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China’s Functional Beverage Market Thrives as Brands Zero In on Key Demographics

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The well-documented growth of disposable income amongst Chinese consumers presents a wealth of opportunity for regional and global beverage manufacturers. An examination of China’s fastest growing soft drinks from 2010-2013 reveals that targeted marketing, featuring beverages with a targeted function, can lead to tremendous growth. As Chinese consumers gain access to more beverage options, manufacturers are flourishing by narrowing their focus and giving consumers soft drinks with function rather than flavour alone.

Functionality Key for Top Growing Beverages

The long tradition of homeopathic remedies in Chinese culture has created a consumer base more accepting of functional beverages. Herbal teas that can help digestion or remove heat from the body have long been popular. Asian speciality drinks such as peanut milk and almond juice are also popular due to a belief that vegetable protein from the beverages can prevent obesity. These consumer beliefs have opened the doors for functional and health-focused beverages. RTD teas such as President, Master Kong and Jiaduobao, as well as bottled waters Nongfu Spring, C’estbon and Wahaha, have all flourished in light of consumers searching for healthier products. However, functional drinks such as energy drink Red Bull, functional water Mizone, and walnut milk Yangyuan have seen tremendous growth thanks to a combination of functional positioning and on-point advertising.


China’s Top 10 Fastest Growing Brands by Value, 2010-2013

Brand Company name (GBO) 2010-2013 off-trade value growth % 2010-2013 % off-trade value CAGR 2010-2013 absolute growth (US$ million)
President Uni-President Enterprises Corp 102.1 26.4 1,809.6
Red Bull TC Pharmaceutical Industry Co Ltd 169.1 39.1 1,388.4
Yangyuan Hebei Yangyuan Zhihui Beverage Co Ltd 255.2 52.6 1,228.0
Nongfu Spring Yangshengtang Co Ltd 101.4 26.3 892.5
Minute Maid The Coca-Cola Co 51.8 14.9 801.2
C'estbon China Resources Enterprise Co Ltd 205.6 45.1 753.8
Master Kong Ting Hsin International Group 10 3.2 537.9
Mizone Groupe Danone 98.1 25.6 466.0
Wahaha Hangzhou Wahaha Group 23 7.1 459.6
China Green China Green (Holdings) Ltd 269.1 54.5 411.6

Source: Euromonitor International

Red Bull’s Global Focus on Younger Consumers

Red Bull, invented and first popularised in Thailand, is a familiar beverage to many Chinese consumers. For many Asians, Kratingdaeng (Thai for Red Bull) is an energy tonic, served in small glass bottles and typically consumed by blue collar workers as a way of providing an energy boost during long working hours. Two versions have been sold in China in recent years. The first is a regular-strength version sold in short, wide, gold and red cans. The second is a taller, thinner, blue and silver can akin to the version sold in Western countries. Similar to the glass bottle formulation sold in Thailand, neither of these drinks is carbonated.

For years, the Red Bull Vitamin Drink Co in Beijing has helped Red Bull to maintain its position as China’s leading energy drink brand. However, both the category and the brand have exploded recently due to growing popularity amongst China’s younger consumers. Much like its global marketing strategy, in China, Red Bull has focused on the sponsorship of global sports and youth-oriented activities to spread its popularity. The brand has established a long-term partnership with China’s national badminton team and hosted the Red Bull China badminton tournament in March 2014. The tournament spanned 195 cities and attracted over 60,000 amateur participants. Red Bull has also signed veteran rock singers Zhang Zhenyue and Yang Kun to help deliver a message that the product promotes positive, active energy. The brand also sponsored the “HitTop Party” street dance competition last year to further attract younger consumers.

Consumers have responded. From a US$500 million base in 2008, sales eclipsed US$2.2 billion in 2013. The company’s marketing is a big reason for its success, but the underlying trend is the demand by young consumers for functional beverages. Energy drinks specifically address a desire amongst consumers to find products that help them keep pace with their increasingly hectic daily lives.

Mizone Offers Hydration and Health

Similarly, Danone’s Mizone functional bottled water has experienced strong growth on the backs of younger consumers. When Danone lost its partnership with Wahaha in 2009, the company was faced with the unenviable task of building its soft drinks business back up without its largest brand. In response, Danone decided to focus instead on the higher value functional bottled water category with its Mizone brand.

While fruit/vegetable juice, carbonates, and RTD tea are China’s largest soft drink categories, Mizone represents a healthier and functional alternative that still delivers refreshing flavours. Available in peach, lychee, tangerine, lime, pineapple, and mango flavours, Danone has focused on pairing appealing aromas with a high-energy blend of vitamins to offer consumers the perfect beverage to deal with the stresses of daily life in cities like Beijing and Chengdu. To emphasise its functionality, Danone launched a series of internet and television videos that focus on the life of young Chinese consumers, making light of the delays and crowds seen on mass transit systems, recovering from a night on the town, taking an exam, or introducing a new boyfriend or girlfriend to the family. The brand also sponsored “Cube”, a television game show watched by 80 million Chinese viewers, which challenges contestants on their intellect, memory and agility. This combination of advertising and functionality has resonated with young Chinese consumers and helped lift Mizone’s off-trade sales to nearly US$1 billion in 2013.

Yangyuan Expands Consumer Base to Children and the Elderly

Like young consumers in China, parents of school aged children and the elderly are also seeking more functionality in their beverages. Yangyuan, a milky walnut beverage, saw its sales grow by over US$1.2 billion between 2008 and 2013 thanks to a consumer belief that walnuts aid in brain function. To emphasise this point, Hebei Yangyuan Zhihui Beverage Co Ltd offered special products with their walnut formulation to students preparing to take school entrance exams. They advised the students to drink one bottle of the product twice daily between 20 March and 20 June 2013. The results indicated that students consuming the beverage performed better, on average, than students who had not consumed it. This helped elevate Yangyuan’s reputation to that of a drink that can help with focus and mental acuity. Subsequent commercials targeted both elderly consumers and women – something most other functional beverages have ignored in their marketing.

The success of Red Bull, Mizone and Yangyuan are just three examples of the potential of functional beverages in China. Similar to many developed markets, consumers are demanding more than just taste and refreshment from their drinks. Their demands now extend to increased energy, improved health and even superior hydration. While successful in China, these strategies will become equally important in the growing markets of Brazil, Russia, Indonesia and India. Global branding, once key to connecting with emerging market consumers seeking to become part of Western culture, is no longer enough. By highlighting these attributes in demographic-specific marketing, beverage manufacturers are differentiating themselves from competitors and reaching core consumers with increased disposable income.

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