01 Multiple factors caused increases in energy and food costs, soaring inflation in Europe and the US, and central banks intensifying the inflation fight with interest rate hikes
The Russia-Ukraine War further exacerbated the global inflation crisis, as the price of grain products such as wheat and corn increased by 30% over the course of the year. To combat soaring inflation, central banks from countries such as the United States, United Kingdom, Canada, Australia, and Japan have collectively increased their interest rates approximately 300 times, making 2022 the year with the most interest rate rises in 40 years.
02 Following a change in China’s pandemic management policy, consumption has stopped falling
Chinese consumers experienced a challenging year in 2022. Multiple places within China saw rising COVID cases throughout the year, and the pandemic led to a deterioration in consumer confidence of the market. With the rapid change from the State Council of China at the end of 2022, China now enters a new phase of pandemic control which will lead to full reopening and will stop the falling trend of consumption possibly unlocking growth potential.
03 The consumer sector entered into a zero-sum game phase, with the divergence of consumption and competition driving the industry to accelerate polarization and consolidation
Multiple signs including the fact that residential savings reached record-high levels while e-commerce shopping festivals saw low demand indicate that consumption in China is entering a zero-sum game phase. While industries like pets and health supplements still experienced growth, e-commerce platforms have seen diverging performances in their annual results. It is a clear indication of the further division of consumption. In this new phase, industry leaders such as Wallace and Luckin Coffee rapidly expanded their market shares and reached dominant positions based on their cost advantage. Companies such as Mars and Yili expanded their business regions and portfolios through mergers and acquisitions. Industry leaders are accelerating M&A to establish new possibilities for growth.
04 Fewer food and beverage companies held IPOs as valuations dropped, however there was a slight rebound at the end of the year
In 2022, food and beverage companies saw a decrease in the number of IPOs and funds raised compared to previous years. The pandemic, rising raw material costs, and shifts in market liquidity all played a part in the valuation drop. Among those companies, dairy, health supplements, and condiments saw the most significant drops, whereas companies involved with beer, pre-cooked meals, and snack industries saw relatively stable performances in 2022. With the changes in pandemic control policies, food and beverage companies are expected to recover, and their valuations are likely to rise.
05 Facing the pandemic, food consumption demonstrated strong resilience
In 2022, retail sales of most consumer goods saw a significant drop, as high as 10%. In contrast, while most industries faced downward trending pressure throughout the year, food commodities such as grains, oil, food and beverage FMCG, and health supplements achieved a 10% growth rate, demonstrating the resilience of food consumption during the pandemic.
06 Facing major challenges, businesses were pushed to upgrade their supply chains to adapt to the new environment
Pandemic control policies such as lockdowns and quarantines led to issues such as raw material shortages, production halts or reduction, and rapid changes in demand. Those challenges critically impacted the entire industry chain and forced businesses to switch channels and upgrade their supply chains, and interactions with other businesses and consumers. Companies had to adjust their operating procedures and structures to face the new challenge.
07 Supply chain and competencies become the new key factors to win consumers
As consumers became more rational in 2022, investors are now less enthusiastic about the investment thesis of “new consumption”. The accelerating bankruptcy of e-grocery businesses demonstrated that companies lack the ability to maintain their supply chains and competitive competencies and the COVID-19 pandemic exposed their weaknesses to a greater level. On the other hand, traditional companies are scaling up their digitalization progress, putting more pressure on companies that rely on traffic.
08 Biotechnology companies sped up integrations, furthering innovation and sustainability in food and nutrition
Following the merger of IFF and Dupont in 2019, 2022 was also a year where we saw biotech companies continue their steps in mergers and acquisitions. M&A between DSM and Firmenich, and Novozymes and Chr Hansen will benefit these companies in supplementing their advantages and accelerating the development of the biotech industry. These mergers and acquisitions will lead the food industry toward a natural, healthy, environmentally friendly, large-scale, and sustainable future.
09 Pre-cooked food continues to grow amid controversies and will lead the trend of making more industrialized and convenient food products
We have seen an increasing number of businesses registered in the pre-cooked food (also known as ready meals) industry. As the industry standards were gradually published, more businesses started to show interest in the ready-meals industry. However, that interest has also come with controversies. The lack of new product ideas, food safety concerns, and mediocre flavors are challenges that many have identified. Despite those concerns, the growing popularity of pre-cooked food shows a clear trend of food industrialization.
10 With new standards on GMF products, the food industry will enter a new era of business development.
As China announces a national-level standard for genetically modified food products, businesses now can take a first step to conduct large-scale commercial activities around GMF products. The advantages that GMF products can bring represent revolutionary growth for the food industry.
01 As we go past long-term quantitative-easing era, we will see more rational asset valuation
While China will see an appropriate level of quantitative-easing during 2023 to help recover from the pandemic, the global financial market may see important changes. Long-term quantitative-easing measures will come to an end. As the Japanese Yen exits its low-cost monetary policy, we will continue to see countries in Europe and the Americas face increasing capital costs. These changes will impact the value of nearly all assets, including those managed by private equity firms. As the market values cash flow more, we will see more rational outcomes that focus on the quality of the assets.
02 China enters the era of diminishing population, bringing new opportunities for industries
In 2021, 13 provinces in China reported a negative growth rate for their population. In 2022, the Chinese government acknowledged that the country is entering a negative population growth period in its 14th Five-year plan. It is expected that the declining trend in population will continue in 2023, bringing important changes to Chinese demographics, and challenges for the country’s economic development. This could lead to a series of macroeconomic policies and industry-level policies and possibly bring new opportunities to develop new industries focusing on the senior population.
03 The zero-sum game of Chinese consumption will drive accelerated polarization and accelerated consolidation
Food products such as dairy and convenience food are entering a zero-sum game era. The intense competition will push companies to further integrate through mergers and acquisitions. Industry leaders are actively looking for opportunities to partner with stronger allies through integration.
04 Waste reduction will become the key focus to safeguard food security
The main solution for food security is shifting from increasing production to decreasing waste and losses. Improving waste-reduction technologies, investing in manufacturing supply chains, and improving supply chain efficiencies are key and effective measures to protect food security.
05 As consumers become more rational in the post-pandemic era, product function and quality are becoming the key factors of consumer decision making
The pandemic brought changes to consumer behaviors, making consumers more rational and practical in their spending. As they pay less attention to product popularity, products with practical value, function, and competitive price will become more favorable. Food products such as Luckin Coffee and Mixue Bingcheng, which rely on low-profit margins and large numbers of sales, are clear indications of the trend.