According to China Merchants' research reports, the sales volume of baijiu dropped year-on-year after the double festivals, with a slight decrease in prices for high-end liquor. Top brands are squeezing down to gain market share, strong real estate companies have completed annual collections, but there is a noticeable increase in channel inventory. Looking ahead to the Spring Festival in 2025, baijiu dealers generally have low expectations, with an expected year-on-year decline in the single to double digits. The food sector is focused on the winter and the upcoming Spring Festival, with changes in dining supply chain demand. Mass brand manufacturers shipped rationally in the third quarter, channel inventory remained in good operation, with a relatively light burden, but price competition continues.

The main points of China Merchants Securities are as follows:

China Merchants Securities believes that the industry has low expectations for incremental growth, and the weak functionality of the sugar and liquor expo. In the autumn of 2024, the overall atmosphere of the Sugar and Liquor Expo is bleak, with significantly fewer hotel booths and attendees than in previous years. Most liquor industry leaders and dealers did not attend, reflecting a pessimistic attitude towards incremental growth by manufacturers and dealers, highlighting the weakened functionality of the Sugar and Liquor Expo.

Baijiu sector: there is no significant improvement in sales volume after the double festivals, as expected previously, with channels having low expectations for the Spring Festival.

Feedback from dealers' surveys shows that overall market sales volume after the double festivals and beyond is still in a year-on-year decline, with no signs of improvement. Prices for high-end liquor continue to trend downward, commercial demand is relatively weak, top brands choose to expand downwards to gain market share, squeezing out the mid-range brands, especially in the survival space of products priced between 500-800 yuan. The squeezing pressure on products priced between 300-500 yuan is relatively small. Some popular products such as Jiannanchun, Fen 20, and Mengniu No. 8 can still maintain stable sales volumes with slight decreases, keeping prices relatively steady. Strong real estate liquor enterprises like Anhui Gujing and Jiangsu King's Luck have had relatively smooth collections but inventory increases are quite significant, especially with certain terminal stores already at historically high inventory levels.

China Merchants Securities believes that looking ahead to the end of the year and the Spring Festival in 2025, dealers generally believe the situation will not significantly improve compared to the current scenario, with an expected single to double-digit decline year-on-year in the sales volume during the 2024 Spring Festival.

Food sector: Rational manufacturer shipments, relatively benign food channel inventory, but price competition continues.

Overall demand in the channel is weak, but there are structural opportunities in sub-sectors such as snacks and beverages. With the approach of the winter and the bustling season of the Spring Festival, coupled with recent dining coupons incentives, attention should be given to condiments, frozen foods, and other changes in the dining supply chain.

From the supply side, food shipments in the third quarter were generally rational, basically consistent with actual sales, and channel inventory burdens are relatively light in preparation for the Spring Festival. Haitian's inventory remained stable compared to the previous period, with expectations of further decline by the year-end. Pickled vegetable inventory is less than 1.5 months, and inventories of core single beverage items (excluding bottled water) and liquid milk are also at benign levels. However, price competition remains serious; this year, the costs for basic condiments in dining and residential channels have generally increased, and the price war for bottled water has not eased significantly. Key single items like Jin Dian and Telunsu still face downward pressure on prices.

Investment recommendation: Improvement potential is higher than the present, policy incentives continue to drive a reversal.

China Merchants Securities stated that feedback from the Sugar and Liquor Fair last week was rather flat, with no significant improvement in sales; industry expectations remain low. However, continuous policy stimuli and adjustments on the enterprise supply side suggest that sector improvement potential is higher than the current performance. Continuing to be bullish on three main themes: expectations of improvement in high-end consumption, prices of high-end liquors like Moutai are expected to stabilize and rise; commercial consumption is expected to recover, driving improvement in the dining supply chain demand on a month-on-month basis; possible population policies promoting fertility rate stabilization, upward revision of mid-term profit forecasts for industries such as infant formula.

Specific symbols recommended: high-end baijiu (Kweichow Moutai (600519.SH), Wuliangye Yibin (000858.SZ), Luzhou Laojiao (000568.SZ)), as well as mid-to-high-end and mid-range upgraded baijiu (Shanxi Xinghuacun Fen Wine Factory (600809.SH), Anhui Gujing Distillery (000596.SZ), Jiangsu King's Luck Brewery Joint-stock (603369.SH), Sichuan Swellfun (600779.SH)). Continuing to recommend the dairy industry leader China Feihe (06186), in the dining supply chain Jonjee Hi-Tech Industrial and Commercial Holding (600872.SH), Tsingtao Brewery (00168), and growth symbols (Sirio Pharma (300791.SZ), Jinzai Food Group (003000.SZ), Ganyuan Foods (002991.SZ)), paying attention to the valuation decline of the beverage leader Nongfu Spring (09633) in Hong Kong stocks, and the dairy industry leader Mengniu Dairy (02319).

Risk Warning: Economic environment disturbances, lower-than-expected demand, rising costs, increased competition.