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The food and beverage industry is gradually recovering, with current valuations appearing attractive. A potential 'Davis double-click' scenario, where earnings growth and multiple expansion combine, is anticipated from the end of this year.
Since entering July, major constituents in the food and beverage sector such as Kweichow Moutai Co., Ltd., Inner Mongolia Yili Industrial Group Co., Ltd., Foshan Haitian Flavouring & Food Co., Ltd., Shanxi Xinghuacun Fen Wine Factory Co., Ltd., and Angel Yeast Co., Ltd. have become more active. Their share prices have begun a recovery, showing initial signs of stabilization and a rebound. From an institutional perspective, valuations in the food and beverage sector have corrected sufficiently, with the market already pricing in relatively pessimistic expectations. Leading companies are currently working through historical burdens, resulting in healthier operational states. Investors should start to adopt a more optimistic view of this sector in its current bottoming phase.
Compared to other industries, the dividend yields of leading food and beverage companies offer considerable appeal. As we approach mid-2026, the A-share market is entering a concentrated window for the implementation of 2025 annual report dividends. The major consumer sector is a primary source of cash distributions, with the food and beverage industry's overall dividend payout ratio for 2025 reaching a market-leading 83.4%. Notably, multi-billion-yuan dividends from leaders in baijiu and dairy products have been successively distributed.
Food and Beverage Valuations Have Entered the Lower Bound of the "Strike Zone"
The transition between old and new economic drivers has brought short-term pain to traditional industries. Reflected in the secondary market, the capital siphon effect has led to extreme market style divergence, with the consumer sector continuing to underperform. However, this is not due to a collective collapse in fundamentals but rather a lack of diverse high-growth themes and overly pessimistic macroeconomic forecasts.
In the first half of 2026, the food and beverage sector ranked fourth from the bottom among 31 industries, declining over 20%. Some leading consumer companies with sustained profitability experienced significant declines, falling below their share price levels from the "9·24" period in 2024. As of June 30th, the average valuation for this sector had fallen to 18.3 times earnings, with some leading consumer companies trading at valuations around only 10 times.
Judging from the first-quarter performance of listed companies this year, the mass-market product segment showed clear improvement. BOC International (China) Limited believes the second-quarter performance of the mass-market segment will likely continue the trend seen in Q1. At this juncture, they recommend prioritizing leading companies in sub-sectors that have bottomed out operationally, possess strong earnings certainty, and also offer dividend asset attributes.
Wind data shows that as of July 3rd, the valuation level of the food and beverage sector stood at only 18.87 times, higher than only about 3% of trading days over the past five years (1,210 days). Interpreting this differently, it means that for 97% of the time over the past five years, the sector's valuation has been more expensive than it is now. Particularly, the Price-to-Book (PB) ratio is at the 0.5% percentile, almost touching its lowest level in nearly five years. From a historical comparison perspective, the current valuation of the food and beverage sector is quite "cheap," which is closely related to the sector's continuous adjustment over the past two years and market skepticism about the strength of the recovery in the consumer space.
Analyzing the data further, the current PE (TTM) for the food and beverage sector is about 18.9 times, sitting at the 3.14% percentile over the past five years. The PB ratio is about 3.0 times, at the 0.5% percentile. This indicates that the current price has already factored in factors such as weak consumption and deflationary expectations to a rather exaggerated degree. Historical experience suggests that when a sector's valuation percentile falls below 5%, the probability of positive returns over the next 1 to 3 years increases significantly. For long-term capital, the current period represents a typical left-side accumulation opportunity to "trade time for space." Overall, food and beverage valuations are at the lower bound of the "strike zone," offering a high margin of safety.
Looking at the proportion held by public funds, the industry's weighting has declined noticeably. According to annual industry data, the stock investment market value ratio for the food and beverage industry in 2025 was only 4.4%, down 7 percentage points from the 11.4% weighting in 2022, and its industry ranking dropped to tenth place.
Delving into specific sub-sectors, holdings in all sub-industries have decreased. In 2025, the stock investment market value ratio for the baijiu industry was only 3.1%, down 6.9 percentage points from its peak of 10.0% in 2020, showing a gradual downward trend. Other sub-industries besides baijiu also saw varying degrees of decline in their reported holdings for 2025.
Food and Beverage Industry Recovery Underway
In reality, as part of the consumer sector, the food and beverage industry is directly linked to macroeconomic fundamentals. Correspondingly, total retail sales of consumer goods retreated after a seasonal rebound. From January to May, total retail sales reached 20.6 trillion yuan, a year-on-year increase of 1.4%. Meanwhile, property prices in first-tier cities have stabilized and begun to rise, which is beneficial for increasing the paper wealth of Chinese households that own property. Coupled with policy efforts to stimulate consumption, Ping An Securities believes that although the food and beverage industry faces pressure, a recovery is on the way, and industry demand is expected to stabilize.
The brokerage further stated that the consumption sector currently presents a new pattern of triple structural differentiation. First, goods are weak while services are strong. Service retail sales from January to May grew 5.4% year-on-year, outpacing the 4.2% growth in goods retail sales for the same period, with tourism, performances, and movie-going experiencing strong growth. Second, necessities are strong while discretionary items are weak. Staples like grain and oil show resilience, while internal differentiation within discretionary consumption is significant, with the property chain and major durable goods under deep pressure. Third, a "K-shaped" divergence exists, where high-end luxury goods are marginally stabilizing, mass-market products emphasizing extreme value-for-money are expanding, while mid-market segments are the weakest. The essence of this differentiation is the stratification of consumption power and shifts in consumption scenarios, not simply a contraction.
Under this new pattern, the Matthew Effect is intensifying, with concentration accelerating towards industry leaders. The industry is shifting from a race for scale to a focus on quality and efficiency. In terms of new business models, digital direct-to-consumer sales are reshaping pricing mechanisms, and fresh snacks are driving the "snack-fresh food" trend through short-shelf-life, freshly-made products. Regarding new channels, bulk snack stores, membership-based supermarkets, and instant retail are expanding, reconstructing the "people-goods-scene" dynamic.
Taking Kweichow Moutai Co., Ltd. as an example, in January 2026, it pioneered a shift from the traditional "self-sales + distribution" marketing model to a multi-dimensional collaborative model encompassing "self-sales + distribution + consignment sales + entrusted sales," to better adapt to, reach, and convert consumer demand. Among these, the self-sales model sells the full range of Moutai products through its own stores and the iMoutai app, primarily focusing on end-consumer (C-end) and business (B-end) customer groups, and has eliminated the original distribution model within its self-operated system.
Within this social system, the distribution model involves "specifying sales volume, agreed sales regions or channels, with ownership transferred to distributors." The consignment sales model involves "no transfer of ownership, relying on online retail, offline retail,餐饮 (catering), private domain, and other channel resources to enhance regional coverage and channel reach." The entrusted sales model involves "no transfer of ownership, relying on entrusted sellers' channels and customer resources."
Regarding this, Ping An Securities believes that Moutai's new marketing model helps the product return to its commodity attributes, tilting resources towards C-end and B-end consumers, improving the fit between consumer demand and products, thereby strengthening consumer loyalty. Simultaneously, as the self-operated and entrusted sales models are promoted, reliance on traditional distribution channels will be effectively reduced, reshaping the profit distribution mechanism between the manufacturer and its partners.
Potential for a Davis Double-Click from Late 2026 to 2027
From a policy perspective, various national ministries, commissions, and local governments have actively issued multiple policies to stimulate consumption, aiming to unleash consumption potential through measures like trade-in programs, consumer loan subsidies, and action plans to boost consumption. Concurrently, ministries like the Ministry of Commerce and various regions have held numerous promotional consumption events, creating new scenarios to drive a consumption recovery.
The food and beverage industry underwent a deep adjustment in 2025, with sector valuations falling to historically low ranges, and market pessimism being largely released. Entering 2026, industry fundamentals are showing marginal improvement. First-quarter revenue and net profit attributable to shareholders both turned positive from negative. The decline in baijiu performance narrowed significantly, and multiple sub-sectors within mass-market foods achieved accelerated growth.
Meanwhile, positive factors are accumulating, including continued efforts in consumption stimulus policies, a recovery in餐饮 (catering) channel sentiment, and the persistence of favorable conditions on the cost side. Although the bottom for the food and beverage industry is more clearly identified now than at the start of the year, the market's willingness to allocate to this sector still requires conditions such as sustainable improvement in sector profitability, verifiable inventory clearance, improved channel confidence, and a broadening recovery to more sub-industries. Currently, structural investment opportunities in sub-sectors with clearer operational improvements are relatively evident.
Furthermore, as a high-dividend, low-valuation asset, the food and beverage sector has become a core component of A-share dividend assets. In 2025, the total dividends from Kweichow Moutai Co., Ltd. and Wuliangye Yibin Co., Ltd. each exceeded 10 billion yuan, with Moutai leading the food and beverage sector with a 65 billion yuan payout.
From an investment perspective, under the new pattern, resources are accelerating towards leading companies. In an environment of peak total demand and differentiated demand characterized by stock competition, the concentration of product categories is increasing while smaller players are being squeezed out. Leading companies with advantages in brand, channels, supply chain, and innovation possess both the ability to expand market share and earnings resilience. They represent the direction with the highest certainty in this round of marginal consumption improvement, for example, Inner Mongolia Yili Industrial Group Co., Ltd..
Simultaneously, new business models are reshaping channel barriers, and the industry's Matthew Effect is evident. Kweichow Moutai Co., Ltd. is leading the industry in channel reform, with its marketing model shifting towards multi-dimensional collaboration. Companies' control over end-markets is further strengthening, and market share is expected to further concentrate towards leading enterprises. Moreover, inventory in the baijiu industry continues to clear, earnings expectations for listed companies are being continuously revised downward, valuations are at historically low levels, and consumption stimulus policies are being intensified. Demand is expected to stabilize and recover. Consequently, besides being bullish on Moutai, institutions are also recommending Luzhou Laojiao Co., Ltd. and Shanxi Xinghuacun Fen Wine Factory Co., Ltd..
From the perspective of dividend support and left-side positioning for a demand recovery, this industry has undergone five years of adjustment, with leading companies continuously enhancing shareholder returns. Under the protection of mature business models, leading companies with stable cash flows and strong dividend certainty possess value for left-side allocation. For instance, China Merchants Securities recommends focusing on Kweichow Moutai Co., Ltd., Shanxi Xinghuacun Fen Wine Factory Co., Ltd., and Anhui Yingjia Distillery Co., Ltd. within the baijiu sector. Regarding the reasons, taking Anhui Yingjia Distillery Co., Ltd. as an example, it has already led the way out of the adjustment, and its positive operational momentum is continuing.
Similarly, Shenwan Hongyuan Securities also believes that the continuous decline in the food and beverage sector since May is mainly due to market trading factors, with positions being rapidly cleared. At the current level, the attractiveness of valuations and dividend yields for quality individual stocks has increased significantly. It emphasizes that it remains optimistic about the investment opportunities in the food and beverage sector in 2026, with the core directions being pro-cyclical baijiu and餐饮 (catering) supply chain, with the core indicator being CPI.
Regarding the baijiu sector, prices for Kweichow Moutai Co., Ltd. had bottomed in the first quarter, marking an inflection point in the current cycle. Since the second quarter, Moutai's wholesale prices have remained firm, and it has raised prices for some products. The future trend for the baijiu industry is volume contraction and concentration, moving from "big fish eating small fish" to "big fish eating big fish," making significant differentiation among listed companies inevitable.
"Although the total volume is shrinking, the leading companies that remain in the long run still have room for growth. If fundamentals recover as expected, a valuation and earnings double-click is anticipated from late 2026 to 2027. High-quality baijiu companies are already in a strategic allocation period. Therefore, we specifically recommend Kweichow Moutai Co., Ltd., Luzhou Laojiao Co., Ltd., Shanxi Xinghuacun Fen Wine Factory Co., Ltd., and Gansu Jinhuijiu Co., Ltd.," Shenwan Hongyuan further emphasized.
"Apart from baijiu, sub-industries within mass-market foods have already shown structural improvement. Competition among companies is shifting from price to quality, industry supply and demand are gradually balancing, raw material costs are being passed downstream, and food CPI may improve quarter by quarter. Therefore, companies with pro-cyclical attributes, low valuations, and medium-to-long-term growth potential will experience a recovery," Shenwan Hongyuan stated. "We are optimistic about structural opportunities in pro-cyclical餐饮 (catering) supply, condiments, and dairy products. We specifically recommend companies within these sectors such as Anjoy Foods Group Co., Ltd., Foshan Haitian Flavouring & Food Co., Ltd., Inner Mongolia Yili Industrial Group Co., Ltd., New Hope Dairy Co., Ltd., Youran Dairy Group Limited, China Modern Dairy Holdings Ltd., and Yan Jin Pu Zi Co., Ltd.."
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