Budweiser APAC, the world-renowned beer giant, is expanding its premixed cocktail brand MIXXTAIL (魅夜) nationwide after a trial in Shenzhen in March. According to the leading self-media in the food and beverage industry, Budweiser APAC officially launched MIXXTAIL nationwide today at the Shanghai Shangri-La Hotel.

Observations of MIXXTAIL premixed cocktails show that, in addition to the common mojito flavor, there is also a Long Island Iced Tea flavor.

Budweiser APAC also launched premixed cocktail products in the U.S. market earlier this year. The consumption habits of the younger generation are changing Budweiser APAC's product development strategy, as these consumers prefer the flavors of spirits like whiskey and tequila. Budweiser APAC stated that it hopes to win a broader alcoholic beverage market, not just beer.

In contrast, in the Chinese market over the past two years, premixed cocktails as a niche segment have entered a period of rapid growth. Currently, the main players in the market are RIO under Baijiu (百润) and Breezer under Bacardi Rum.

According to data from the China Alcoholic Drinks Association and the Shanghai Brewing Industry Association, the domestic premixed cocktail market sales volume grew from nearly one million cases in 2006 to nearly ten million cases by 2013. In September 2014, Baijiu Co., the parent company of the RIO brand, announced a restructuring. In the restructuring plan, the company mentioned that by 2020, China's premixed cocktail market sales volume would reach over 150 million cases, with sales revenue reaching the tens of billions of yuan level—equivalent to the current size of Japan's entire RTD (ready-to-drink) market (estimated at 11 billion yuan)—and it is expected to become an important alcoholic beverage category.

2015 is nearing its end. This year, cocktails have been full of ups and downs. The leading brand RIO earned over 600 million yuan in the first half of the year, with products in short supply; but in the second half, the situation reversed, with distributor inventory piling up and slow market sell-through, leaving the company's monthly profit only a fraction of the first half's! Listed company Black Bull (黑牛) loudly announced a strategic shift to the cocktail industry, spending 10 million yuan to hire Kim Soo-hyun as spokesperson, but after half a year, revenue was only a little over 4 million yuan! Cocktails have suddenly entered winter; is the industry really rapidly entering a deep adjustment period?

From "Sold Out" to "High Inventory"

"From 2009 to 2013, China's cocktail market maintained a high growth rate of over 30% annually," "The cocktail industry has shown explosive growth," "The cocktail market is booming"... RIO completed 1.6 billion yuan in sales in the first half of 2015, which gave the entire industry a shot in the arm.

However, the good times did not last long. Recently, Baijiu Co., the leading cocktail company owning the RIO brand, announced that it had lowered its net profit forecast for January-September 2015 from 850-960 million yuan to 671-738 million yuan. Given its first-half net profit of 612 million yuan, this means RIO's third-quarter profit was only 60-100 million yuan. RIO's announcement officially signaled that the cocktail industry has entered a harsh winter. In addition, it was revealed that there were poor sell-through and serious cross-regional selling, with companies forcing distributors to stock up, leading to large channel inventories. (See the article published on October 22, "Once Sold 1.6 Billion in Half a Year, Now Poor Sell-Through: What's Wrong with RIO?")

In fact, RIO's problems are not isolated. Since May and June of this year, major cocktail brands have successively experienced poor sell-through, such as Black Bull (Dachy) and Huiyuan (Zhenxuan), which have had unfavorable starts and poor performance. Liu Ruoxia, chairman of Blue Genie (蓝精伶), said that RIO's downward profit forecast is just a signal: Dachy cocktails spent 10 million yuan to hire Kim Soo-hyun as spokesperson, but performance is not optimistic; a food giant that ambitiously entered the cocktail industry has most of its first batch of products still sleeping in factory warehouses... The cocktail industry has entered a period of deep adjustment. As for how long the adjustment will last, how big it will be, and how many players will remain after the adjustment, these are all unknown.

Why Has the Cocktail Market Suddenly Changed?

Cocktails, as a cross-border beverage between drinks and alcohol, have been highly sought after. In just a few months, they have gone from many companies vying to join and sales showing blowout growth to a large number of products stagnating in distributor warehouses and some companies exiting the market. The cocktail market has been like a roller coaster, and the reasons for the current market situation have become a hot topic in the industry.

1. Overspeed Expansion Triggers Market Problems

Yang Yonghua, general manager of Shanghai Guanfeng Enterprise Management Consulting Co., Ltd., said that cocktails are indeed in a popular stage now, but "having a market without volume" is also a reality. Currently, more and more companies are joining the competition, blindly expanding, and spreading products across the national market and all channels in a short period. This has triggered a series of market problems, such as product counterfeiting and price wars.

"Cocktails place great emphasis on taste, and the target consumer group is young people aged 18-30, whose palates are very picky," said A Yong, marketing director of U Cool Six Degrees. "However, the market is now flooded with counterfeit and low-priced products, and differences in quality and taste will cause consumers to lose favor with the entire cocktail category."

2. Optimistically Treating Distribution Volume as Demand

For a time, cocktail companies went all out to expand recruitment and strive to achieve a state where products are available wherever consumers go. Yang Yonghua said, "At first, manufacturers and distributors were optimistic and excited, treating distribution volume as consumer demand, without considering whether inventory and the channels they controlled could support sales."

In fact, the product attributes of cocktails determine that they are not ready-to-drink in various circulation channels and cannot sustain explosive volume. Large companies have established relatively complete channel foundations, with presence in special channels, supermarkets, and circulation channels. Later-entering brands, due to weak strength, can only rely on circulation channels to achieve sales targets. Although circulation channels respond fastest to the market, they cannot form a brand in consumers' minds and attract repeat consumption. Therefore, once sales are hindered, companies without a solid channel foundation will quickly withdraw.

3. Consumers' Fresh Consumption Fades

The popularity of "Running Man" sponsored and product-placed by RIO, and Black Bull's new product Dachy hiring Kim Soo-hyun as spokesperson... Brand promotion has greatly boosted sales. Driven by this atmosphere, many consumers consume cocktails with a "try something new" mentality. However, most products lack unique genetic connotations, and the generally high prices do not match the high value. After the advertising effect fades, sales naturally decline.

Where Is the Cocktail Industry Headed in 2016?

So, where is the cocktail industry headed in 2016? Originally, the end of the third quarter to the fourth quarter should be the peak season for the cocktail category. At this stage, the market sales growth rate is declining and distributor inventory is high. Does this mean the overall sales of the industry are declining? Should we continue to push hard, or take a step back?

1. Breakthrough in Local Markets

Industry insiders say that if cocktail sales are to continue growing, they can be extended in three ways: first, expand the consumer age range, breaking the 18-30 age limit; second, expand the consumer group, including some males in the consumption positioning; third, create more consumption scenarios to increase consumption frequency.

Yang Yonghua said that at present, the urgent task for production companies is to shrink the market and channels and return to the main markets and channels for cocktail sales. At present, some companies have already shrunk their markets to coastal areas such as Guangdong, Fujian, and Zhejiang, and have also withdrawn channels to concentrate on university campuses, nightclubs, and restaurants, such as Black Bull Food. Cultivating local markets first and then driving the development and layout of the national market is the right path.

2. Increase Focus on Lower-Tier Cities and Convenience Stores

According to Nielsen research, by 2020, the per capita disposable income and consumption capacity of consumers in lower-tier cities will be close to the current average levels of key cities. Therefore, lower-tier cities are a "big cake" for cocktails that needs to be entered quickly, developed well, and cultivated deeply.

In addition, convenience stores have become the new main battlefield for cocktail competition. Currently, cocktail sales in convenience stores account for 12.2% of total national modern channel sales, exceeding the proportion of overall FMCG (5.5%). Therefore, convenience stores are increasingly becoming the new main battlefield for cocktail competition.

In short, 2016 will be an extremely difficult year for the cocktail industry, and market chaos will continue. The leadership position established by RIO through high investment will continue and will not be shaken after the market enters healthy development. Most brands will be eliminated, while brands with solid foundations and strong internal strength will see greater growth.

Source: "Leading Self-Media in Food and Beverage Industry" "Sugar, Tobacco, and Alcohol Weekly Food Edition"

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