China Consumer (H/A): Beverage headwinds from both topline and margins

3Q is traditionally the most important quarter for beverages, typically accounting for the high-20% to low-30% of annual sales. However, 3Q QTD sell-through has been weaker than expected amid persistent rainfall and fewer sustained high-temperature days. According to our channel checks, traditional offline retail sales (excluding specialty channels, instant delivery, snack discounters and online) moderated from 1H across all major beverage categories. Sugar-free tea remains the only category delivering DD% growth in 8M26, while most other categories declined YoY. The cost backdrop is turning less favorable just as demand disappointed during peak season. 3Q is the highest PET consumption quarter of the year, while inventory protection is generally limited. PET prices rebounded from c.RMB7k/ton in early Jul to above RMB9k/ton by mid-Sep. If current spot prices are sustained, we estimate average 3Q PET costs could be c.35% higher YoY. Sugar faces upside risk from a strengthening El Niño,