Sluggish Consumer Sector: When Will the Spring Breeze Arrive?

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Consumer sector Q3 reports are accelerating their decline, in line with the overall perception of the macroeconomy and the consumer sector.

The industry is facing its darkest hour; the key is to observe when the pace of marginal deterioration will improve.

From the analysis of fund holdings and valuation, left-side signals still need to wait. Some sectors have already reached their historical 1% valuation, which are worth close attention and tracking.

I. What happened? The consumer sector is undergoing dramatic change

USD 13 billion! Starbucks China finally “sold” at this valuation. Boyu Capital holds 60% equity of the joint venture company, Starbucks holds the remaining 40%, and continues to be the owner and licensor of the brand and intellectual property. Both parties will jointly run the current 8,000 stores in China, and there are plans to expand to 20,000 stores in the future.

Starbucks China’s business has actually gradually recovered. In the latestQ4 FY2025, Starbucks China achieved operating revenue of $831.6 million, a year-on-year increase of 6%, maintaining positive growth for the fourth consecutive quarter. For full-year FY2025, Starbucks China market revenue reached $3.105 billion, up 5% year-over-year, exceeding the global average rate. In the next stage, Boyu Capital is expected to bring more localized strategies such as product pricing adjustments and market penetration, helping Starbucks continue its recovery in China.

The consumer sector across the ocean is also undergoing profound changes.

Papa John’s stock price plunged21%, marking the biggest single-day drop since the March 2020 pandemic outbreak. The news came after private equity giant Apollo Global Management withdrew a privatization acquisition offer at $64 per share a week ago. The termination of this deal highlights private equity’s cautious outlook on the restaurant industry. Under continuous consumer spending pressure, even established chain brands are struggling to attract buyers.

Source:WIND

The world’s largest restaurant groupYum! Brands Inc. announced a strategic review of its Pizza Hut business and does not rule out selling this struggling pizza brand. Pizza Hut’s sales have declined for eight consecutive quarters, with annual sales currently about $1 billion, down 20% from a decade ago. Pizza Hut’s troubles mainly stem from failing to attract customers. This is not a problem for the entire pizza market—competitors Domino’s and Papa John’s revenues in North America are still growing.

Goldman Sachs has just issued a"red" warning on the health of U.S. consumers, stating that weakness in consumption has spread from low-income groups to the middle class. Several business executives also report that current consumer confidence is at the “lowest in decades.”

II. Why is this important? Industry woes intensify

Weakness in the consumer sector has gradually become a consensus—the key is when will there be a turning point? Pessimistic expectations have mostly been priced in,and the Fed’s likely expansion and monetary easing in 2026 is expected to help the consumer sector stabilize and rebound.

Due to continued inflationary pressures, leading consumers to reduce dining out, the overall weakness in the U.S. consumer sector is intensifying.Chipotle Mexican Grill lowered sales expectations for the third time this year. CEO Scott Boatwright said, “Consumers are feeling the pressure, and we feel their pull-back as well.” He noted that Chipotle’s lost customers are turning to grocery stores, not other restaurant chains, indicating that people are choosing to cook at home to save money. After lowering its sales outlook, the stock fell as much as 16.5%. Consumption downgrades are now spreading from the bottom layers to the middle class.

Source:WIND

As Goldman’s consumer goods expertScott Feiler points out, more companies are reporting weakened consumption, especially among 25-35 year-olds. In the past two weeks, consumer stocks have experienced heavy selloffs, and the discretionary consumer sector has underperformed the broader market by about 500 basis points.

Kraft HeinzCEO Carlos Abrams-Rivera also said on the earnings call: “We’re now experiencing one of the worst levels of consumer confidence in decades.” The company significantly lowered its full-year sales guidance, expecting a decline of 3% to 3.5%. This reveals the deepening woes in the entire consumer sector.

Domestically, there is also a problem of weak consumption. In theVIP article “Baijiu Q3 Report: Accelerated Industry Shakeout, Bottom Still Needs to Wait”, we already summarized the challenges of accelerating decline in the baijiu sector in Q3. With real estate prices moving downward, domestic consumption momentum continues to diminish.

According to Haitong International’s research report, although the National Day and Mid-Autumn Festival holidays coincided and the holiday period was extended to 8 days, commodity consumption remained sluggish. Tax Bureau data show that during the holidays, goods consumption and services consumption growth rates were 3.9% and 7.6% respectively. Digital products and auto consumption associated with travel grew relatively quickly, while food hadstable growth. From Q3 listed company reports, most staple consumer companies maintained growth, but the pace continued to slow.

III. What should we watch next? Decline in holdings and valuation

① From the perspective of fund holdings:

In Q3 2025, actively managed equity funds reduced positions in: domestic consumption, defensive sectors. The industries with the largest decrease in allocation percentage were banks, food & beverage (esp. baijiu in the sub-sector), household appliances, automobiles. This was mainly due to the sector’s weak business climate and the small elasticity of defensive sectors during rapid market upswings.

② From the valuation perspective:

As ofOctober 31, 2025, the food & beverage sector’s historical PE quantile is 20% (21.3x), up 2pct from last month’s end, but ranks 29th out of 31 sectors.

Source: Haitong International

The PE quantiles of the A-share food & beverage sub-sectors are at their lowest since 2011: beer (1%),seasoning & fermentation products (15%), etc. The sectors with lowest absolute PE are baijiu (19.3x), beer (20.9x),meat products (21.4x), convenience/pre-processed foods (22.1x), etc.

Source: Haitong International

Overall, the consumer sector showed signs of accelerated bottoming in Q3. The bottom is getting closer, but a short-term reversal is not easy. In the future, there could betwo stages for value recovery—

① Coupling sales performance, watch when industry demand can recover month-on-month. The market already has low expectations for performance and prices; policy expectations and liquidity improvements will help valuations recover quickly (the first stage, driven by dividend yield and low-valuation gains);

② In the second stage, when supply-demand finally improves, prices and business indicators turn up, market belief in “long duration” of consumer assets returns, DCF valuation resumes, and sector PE median can reverse upward.

Risk DisclaimerThe market contains risks, investments require caution. This article does not constitute individual investment advice, nor does it take into account any particular user’s specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their individual circumstances. Invest accordingly at your own risk. ```