United States Food and Drink Report Q4 2012

US private consumption is expected to continue to recover only slowly as a combination of still-high unemployment, ongoing deleveraging, low wage growth and a dependency on government transfers continue to weigh on spending growth. Given a fairly strong start to the year for consumption, we have bumped up our forecast for 2012 consumption growth to 2.2% from 2.1%. However, we maintain our 2013 forecast at 2.4%, with downside risks. Our primary concern over the health of the consumer is that much of current consumption is being fed by a falling propensity to save, which is unsustainable. Labour market growth has been tepid and erratic, in line with our expectations, which correlates to the fact that wage growth has been very weak. Meanwhile, temporary fiscal provisions intended to underpin consumption will come to an end in January 2013, including payroll tax cuts.

Headline Industry Data (local currency terms)

2012 per capita food consumption = +1.7%; forecast compound annual growth rate to 2016 = +2.1%

2012 alcoholic drinks value sales = +3.2%; forecast compound annual growth rate to 2016 = +3.5%.

2012 soft drink value sales = +3.4%; forecast compound annual growth rate to 2016 = +3.0%.

2012 mass grocery retail sales = +3.7%; forecast compound annual growth rate to 2016 = +2.8%.

Key Industry Trends And Developments

PepsiCo Dairy Launch Against Sceptical Background: In July 2012, despite criticism that it has lost sight of its traditional strengths, PepsiCo continued to advance into healthier categories, with the firm announcing this month its new yoghurt offering for the US market. Through a joint venture with Germany’s Müller, the firm is to launch three new products: Müller Corner, Müller FrutuUp and Müller Greek Corner. The operation is set to take advantage of PepsiCo’s existing chilled distribution network, honed through its juice brand Tropicana, and the dairy expertise of Müller. Recent trends suggest that dairy demand will grow strongly in coming years, with the sector offering both a healthy eating message and convenience. However, in a broader sense we remain sceptical about PepsiCo’s push into healthier categories and continue to believe that the firm may be better off focusing on its existing strengths.

Boston Beer No Longer Surefire Bet On Craft Boom: In August 2012, US-based craft brewer Boston Beer Company said in a conference call that the growth in the number of craft breweries is having a negative impact on sales of its flagship Sam Adams brand, following a decline in sales in the first half of 2012. Boston Beer is the biggest player in the craft beer sector, but the firm has said that a proliferation of new brands has meant that its own hold on the sector is loosening, despite increased consumer interest and growing shelf space. The revelation comes at the same time as the Brewers Association reveals that the number of breweries in the US has hit a 125-year high, with 97% of these being craft brewers. This represents an increase of 250 on 2011’s figure, and the association also revealed that there was currently 1,252 breweries at the planning stage (up from 725 at the same point in 2011).

Key Risks To Outlook

Risks Remain To Downside: The risks to our consumer outlook are mostly to the downside. We expect private consumption growth to remain subdued, constrained by a weak labour market, elevated savings rates and stagnant house prices, while government deficit reduction will weigh on economic activity. In the meantime, the European crisis will continue to pose downside risks to the export sector. Another downside risk to our outlook is a major domestic policy error, especially on the fiscal side, which could push the US into recession.

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