China consumer slows after a healthy 1Q26 start; focus on pricing stabilization and cost risk
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China consumer slows after a healthy 1Q26 start; focus on pricing stabilization and cost risk
Goldman Sachs believes China consumer demand was healthy in 1Q26 thanks to the Lunar New Year, but momentum slowed after March. In 2Q26, the key watch items shift to promotion discipline, cost pass-through, overseas business, and earnings resilience in selected sectors.
- Overall China consumer demand was healthy in 1Q26, with concentrated Lunar New Year spending standing out, but momentum has slowed since March. May Day holiday performance was relatively moderate, lowering the market's expectations for 2Q26.
- Restaurants, sports brands, condiments, and food and beverage discount retail remain preferred sectors; dairy has been upgraded to a preferred sector because demand and prices have stabilized and it is relatively insulated from costs.
- Prepared foods were removed from the preferred list because most of the positives have already been priced in; pet food was downgraded to the least favored bucket because of intensifying domestic competition and volatility in overseas business.
- Pricing stabilization is appearing in multiple subsectors, driven mainly by better promotion discipline and product/channel mix optimization rather than broad-based direct price hikes.
- Cost inflation tied to Middle East conflict is the biggest swing factor for 2Q26 and beyond, and inventory-based price lock-in for most companies generally only lasts through around mid-2026.
Report interpretation
Overview
This report is based on Goldman Sachs' China consumer team conducting a three-day post-holiday consumer tour in Hangzhou, Shanghai, and Beijing, along with 1Q26 earnings releases and management discussions, to assess China consumer demand, prices, costs, overseas business, and sector positioning. The conclusion is that consumer demand recovered healthily in 1Q26 on the back of the Lunar New Year, but the trend slowed after March; fundamentals have not deteriorated across the board, but the market needs to pay more attention to pricing discipline, cost pressure, and overseas uncertainty.
Core views
The core views are: first, 1Q26 demand was supported by the Lunar New Year and recovered from the weak 2H25, but momentum slowed after March and during the May Day holiday. Second, pricing has stabilized across multiple sectors, driven more by narrower discounts, improved promotion management, and better product/channel mix than by broad price increases. Third, higher raw material and energy costs will gradually show up after 2Q26, with beverages, condiments, pet food, apparel and footwear OEMs, and some durable goods being more sensitive. Fourth, overseas businesses face risks from slowing demand, FX losses, tariff sharing, and operational disruptions, but some Chinese companies still have opportunities to gain global share. Fifth, dairy, food and beverage discount retail, restaurants, condiments, and some jewelry/gold brands are showing better recovery or structural resilience.
Analysis framework
The report combines top-down macro consumer data with bottom-up company research: it first reviews macro indicators such as GDP, retail sales, employment, wages, consumer confidence, property, and inflation, then combines 1Q26 earnings, management comments, holiday traffic, same-store sales, prices/discounts, gross margins, and earnings forecast revisions to form sector preferences and stock preferences.
Methodology notes
sector preference ranking
Updates China consumer sector allocation based on demand momentum, price trends, cost pressure, earnings revisions, valuation, and risk factors, distinguishing preferred, neutral, and least favored sectors.
post-holiday consumer field research
Validates post-holiday demand, channel changes, promotion discipline, cost pressure, and overseas business changes through visits to Hangzhou, Shanghai, Beijing, and multiple consumer companies.
earnings and forecast revisions
Combines 1Q26 earnings, management guidance, market consensus expectations, and 2026E earnings revisions to judge sector momentum and the fundamental drivers behind stock performance.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Restaurants and freshly made beveragespreferred sector
- Strengths
- Demand is improving, channel-mix pressure has eased, price competition is more rational, and dine-in traffic recovery supports earnings.
- Weaknesses
- Golden Week performance slowed somewhat against a higher base; weather and traffic diversion could affect near-term results.
- Comparison
- Compared with most discretionary sectors, restaurant demand and profit recovery are clearer.
- Risks
- Traffic misses expectations, higher food costs, and a renewed pickup in promotion competition.
- Sports brandspreferred sector
- Strengths
- Some brands have strong momentum, discount trends improved versus 4Q25, and Anta and adidas performed better than expected.
- Weaknesses
- Industry performance in April and during Golden Week was not particularly strong, and consumer sentiment remains volatile.
- Comparison
- Brand differentiation is wide; product differentiation and local execution matter more than brand origin.
- Risks
- Discount improvement may not be sustainable, demand may slow, and inventory/channel pressure may build.
- Condimentspreferred sector
- Strengths
- Recovered restaurant demand and market-share gains at leading companies are supporting fundamentals, and pricing adjustments at some leaders are beginning to be validated.
- Weaknesses
- Broad-based price increases are not the main theme for 2026, and the sustainability of smaller companies needs to be watched.
- Comparison
- Compared with sectors such as beer, condiments have a clearer leader-concentration and recovery logic.
- Risks
- Raw material costs, insufficient price pass-through, and a weaker-than-expected restaurant recovery.
- Food and beverage discount retailpreferred sector
- Strengths
- Store efficiency and expansion remain strong; channel migration, product optimization, and improved operating efficiency support positive same-store sales.
- Weaknesses
- Growth slowed somewhat after a high base in January-February.
- Comparison
- Earnings revisions and share performance are significantly ahead of most consumer subsectors.
- Risks
- Store densification dilutes traffic, erodes ticket size, and reduces expansion efficiency.
- Dairynew preferred sector
- Strengths
- Demand has stabilized, raw milk prices appear to have bottomed, retail price competition has eased versus 2025, and new products and new channels support an early-cycle bottoming.
- Weaknesses
- Industry supply-demand rebalancing is still being confirmed, and early recovery signals need continued validation.
- Comparison
- Compared with pet food and OEMs, dairy is relatively insulated from the current cost inflation wave.
- Risks
- Price recovery may not last, demand recovery may be weaker than expected, and channel competition could intensify again.
- Jewelry and Laopu Goldstructural opportunity
- Strengths
- Despite gold price volatility, demand remains resilient; Laopu Gold's brand momentum is decoupled from gold price swings, and there is room for gross margin expansion in 2Q.
- Weaknesses
- Sales can slow in the near term when gold prices pull back.
- Comparison
- Compared with traditional jewelry, differentiated branding and new-product feedback matter more.
- Risks
- Large gold price swings, price cuts on fixed-price products, and weaker appetite for premium consumption.
- Pet foodleast favored sector
- Strengths
- Some export orders remained healthy in 1Q26, and domestic brand share continues to rise.
- Weaknesses
- Domestic competition is intensifying, overseas business is volatile, and FX, input costs, and tariff sharing are pressuring profits.
- Comparison
- Compared with dairy and discount retail, earnings visibility is lower and cost and overseas risks are higher.
- Risks
- Rising chicken, PET, and corn costs, RMB appreciation, and volatile overseas demand.
- Apparel and footwear OEMleast favored sector
- Strengths
- Long-term supply-chain capability remains, but near-term catalysts are limited.
- Weaknesses
- Brand customers are cautious on procurement, revenue and margins are under pressure, and input-cost and energy disruption risks are rising.
- Comparison
- Compared with sports brands, the OEM segment is more directly exposed to order visibility and cost absorption pressure.
- Risks
- Order declines, inability to pass through costs, and operational disruptions caused by energy shortages in Southeast Asia and South Asia.
Key data
- 1Q26 China GDP5.0%Goldman Sachs economists see it at the upper end of the full-year 4.5%-5.0% growth target.
- 1Q26 retail sales y/y+2.4%A slight acceleration from +1.7% in 4Q25; first-tier cities grew +3.2% y/y and outperformed the national average.
- Urban surveyed unemployment rate5.3%Seasonally adjusted, it rose to 5.3% in March 2026 from 5.1% in December 2025.
- Urban wage growth4.3% yoyGoldman Sachs wage tracker shows 1Q26 urban wage growth below 4Q25's 4.6%.
- China CPI+1.2% yoyIt rose in April 2026 from +1.0% in March, above Goldman Sachs and Bloomberg consensus of +0.9%.
- PET spot priceabout Rmb9,490/tonAs of April 30, 2026, PET prices were up 54% year to date and 59% year on year, putting pressure on gross margins in beverages and pet food.
- Food and beverage discount retail earnings revisionabout +21% ytdCharts show this sector had the most notable upward revision to 2026E earnings estimates, while its share price was up about +64% year to date.
- 2026E shareholder returnabout 4%-9% for most consumer companiesCalculated as dividend yield plus buyback yield; some discretionary consumer companies such as Pou Sheng are around 13%.
Impact & implications
The investment implication is that the market should not simply interpret the post-Lunar New Year slowdown as a demand collapse, but should distinguish structurally winning sectors from sectors under cost and competitive pressure. Companies with channel migration benefits, promotion discipline, product upgrades, cost lock-in, and market share gains are more likely to withstand 2Q26 pressure; sectors with high overseas exposure, raw material sensitivity, intense competition, or reliance on discount-driven growth face higher risk. On the policy side, since 1Q26 real GDP is already near the upper end of the annual target, incremental consumer stimulus may be limited.
Risks
- Cost inflation will gradually show up in 2Q26 to 3Q26, especially for PET, copper, aluminum, petrochemicals, chicken, corn, and energy prices.
- Post-holiday demand slowed on a month-on-month basis starting in March, and May Day holiday performance was moderate, which may indicate a limited slope of recovery in 2Q26.
- Overseas business faces slowing demand, FX losses, tariff sharing, rising competition, and brand-cycle volatility.
- Improved promotion discipline may not be enough to offset gross margin pressure; if companies cannot raise prices or optimize product mix, 2H26 gross margins face downside risk.
- Policy stimulus may be limited in scale because 1Q26 GDP was already near the upper end of the annual growth target.
- Pet food, apparel and footwear OEMs, some small appliances, and companies with high overseas exposure have lower earnings visibility.
What to watch
- The actual degree of cost pressure in 2Q26 earnings reports, especially the impact of PET and petrochemical materials on beverages, pet food, small appliances, and white goods.
- Validation from the 618 shopping festival for cosmetics, sports brands, small appliances, and online consumer ROI.
- Post-May Day same-store sales and traffic trends for restaurants, food and beverage discount retail, dairy, and jewelry.
- Whether sports brand discount improvement can last for the full year, and whether the slowdown after April for brands such as Li Ning continues.
- Whether dairy demand, raw milk prices, and retail price competition continue to support an industry bottom.
- Overseas order trends, FX gains/losses, tariff refunds, and resilience in overseas demand.
- Inventory destocking in the mid- to high-end baijiu channel and whether the industry is truly approaching a bottom.