the second half of the year is better. China Merchants Group (China Merchants Port) is also optimistic about the demand generated by the transfer from other countries to China.

Us's short-term export orders are expected to show strong growth (about 50 per cent in the third quarter), but are likely to return to normal in the long run. Haier's overseas revenue performed strongly in the third quarter of 2020 as its stable local supply chain exceeded the industry average.

With the increase in domestic demand and export-driven orders, there is a mismatch between labor supply and demand in some companies, leading to higher wages. Yum China said earlier that he was understaffed in the peak season of the third quarter. Both Haidilao International Holding and Shenzhou have recently raised their salaries to improve the level of recruitment.

Sixth, innovate the distribution system or improve channel efficiency, and product pricing is more competitive.

The boss encourages its first-tier agents to open retail stores directly instead of selling to second-tier wholesalers, which could lead to lower retail prices in low-tier cities and be more competitive with local companies.

Kang Shifu is layering distributors in more than 100 cities and using digital systems to sell, while better tracking channel inventory through second-to third-tier distributors.

Anta stressed that DTC restructuring is on the right track; its goal is to create synergies and enhance consumer engagement and operational efficiency through more complex management and centralized systems.