In 2021, the beverage industry emerged from the downturn of 2020. Mainstream companies all achieved growth, including traditional stalwarts such as Coca-Cola, Nongfu Spring, Wahaha, and Reignwood. Genki Forest also saw significant breakthroughs with multiple factories commencing production in 2021. Eastroc Beverage went public, its stock price soared, and it solidified its position as the second-largest player in the energy drink market. Product iteration was the main driver of growth for beverage companies. The popularity of sparkling water prompted many companies to increase their focus in this area. Coca-Cola, Pepsi, Nongfu Spring, Wahaha, and Reignwood all launched new sparkling water products. Genki Forest continued to strengthen its advantage in sparkling water, introducing several new flavors. Functional beverages also became a key focus for companies. Eastroc Beverage launched "She Neng" women's energy drink. Genki Forest's Alien electrolyte drink targeted a niche market. Yangyuan's 2430 emphasized memory-boosting benefits. Nongfu Spring expanded its mineral water and "tea brewing water" categories. (Image source: Dawei Comprehensive Building Supermarket) In terms of sales channels, online live streaming and community group buying disrupted traditional sales channels, causing many companies to struggle, even "forget their roots," leaving distributors hurt and forced to withdraw. Zong Fuli became the general manager of Wahaha, and although still one step away from chairman, she was praised by Zong Qinghou as "better than me," signaling that the era of Zong Fuli at Wahaha is imminent. Industry insiders believe that the beverage industry in 2021 still had obvious characteristics: functionalization, segmentation, and high-end positioning, which matched the industry's development direction and trends, as well as the needs of enterprises and the core demands of consumers. However, overall, innovation highlights were insufficient, old products struggled to grow, and R&D costs were rising. The future beverage market will no longer be won by cultural elements and consumption habits alone; the demand for health and nutrition is increasing, marked by "clean labels." ****Sales Recovery, Market Large Enough In 2021, despite the ongoing COVID-19 pandemic, consumers ventured outdoors more, beverage consumption recovered, and corporate finances improved. In 2020, due to a sharp decline in out-of-home consumption, large beverage companies like Coca-Cola saw significant sales declines. In 2021, Coca-Cola's performance recovered. After first and second quarter revenues grew 5% and 42% year-on-year respectively, third quarter revenue surged 16% to $10.042 billion, with net profit of $2.475 billion, up 42% year-on-year. Among domestic representative beverage companies, Nongfu Spring's revenue in the first half of 2021 reached RMB 15.175 billion, up 31.4% from RMB 11.545 billion in the same period of 2020. Profit reached RMB 4.013 billion, up 40.1% from RMB 2.864 billion in 2020. Wahaha's revenue is estimated to have grown 17% in 2021, which would bring it back to RMB 50 billion, reaching RMB 51.4 billion. This would be the highest growth rate since 2013. Emerging brand Genki Forest also achieved rapid growth, but has not disclosed specific figures, leading to various estimates of RMB 7.5 billion, RMB 8 billion, or even RMB 10 billion. In the functional beverage market, China Red Bull announced full-year 2021 sales performance, with orders locked at RMB 21.8 billion and deliveries at RMB 22.1 billion, up 4% year-on-year. Eastroc Beverage's performance forecast showed that net profit attributable to shareholders for 2021 is expected to be between RMB 1.15 billion and RMB 1.25 billion, an increase of RMB 338 million to RMB 438 million compared to the same period last year, representing a growth of 41.61% to 53.93%. The industry's performance recovery is most closely related to the stabilization of the COVID-19 pandemic. Coca-Cola stated that the negative impact and uncertainty caused by the pandemic are gradually diminishing, and the market is slowly recovering. Nongfu Spring also stated that in the first half of 2021, China's epidemic prevention and control achievements continued to consolidate, the national economy continued to recover steadily, market sales gradually improved, and the beverage industry developed further. In addition to major brands, small and medium-sized brands were also very active in 2021. Beiyang is preparing to go public together with Hongxing Erguotou and Yili Bread. Xi'an Ice Peak also submitted a listing application to the CSRC. Hankou No.2 Factory had relatively fewer moves, losing its initial edge. Dayao, with its low-price advantage, "dominated" the low-end market in the north. A person with years of experience in consumer goods sales told Blue Whale Finance reporters that major brands and industry leaders expand the industry's space and breadth through innovation, earning high profits. The lower-tier market is vast, and many brands earn profits in the low-price market. They may not become century-old enterprises like industry giants, but they can still find their own survival space. According to data from Euromonitor International and China Commercial Industry Research Institute, China's beverage industry sales increased from RMB 499.72 billion in 2016 to RMB 603.17 billion in 2020, and it is estimated that beverage industry sales will reach RMB 629.6 billion in 2021. ****Innovation Monotonous, Sparkling Water Favored Looking at 2021, Zhu Danpeng, a Chinese food industry analyst, believes that the beverage industry's characteristics are very obvious: functionalization, segmentation, and high-end positioning, matching the industry's development direction and trends, as well as the needs of enterprises and the core demands of consumers. In terms of products, sparkling water remained the most watched category in 2021. Mintel data shows that 26% of consumers drank more flavored sparkling water in the past six months, especially women aged 18-39, consumers living in first-tier cities, and those with higher education levels. Genki Forest has an increasing number of products, but it has not lost ground in sparkling water. In 2021, it launched new flavors such as Summer Black Grape, Yulin Green Apple, and White Strawberry Coconut. A distributor in the FMCG industry told Blue Whale Finance reporters that Genki Forest's sparkling water has a rich variety of flavors and has launched limited-edition products. Although the sparkling water category is cooling down, new flavors continuously boost popularity, meeting young people's "fickle" taste preferences and invigorating the market. In addition to Genki Forest, Nongfu Spring, Wahaha, Coca-Cola, and Reignwood all launched sparkling water products. The beverage world in 2021 seemed to be dominated by sparkling water. Wahaha launched Yuanqi Bobo, endorsed by a top celebrity. Nongfu Spring also launched several sparkling water products, attracting attention. Reignwood's Voss sparkling water, Coca-Cola's AH!HA! Xiaoyuzhou sparkling water, and Pepsi's Bubly sparkling water were also introduced. Coca-Cola and Pepsi were originally industry leaders, but in China's rapidly changing market, they have gradually become followers. Not only these two brands, but all foreign brands in the beverage sector are facing this situation, which indirectly proves that domestic brands are better at capturing young consumers in terms of operations. It is worth noting that the beverage industry has received high attention from all sectors. In 2021, multiple brands trended on social media, including Genki Forest's lactose incident and ultra-low price incident, Wahaha's dismissal of Wang Leehom as spokesperson, and Nongfu Spring's Fukushima white peach incident. These incidents serve as a wake-up call for corporate operations. Beverages are closely related to consumers and highly scrutinized; any minor mistake can be amplified in this fragmented and self-media-driven internet era. Baidu Index shows that on December 18, due to the "Wang Leehom" incident, Wahaha was again in the spotlight, with an index of 15,828. On June 28, Nongfu Spring's Baidu Index reached 33,876 due to its sparkling water advertising slogan "Produced in Fukushima Prefecture, Japan." Genki Forest's index exceeded 20,000 in April, June, August, and September. Such high attention was not due to product breakthroughs. A senior industry insider told Blue Whale Finance reporters that there are many new products, flavors, and concepts, but little novelty, especially concepts like sugar-free, which are debatable. Mintel Senior Research Analyst Lu Ruixun believes that after the continued popularity of sparkling water, sparkling beverages have been redefined by claims of sugar-free, low/no/reduced calories, and low/no/reduced fat. However, the prevalence of "reduced" claims in new products has also led to increased product homogenization. Brands should cater to consumers' new consumption habits after the pandemic, enhance their home experience, and innovate around nutritional benefits and low sweetness to seek breakthroughs. However, the penetration rate of sparkling water is still not high. Industry insiders believe that how sparkling water can penetrate lower-tier markets will be key to future breakthroughs. In lower-tier markets, traditional brands represented by carbonated beverages still have higher penetration. ****Reinventing Existing Products A popular saying in the consumer circle is, "All existing products are worth doing again." Many beverage companies are now following this approach, such as Coca-Cola's ginger ale, Genki Forest's Zuixi Apricot Tea, and some low-alcohol beverages. However, the approach to "doing it again" needs to change. With the ongoing impact of the COVID-19 pandemic and the nationwide consumption upgrade, people are paying more attention to their health, which in the beverage sector means healthier drinks will become increasingly popular. The most important marker of health-oriented products is "clean labels." A post-2000s consumer told Blue Whale Finance reporters, "I buy products endorsed by my idol, but I also buy based on how clean the product label is." Secondly, personalization and diversification are key. Taste is paramount, and more consumers are willing to pay higher prices for personalized, customized products. This requires companies to use more authentic ingredients and processes, and forces upstream production to be more flexible. Product segmentation for different consumers is essential. Winning the youth wins the world. Paying attention to consumers should be the top priority in the beverage sector, especially conducting segmented research on "Gen Z" consumers to create products they like. Judging from companies that have already released new products for 2022, market segmentation is particularly important. Wahaha's 2022 new products feature "precise segmentation," "healthiness," and "trendy fun." By accurately profiling target consumers, they designed "Dianjing" soda water specifically for young people pursuing e-sports dreams. The aforementioned distributor also told Blue Whale Finance reporters that in the current market environment, companies are required to accelerate new product development. Channel partners will not follow companies to cultivate new products. Previously, a product needed 1-2 years to cultivate; now it needs short, fast trial sales of 1-2 months, with rapid product iteration. If market feedback is not ideal, channel partners will quickly switch products because the market is not short of products. "It's too hard to think long-term, not because channel partners don't want to, but because the product companies behind them lack the determination." It is worth noting that mainstream Chinese consumers are now paying more attention to "domestic brands." Even in the coffee sector, the "domestic brand" label is being emphasized. At the end of 2021, Nestlé's exclusive China-local high-end coffee brand "Gan CAFÉ" officially launched a Yunnan coffee flavor box, showcasing the unique beauty of specialty coffee from Yunnan. They also released a "Yunnan Coffee Flavor Map." In 2022, Nestlé will optimize and launch this product to the market. Environmental and social sustainability. This may seem a bit abstract, but many foreign companies have already made commitments at this level. Coca-Cola has committed to achieving net-zero carbon emissions by 2025, and Nestlé has committed to net-zero greenhouse gas emissions by 2050. Chinese companies should also make relevant commitments based on their own circumstances. Source: Xiaocainv Tribe (ID: cjnjzbl) Author: Li Zhenxing -END-