---
title: "Beverage Industry Enters the 5-Yuan Mainstream Price Zone: What's the Basis for Price Increases?"
description: "Since 2015, China's beverage industry has bid farewell to the strong double-digit growth of the past and entered an adjustment period alongside economic transformation. According to the National Bureau of Statistics, soft drink sales volume grew only 4% year-on-year in 2015. In 2016, heavy rain in June and July across the north and south further dampened the industry. Despite challenges, Uni-President achieved 192% profit growth in 2015, driven by premium instant noodles and new beverage products like Xiao Ming Tong Xue, which contributed over 2.5 billion yuan in revenue."
author: "New Distribution"
publisher: "New Distribution"
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published: "2017-03-28"
language: "en"
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# Beverage Industry Enters the 5-Yuan Mainstream Price Zone: What's the Basis for Price Increases?

> Since 2015, China's beverage industry has bid farewell to the strong double-digit growth of the past and entered an adjustment period alongside economic transformation. According to the National Bureau of Statistics, soft drink sales volume grew only 4% year-on-year in 2015. In 2016, heavy rain in June and July across the north and south further dampened the industry. Despite challenges, Uni-President achieved 192% profit growth in 2015, driven by premium instant noodles and new beverage products like Xiao Ming Tong Xue, which contributed over 2.5 billion yuan in revenue.

Since 2015, China's beverage industry has bid farewell to the strong double-digit growth of the past and entered an adjustment period alongside economic transformation. According to the National Bureau of Statistics, soft drink sales volume grew only 4% year-on-year in 2015. In 2016, heavy rain in June and July across the north and south, the peak sales seasons, further dampened the already adjusting industry. It is expected that the industry's growth this year will remain bleak.

Although leading companies like Wahaha, Master Kong, Coca-Cola, and Uni-President have all faced declining performance to varying degrees, Uni-President stood out in profit growth, achieving a 192% year-on-year increase in 2015. Last year, Uni-President made frequent moves, with the premiumization of instant noodles and new beverage strategies becoming industry focal points. In the beverage sector, Xiao Ming Tong Xue became a representative of Uni-President's many new products. Uni-President highlighted that Hai Zhi Yan and Xiao Ming Tong Xue had strong sales momentum, with combined revenue exceeding 2.5 billion yuan in 2015.

**So what is the basis for price increases in China's beverage industry?**

**Weakness in mainstream products: the low-margin, high-volume model is in trouble**

Since 2015, China's economy has been in deep adjustment, and beverages, as a traditional industry, have been affected. Most mainstream products have seen weak growth.

The previous low-margin, high-volume model, under economic instability, has reduced distributors' and terminals' willingness to stock up, as they are reluctant to hold inventory. Traditional best-selling mainstream products, with transparent prices and high market pressure, are less attractive to distributors who prefer new products with opaque pricing to avoid pressure from manufacturers. This has led to the widespread demise of many low-priced, low-tech, and undifferentiated beverage products.

The most typical example is room-temperature lactic acid bacteria drinks. In 2015, many companies rushed in, but by 2016, almost all had ceased operations, with few survivors. Similarly, Wahaha, despite launching many new products with new packaging and names each year, has struggled to reverse its declining performance.

Under market pressure, it is imperative for companies to break through on pricing. Since volume growth is difficult, companies must seek profit breakthroughs.

**Niche market breakthroughs: new consumer groups are rising**

The rise of the "post-90s" and "post-00s" consumer groups, educated by internet culture, has fueled the rapid development of niche products. These groups grew up during China's affluent period and have stronger purchasing power than the "post-70s" and "post-80s." They have accumulated family wealth, no pension or mortgage pressures, and thus exhibit personalized, interest-driven consumption with low price sensitivity. For them, 3, 4, or 5 yuan products are all the same. They care only about interests and hobbies; if a beverage product moves them, they won't hesitate to pay any price.

If the "post-70s" and "post-80s" are conformist consumers who believe in authority, making mass-market products attractive, then the "post-90s" and "post-00s" are individualistic, pursuing niche and interest-driven consumption, a personal value-oriented consumption. Therefore, niche products with distinct personalities are more likely to move them and make them willing to pay. This is the path to success for Xiao Ming Tong Xue and Cha Pai.

If cola is the drink of the "post-70s," iced tea is for the "post-80s," and Mizone is for the "post-90s," then the drink of the "post-00s" is products like Xiao Ming Tong Xue.

**Functional beverage operations have raised the industry's price space**

Functional beverages, represented by Red Bull, have long been operated and accumulated, pulling up the beverage industry's price range and forming a 3-6 yuan price gap. Additionally, the price positioning of various regional specialty functional products has created a solid consumption base and purchasing atmosphere for 4-5 yuan products. With Wanglaoji and JDB herbal tea priced at 5 yuan, the market has a solid price foundation, giving traditional beverage prices room to rise.

Since 2013, the entire Chinese beverage market has seen 4-yuan products gradually emerge. Whether tea drinks, plant-based drinks, or even purified water, companies have jumped out of the 2 and 3 yuan price points to break through. Although few have succeeded, they have fully educated the industry's distributors and channels, who are gradually accepting higher-priced beverages. Therefore, in a poor industry environment, distributors are seeking profit growth.

**Currency depreciation lays the foundation for price increases in the beverage industry**

Data from the central bank shows that at the end of 2015, M2 balance was 139.23 trillion yuan, up 13.3% year-on-year, exceeding the initial target of 12%. Narrow money (M1) and M2 both grew rapidly. M1 balance was 40.10 trillion yuan, up 15.2%; currency in circulation (M0) was 6.32 trillion yuan, up 4.9%.

The continuous depreciation of the RMB has laid the foundation for price increases in the beverage industry. Facing weakening purchasing power, rising labor costs, commodity prices, and financing costs, corporate profitability has generally declined. Among 1,979 beverage manufacturing enterprises above designated size, 224 were loss-making, up 6.16% year-on-year. In such an economic environment, beverage companies cannot remain immune; to survive, they are forced to raise prices in line with the market.

As the foundation of leading products and companies at the 4 and 5 yuan price points solidifies, in the next 3-5 years, the Chinese beverage market will mainly compete around this price range. To win market breakthroughs, companies must solidify their products in this range and then seek new product breakthroughs at the 8-10 yuan level to meet market and economic development needs. In the process of price positioning, companies must also pursue more original and innovative products to cater to consumers' increasingly niche and interest-driven needs, using more distinctive products and brands to satisfy increasingly discerning consumers and win their praise. In the future, only products that move consumers will make them pay.

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