Consumption Weakens in May: Beer Under Pressure, Dairy Resilient, Retailers Accelerate Store Rollouts

Overview

This is Goldman Sachs’ monthly channel check report (May) tracking China’s consumer staples sector, reviewing latest sales trends across sub-sectors including beer, dairy, seasonings/frozen foods, beverages, snacks, and value retail. Overall conclusion: amid persistent adverse weather and weak consumer sentiment, sector sales slowed further sequentially in May, but performance diverged markedly—beer was hardest hit, seasonings and dairy showed relative resilience, and value retailers accelerated store rollouts. Despite near-term softness, the firm maintains Buy or Constructive ratings on multiple leading names.

Core views

Demand Overview: May sales weakened further sequentially, attributed to ongoing adverse weather and weak consumer sentiment. A useful reference point: April beverage-related social retail sales grew +3.6% YoY, notably outperforming overall consumer goods (ex-auto) at +1.8%, indicating staples broadly outperformed the market but momentum is cooling. Beer (Most Pressured): Heavy rain that affected South/Central China in April extended to North China in May, and on-trade channel recovery remained unstable, leading to a sequential widening of beer volume declines. Tsingtao’s May volume decline widened to -9%; Budweiser maintained low-teens % declines; Chongqing Brewery continued to contract; China Resources Beer also slowed slightly MoM but significantly outperformed peers. Seasonings/Frozen Foods (Relatively Resilient): Leaders performed steadily. Haitian’s May sales growth remained around HSD~DD% (vs. HSD% in April), with the firm highlighting its consistently solid trend. Yihai’s third-party sales grew DD% in Jan–May; Anjoy slowed sequentially to HSD% growth (despite easier comps). Dairy (More Elastic): Liquid milk demand continued to recover, with leaders maintaining positive growth despite slight deceleration. On the supply-demand front, dairy cattle inventory declined 3.6% YoY in April, and raw milk prices stabilized near RMB3/kg, with ongoing supply contraction supporting future rebalancing. Beverages: Sell-through weakened in Apr–May vs. Q1. Nongfu Spring’s bottled water slowed in May (the overall water category may have declined), but sugar-free tea maintained strong +25% YoY growth (slightly slower than April). Dongpeng energy drinks modestly accelerated to mid-teens % growth; after destocking, Bupushui’s shipments accelerated to 20–30% in Apr–May. Snacks & Value Retail (Accelerating Expansion): Value retailers further accelerated store openings in May, with Mingming (Hao Xiang Lai)/Wanchen each net-adding ~1,000 stores—significantly above the 400–600/month pace in Feb–Apr—and Wanchen’s daily GMV per store (including new stores) remained positive. Snack brands Yanjing Puzi/Weilong derive high-30s%/mid-30% of revenue from value retail channels and stand to benefit from channel expansion; the firm expects their konjac products to deliver ~30%+/~20% YoY growth in 2Q/1H26. Key Name Views: The firm remains positive on dairy (Mengniu, benefiting from supply-demand rebalancing), value retailers (Mingming/Wanchen, strong white-space expansion with leaders reaffirming healthy competition), Nongfu Spring (best positioned to navigate cost inflation via strong product portfolio and innovation), and pork (WH Group, benefiting from cost tailwinds and efficiency gains). It also favors Haitian-H/Yihai (execution-driven share gains + dividend support) and reiterates constructive views on Moutai/China Resources Beer/Yanjing Puzi.

Analysis framework

The core methodology is bottom-up channel checks: the firm tracks monthly volume, pricing, and sell-through trends for sub-sector leaders, comparing MoM and YoY to assess marginal changes in sector sentiment. When interpreting volume fluctuations, the firm applies a volume-price decomposition framework—separating demand-side disruptions (e.g., weather, on-trade recovery) from company-specific pricing actions (e.g., China Resources’ regional price hikes on Heineken cans, minor wholesale price adjustments on liquid milk SKUs)—to distinguish temporary noise from structural trends. For dairy, the firm uses a supply-demand framework: tracking supply-side indicators like dairy cattle inventory, raw milk prices, and raw milk output to assess rebalancing progress—this underpins its bullish view on Mengniu. Across the sector, the firm monitors cost pass-through (raw material prices like PET and aluminum) to evaluate cost and pricing pressures, complemented by valuation and dividend yield comparisons (PE, EV/EBITDA, and screening for dividend yields >4%) to assess individual stock attractiveness. It also highlights low-base effects—starting in June, on-trade/baijiu enters a low-base period vs. last year, potentially boosting YoY comparisons.

Methodology notes

• Event Arbitrage and Behavioral Finance

  Monthly Channel Checks Tracking

  Rather than relying on company financial reports, the firm estimates brand-level volumes and sell-through trends monthly using frontline channel data from distributors, retailers, and shipments. This method captures turning points earlier but may involve timing lags, making it a forward-looking grassroots approach.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Separating volume changes from pricing strategies

  Revenue ≈ Volume × Price. The report isolates demand-driven volume disruptions (e.g., weather, on-trade recovery) from company pricing actions (e.g., beer volume declines alongside China Resources’ regional price hikes, minor wholesale price tweaks on liquid milk SKUs) to determine whether weakness stems from demand or pricing.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Using supply-side indicators to assess dairy rebalancing

  Dairy sentiment heavily depends on supply. The report infers ongoing supply-demand rebalancing from signals like a 3.6% YoY decline in dairy cattle inventory, stabilized raw milk prices, and raw milk output trends—supporting its positive view on Mengniu and other dairy players.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Transmission of raw material costs to corporate profits

  Upstream cost changes in PET, aluminum, etc., transmit downstream to food & beverage companies’ costs and pricing. The report tracks these input prices (PET remains elevated despite slight MoM decline) to assess cost pressures and which firms are better positioned to absorb costs via product mix or innovation.

• Valuation MethodDividend Yield Approach

  Using dividend yield for screening and valuation support

  The report lists consumer staples companies with dividend yields >4%, treating dividend capacity as a key dimension of defensiveness and valuation support—for example, partly basing the investment case for Haitian-H/Yihai on execution strength plus dividends.

• Valuation MethodPE/PEG valuation

  Cross-sectional PE/EV/EBITDA comparisons across names

  The report uses forward PE, EV/EBITDA multiples, etc., to compare valuations across sub-sectors and derives implied upside/downside from 12-month target prices, helping identify better-value names amid divergent sector trends.

• Cycle and Sentiment FrameworkInflection Point Analysis

  Low-base effect driving YoY improvement

  The lower last year’s figure, the easier this year’s YoY comparison. The report notes that catering retail grew only 5.9%/0.9%/1.1% YoY in May/June/July 2025, meaning on-trade and baijiu enter a low-base window starting in June, potentially improving YoY readings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Mengniu Dairy

  Benefits from dairy supply-demand cycle rebalancing; liquid milk demand continues recovering

  Strengths

  Inventory contraction and stable milk prices support supply-demand improvement; liquid milk demand recovery

  Comparison

  Shares dairy Buy thesis with Yili; another related report assigns Buy ratings to both Mengniu and Yili

• Mingming (Hao Xiang Lai/Busy Ming), Wanchen (300972.SZ)

  Value retailers benefiting from rapid white-space expansion and leaders reaffirming healthy competition stance

  Strengths

  Each net-added ~1,000 stores in May, accelerating rollout; Wanchen’s daily GMV per store remains positive

  Comparison

  Wanchen TP RMB319 implies ~+66% upside, among highest in coverage

  Risks

  Per-store GMV trend becomes critical as store rollout accelerates

• Nongfu Spring (9633.HK)

  Viewed as best positioned amid cost inflation, leveraging strong product portfolio and innovation

  Strengths

  Sugar-free tea remains strong; robust product portfolio and innovation capability

  Weaknesses

  Bottled water slowed in May; overall water category may be declining

  Comparison

  TP HK$58.7 implies ~+33% upside

  Risks

  Upward cost inflation pressure

• WH Group (0288.HK)

  Pork segment benefiting from cost tailwinds and efficiency gains

  Strengths

  Cost deflation driving profit elasticity; operational efficiency improvements

  Comparison

  TP HK$11.8 implies ~+30% upside; pork segment average dividend yield ~6.6%

• Haitian-H (3288.HK), Yihai International

  Seasonings leaders; execution drives share gains with dividend support

  Strengths

  Haitian May sales HSD~DD% with solid trend; Yihai third-party sales maintained DD% growth Jan–May; attractive dividends

  Comparison

  Haitian-H rated Neutral, TP RMB47.3 (implies ~+52% upside)

• Yanjing Puzi (Yankershop), Weilong

  Benefiting from strong value retail channel expansion; konjac products growing rapidly

  Strengths

  Value retail channel revenue share: high-30s%/mid-30%; konjac 2Q/1H26 growth ~30%+/~20%

  Weaknesses

  Yanjing traditional loose-weight channel still declining in 2QTD (though decelerating); Weilong flat in that channel

  Comparison

  Report reiterates constructive view on Yanjing Puzi

• Moutai, China Resources Beer

  Firm reiterates constructive view; China Resources Beer held up best amid beer sector pressure

  Strengths

  China Resources May volumes slightly slowed but significantly outperformed peers; Moutai TP RMB1,616 (implies ~+24% upside)

  Weaknesses

  Beer sector broadly dragged by weather and weak on-trade recovery

  Comparison

  Peers Tsingtao, Budweiser, Chongqing Brewery saw more pronounced declines

  Risks

  Unstable on-trade channel recovery

Key data

• Tsingtao Brewery May volume YoY-9% (decline widened sequentially)Beer sector most pressured, dragged by rain extending from South/Central to North China
• Budweiser APAC May volume YoYMaintained low-teens % declineChongqing Brewery continued contracting; China Resources Beer held up best
• Haitian May sales growthHSD~DD% (vs. HSD% in April)Seasonings leader remained steady with solid underlying trend
• Sugar-free tea YoY growth+25% YoYStrong performer in beverages, slightly slower than April
• Beverage-related social retail (April)+3.6% YoYOutperformed overall consumer goods (ex-auto) at +1.8%
• Mingming/Wanchen net new stores in May~1,000 eachSignificantly above 400–600/month in Feb–Apr; store rollout accelerated
• Raw milk priceRMB3.02/kg (as of May 14)Stabilized near RMB3; down 1.8% YoY YTD in 2Q26
• Dairy cattle inventory (April)Down 3.6% YoY, 5,842k headsOngoing supply contraction
• Dairy output (April)+0.8% YoYNear recent lows
• Catering retail YoY (May/June/July 2025)5.9%/0.9%/1.1%Low base last year supports YoY improvement this year
• Yanjing Puzi/Weilong konjac growth~30%+/~20% YoY in 2Q/1H26Benefiting from value retail expansion (channel revenue share: high-30s%/mid-30%)

Impact & implications

Amid weather and sentiment headwinds, overall sector sentiment weakened sequentially in May, but sub-sector divergence widened: beer faced the strongest near-term pressure, seasonings and dairy proved relatively resilient, and value retail—along with upstream snack brands—showed structural opportunities through accelerated store rollouts. The report sees dairy supply-demand rebalancing, value retail white-space expansion, and leader execution/dividends as more certain themes, thus maintaining Buy or Constructive ratings on Mengniu, Nongfu Spring, Mingming/Wanchen, WH Group, Haitian-H/Yihai, and Moutai/China Resources Beer/Yanjing Puzi despite soft sentiment. Looking ahead to June, low bases may improve on-trade/baijiu YoY readings, but rising cost pressures and cautious corporate pricing remain offsetting factors.

Risks

• Rising cost pressures: PET remains elevated despite slight MoM easing, weighing on corporate margins
• Persistent weak consumer sentiment and adverse weather could further drag sell-through (especially beer, beverages)
• Most staples companies remain cautious on pricing, limiting price pass-through

What to watch

• Whether low bases in on-trade/baijiu last year boost YoY readings starting in June
• Evolution of cost pressures and subsequent corporate pricing actions (e.g., potential expansion of China Resources’ Heineken can price hikes)
• Per-store GMV trends for value retailers amid accelerated store rollouts