BMI View: We expect the slowdown in Taiwan's main export markets to continue to present headwinds to growth during 2015, as the country's over-reliance on tech-related exports leaves Taiwan vulnerable to both changes in the global electronic business cycle and demand changes in developed markets. With credit growth decelerating and private consumption remaining relatively subdued, we are forecasting a below consensus 3.1% real GDP growth for 2014 and have downgraded our real GDP forecast for 2015 to 3.5% from 4.1%. Therefore, as last year, we remain fairly pessimistic about the performance of Taiwan's food and drink market in the short to medium term, albeit that select individual (premium) sectors may still outperform the overall market.
Headline Industry Data
2014 per capita food consumption (local currency): +1.8%; forecast compound annual growth rate (CAGR) 2013 to 2018: +3.1%.
2014 alcoholic drinks sales (volume): +2.0%; forecast CAGR 2013 to 2018: +0.9%.
2014 soft drinks sales (value): +4.3%; forecast CAGR 2013 to 2018: +5.0%.
2014 mass grocery retail sales (local currency): +5.1%; forecast CAGR 2013 to 2018: +4.6%.
Key Company Trends
I-Mei Foods Hit By Ongoing Food Contamination Scandals : In October 2014, The China Post reported that contaminated oil had been used in produce manufactured for I-Mei Foods by Chen Chi Company. The product, Rousong (also known as meat floss), had been manufactured with contaminated oil produced by Cheng-I Food Company. At the time of the discovery, Cheng Chi had already shipped 1,190 kilograms of the product and public health authorities were notified of the product's recall.
Carrefour Announces Further Investment in Taiwan : Following reports in the summer of 2013 that French retail giant Carrefour was exploring the sale of its business in Taiwan, the president of Carrefour Taiwan, Patrick Ganaye, announced in September 2014 that there were no such plans. Despite departing from other overseas markets where the company does not have dominance, Mr Ganaye stated that Carrefour would in fact be investing up to TWD7bn in its Taiwan operations over the next three years.
Taiwan Tobacco & Liquor To Tackle Counterfeiters With RFID : In an effort to tackle counterfeiters of its fine wines and spirits, Taiwan Tobacco & Liquor Corporation (TTL) has adopted a high-tech approach. RFiD Journal reported in May 2014 that state-owned TTL is using a radio frequency identification system to confirm the authenticity of its products, tracking them throughout its supply chain. TTL products are available through some 40,000 retailers but it is TTL's top end ranges that will be tagged, with the 200 plus retailers of those products, in both China and Taiwan, being issued with UHF (ultra-high frequency) tag readers.
Hey Song Wins Exclusive Distribution Rights For Choya Plum Liqueur : The Taipei Times reported in February 2014 that Hey Song Corporation had won exclusive rights to sell Choya Umeshu Company's popular Japanese plum liqueur in Taiwan. Hey Song intends to reduce the product's price to TWD580 per bottle (a reduction of between 14-20% on typical prices) and aims to double annual sales of the liqueur to TWD200mn (USD6.6mn).
PX Mart Plans Further Rapid Expansion : Following changes at the very top of PX Mart's management team in early 2014, the company made a number of announcements about its future expansion plans. It intends to open another 300 stores by 2017 and is seeking to almost treble its annual sales to more than TWD200bn (circa USD6.6bn) by 2020. The company's new President, Hsu Chung-jen, stated that he intends to turn PX Mart into a world class supermarket, as part of a 'second retail revolution' in Taiwan.
Krispy Kreme Opens First Taiwanese Store : US doughnut manufacturer Krispy Kreme opened its first store in Taiwan on 12 December 2013. The launch was part of the company's plan for new franchise partner Huan Hsin Company to open ten Krispy Kreme outlets in Taiwan in the next five years. The store, which will be located in Taipei's financial district of Xinyi, will feature 18 doughnut varieties as well as beverages including coffees, teas and iced beverages.
Key Risks to Outlook
Weak global demand for the country's exports will pose increasing headwinds in 2015 and given Taiwan's over-dependence on exports, this will be a key risk for the economy going forward. Furthermore, the real possibility of the re-emergence of a crisis in the eurozone, or a downward spiral in China's economy, could force Taiwan to head into a sharp recession.