China Consumer Staples Cost Index Tracker： Jul 2024，Further cost downtrend for soy sauce/dairy/beer， sequential inflation in meat

Industry Overview - The report highlights a downward trend in costs for soy sauce, dairy, and beer, while meat prices have seen sequential inflation [1][2] - Raw material costs account for 45%-80%+ of COGS across different sub-sectors, with significant declines in bean pulp, chicken, beef, molasses, soybean, raw milk, corn, and sunflower seeds by 10-20% compared to the 2023 average [2] - Pepper, palm oil, fish, chicken, and pork experienced sequential inflation, with pepper costs increasing by approximately 12% MoM [2] Cost Trends - Dairy, soy sauce, beverages, and frozen bakery indices saw a decline in July due to falling prices in milk powder, raw milk, soybean, and butter [3] - Beer indices eased due to falling aluminum costs, though aluminum prices remain 6% higher than the 2023 average [3] - Compound condiments, hot pot ingredients, and frozen flour and rice saw price increases due to rising costs of fish, chicken, and pork [3] Inflation and Economic Indicators - China's headline CPI inflation increased to +0.5% YoY in July from +0.2% YoY in June, while headline PPI inflation remained flat at -0.8% YoY [3] - Food price inflation rose across the board in July due to decreased supply from adverse weather conditions [3] Sector-Specific Cost Analysis - Soy sauce, compound condiments, F&B, pet food, beer, and frozen food are ranked based on pure cost benefits and GPM expansion potential [14] - Soy sauce leads in cost benefits, while pet food leads in GPM expansion potential [14] Raw Material Contributions - Raw materials contribute significantly to COGS, with soybean, white granulated sugar, glass, PET, and MSG being key components for soy sauce [16] - Compound condiments see significant contributions from soybean oil, Sichuan pepper, and PET, with 2024E raw materials contribution to unit COGS estimated at -3.7% [17] Price Actions and Trends - Price hikes and cuts have been observed across various sectors, including spirits, beer, soft drinks, and prepared food [32] - Notable price hikes include Moutai's 20% ex-factory price hike for Feitian and Coca-Cola's price hike to Rmb3.5 from 3.0 for 500ml Coke in certain regions [32] Historical Cost and GPM Correlation - Historical patterns show a high correlation between cost index and GPM for condiments, with significant cost benefits observed in 3Q24 [29] - Dairy sector continues to experience cost tailwinds, with sunflower seeds cost normalizing [29] Raw Material Price Trends - Barley, rice, bean pulp, soybean, and SPI have seen significant price changes compared to historical averages, with barley prices down 30% vs. 2022 average [24] - Cocoa prices have surged by 224% compared to the 2022 average, while palm oil prices are down 28% [24]