NetEase Shudu: Drinks at convenience stores are getting more and more expensive. Many people, even if they work hard and get raises, still feel the pinch when faced with drinks that cost 5 or 6 yuan a bottle. Many have had this experience: feeling thirsty, walking into a convenience store, standing in front of the freezer, looking around for a while, and finally picking the cheapest bottle of water, which still costs 2 or 3 yuan. And the coconut water, sugar-free tea, and other drinks that have become popular in recent years are not only more expensive one by one, but are often placed on the most prominent shelves in convenience stores, as if afraid you won't see them. If you want a cheaper iced tea, you have to bend down to find it on the bottom shelf. Why are drinks getting more and more expensive? Is it just inflation?
Three yuan can hardly buy a drink anymore
Since this year, many beverage companies have announced price increases. On November 2nd, the news of #康师傅涨价# (Master Kong price increase) hit Weibo's hot search. Master Kong, which hadn't raised the price of iced tea in 20 years, announced in a notice that starting November 1st, the suggested retail price for medium-packaged tea and juice would be adjusted from 3 yuan to 3.5 yuan, and the 1-liter size from 4 yuan to 5 yuan. When this news came out, many netizens were upset, saying, "You raise your prices; I'll lose if I buy." Others joked that this windfall would either go to Uni-President or to the "Snow King" (蜜雪冰城) with its 4-yuan lemon tea. Not just Master Kong; in April this year, Pocari Sweat electrolyte water had already adjusted prices. By July, Coca-Cola, which had raised prices in 2021, announced another increase due to rising raw material costs. This wave of price increases has made things worse for families that are not well-off. It can be said that the "three-yuan era" in the beverage industry is almost over.
Shudu Jun visited several convenience stores and noted the price of every drink, finding it hard to find any drink under 3 yuan. Excluding promotions, over 60% of drinks cost more than 5 yuan, and nearly 20% cost at least 7 yuan, which is enough for a breakfast. Looking at the average prices by category, traditional carbonated drinks like Coke and Sprite are relatively cheap, averaging around 4 yuan per bottle. In contrast, coffee drinks are the most expensive, followed by fruit and vegetable juices, often costing over 6 yuan per bottle. Comparing brands, domestic sodas are more expensive than foreign ones like Pepsi and Coca-Cola, and drinks from brands like Genki Forest and Nongfu Spring are on average more expensive than those from Master Kong and Uni-President.
Sugar prices are to blame for more expensive drinks
So why are drinks getting more expensive? According to the announcements from various brands, the reason is simple: costs have risen. Two years ago, Nongfu Spring raised prices due to the impact of rising international crude oil prices, as the PET plastic bottles used for drinks are made from crude oil. This year, many price increases are due to sugar becoming more expensive. Don't underestimate the price of sugar; according to Haitong Securities, sugar accounts for 15% of raw material costs in the soft drink industry. For example, in Master Kong's iced tea, white sugar is the second ingredient on the label. A 500ml bottle of iced tea contains the equivalent of 11 sugar cubes, which is twice the recommended daily sugar intake for adults by the Chinese Nutrition Society. And this year, sugar prices have risen to absurd levels. Due to export restrictions, climate change, and other reasons, several major sugar-producing countries like India and Thailand have reduced production. Data from the Food and Agriculture Organization of the United Nations shows that in September 2023, the global sugar price index reached its highest level in nearly 13 years. With sugar more expensive, beverage companies that use so much sugar naturally can't sit still. According to media reports, some companies have even said that cost increases have reached the limit of what they can bear.
But this doesn't fully explain why drinks are getting more expensive. Sugar is more expensive, but many drinks placed in prominent positions in convenience stores claim to be "sugar-free." Those drinks labeled "0 sugar 0 fat" with minimal ingredient lists are the real "drink assassins." A careful comparison reveals that these drinks marketed as healthier are often more expensive than those with lots of sugar. For example, 420ml of Uni-President's Chaliwang sells for 6 yuan, while 1L of Uni-President green tea is only 5.5 yuan. A pack of low-sugar Yakult is 4 yuan more expensive than the original. To some extent, this can also be explained by cost. For instance, sugar-free Dongfang Shuye uses higher-quality tea leaves than many tea drinks. For drinks with artificial sweeteners, to achieve similar sweetness, adding 20 grams of erythritol to 500ml costs about 0.5 yuan more than using white sugar.
Behind the high prices lies a revolution in the beverage industry
But these explanations are not enough. The endless stream of new drinks selling at higher and higher prices hides a revolution in the beverage industry. Think about when Dongfang Shuye first came out; it was criticized for being expensive and bad-tasting. Chinese people, used to sweet tea drinks, didn't buy it. What was the difference from drinking overnight tea at home? Now Dongfang Shuye is selling better and better, with distributors scrambling to get stock, and office workers drinking it like water every day. Also, brands like Suntory and Genki Forest, which were previously looked down upon, have become cash cows for convenience store owners, forcing old companies like Coca-Cola and Master Kong to launch new products with a health focus.
In the end, times have changed. In the past, when we had just achieved basic needs, being able to drink a sweet beverage was a delight, and no one thought about health. Now, our wallets are fuller, and we have many more choices. Drinking overly sweet drinks not only may not bring the same joy but also makes us frown and pinch the fat on our bellies. Nielsen surveys show that nearly 80% of consumers now pay attention to the ingredients of food and beverages. Since people are increasingly health-conscious, businesses have the confidence to set higher prices. For example, would you spend 4 yuan on tea with too much sugar, or 5 yuan on sugar-free or artificially sweetened tea? Many would choose the latter. Spending that extra yuan for health, or the psychological experience of feeling healthy, is a win-win. It is for this reason that the "White Paper on Sugar Reduction in Healthy China Food and Beverages 2021" shows that sugar-free drinks have been selling better and better in recent years, with a compound annual growth rate of nearly 40% from 2014 to 2021. It is predicted that by 2027, the sugar-free beverage market will reach 27.66 billion yuan. Taking Nongfu Spring as an example, their sugar-free tea, pure juice, and other categories have seen retail sales growth far exceeding other ordinary categories.
Not only do they sell well, but these mid-to-high-end drinks also have high gross margins. For example, Nongfu Spring's higher-positioned tea and functional drinks have gross margins above 50%. In contrast, Master Kong and Uni-President, which are less involved in mid-to-high-end drinks, have beverage business gross margins below 40%. Moreover, in the beverage industry, low prices used to be a way to open the market, but now that old path is no longer viable. The low-price market is mostly monopolized by the mainstream products of a few leading companies. Taking the high-end or differentiated route and innovating has become the new way out for many beverage companies.
Because of this, we find that besides old products raising prices, many new products launched by leading companies are generally priced higher than old ones. And these expensive drinks leave more profit for convenience stores and other channels. Taking Genki Forest sparkling water as an example, they leave 46% of the profit to terminals and channel partners. Convenience store owners are more willing to sell them, making it easier for beverage companies to open the market.
So back to the question at the beginning: why are drinks more expensive? The reasoning is actually counterintuitive. It's not that if they are more expensive, people won't buy; rather, it's precisely by becoming more expensive, creating different concepts, and telling new stories that they can cater to consumers' ever-changing needs. Just like Heytea turned street-side milk tea from a few yuan to 10-20 yuan per cup, redefining the cost of a cup of milk tea, but many people are still willing to pay for better ingredients and taste.
However, from another perspective, now that sugar-free or artificially sweetened drinks are expensive, traditional drinks with lots of sugar are cheaper, and even a 1-liter bottle of Coke sells for only 4-5 yuan. This means such drinks are more likely to be chosen by people of lower economic status. A study published in PLOS Medicine shows that poorer families are more likely to buy large amounts of sugary drinks. On a deeper level, isn't this a form of hidden inequality?