Source | Dao Zong You Li Over the past year, Coca-Cola's two major operators in China, China Foods and Swire Coca-Cola, have both underperformed. In the first half of 2024, Swire Coca-Cola (mainland) generated revenue of 115.46 (billion yuan?), down 4.02% year-on-year; China Foods' first-half revenue was 113.35 billion yuan, down 9% year-on-year. Swire Coca-Cola's total sales volume in mainland China in 2024 fell 1% year-on-year, and its active retail outlets also declined 1% year-on-year. Similarly, PepsiCo's second-quarter 2024 financial results showed quarterly revenue of $22.5 billion, only 0.8% year-on-year growth, below market expectations by $100 million. Notably, Pepsi-Cola's global sales volume fell 3% in Q2, marking the eighth consecutive quarter of volume decline. According to the "2024 China Beverage Market Trends and Outlook," the overall Chinese beverage market grew 6.2%, with categories exceeding the average including ready-to-drink tea, functional drinks, juices, and ready-to-drink coffee. Carbonated drinks have lost their former momentum. This shift is quickly visible at the retail level. In shopping malls, as young people sip milk tea and chat, it seems destined that cola-led carbonated drinks are on the path to "extinction." The False Prosperity Behind the 'Sugar-Free' Transition Currently, the consumption scenarios for carbonated drinks continue to shrink. It is reported that in most convenience stores in first-tier cities, the share of carbonated drinks has dropped from a peak of 50% to 25%, replaced by various teas, sugar-free drinks, and coffee. This is the biggest crisis facing the entire carbonated beverage market: as consumption trends become healthier, more substitute brands and products flood the market. Data shows that 68% of consumers have a desire to control sugar intake, with younger people and those concerned about weight showing even stronger intentions. In a survey by iyiou, the main reason sugar-free drinks have replaced carbonated drinks is that they are sugar-free and guilt-free, with about 63.6% of consumers saying this determines their purchase decision. In recent years, carbonated beverage companies have accelerated their transition to the sugar-free track. Sugar-free Sprite, sugar-free Coke, and sugar-free 7-Up are now common on supermarket shelves. Their sales figures seem to add some confidence to the resurgence of carbonated drinks: in 2022, sugar-free Coca-Cola sales grew 11%, and by Q1 2024, global sales grew 6%. According to Meituan data, from January to October 2022, delivery sales of sugar-free Coca-Cola grew 132%, far exceeding the platform's average growth of 28% for Coca-Cola products. But does this seemingly sustained sales growth represent a new path for carbonated drinks? First, the sugar-free consumption boom has not actually driven the soda category. Data from Mashangying shows that sugar-free soda's market share in convenience stores fell from 6.25% in Q3 2022 to 4.13% in Q2 2024. In hypermarkets, it fell from 3.91% in Q3 2022 to 3.07% in Q2 2024. Nielsen reports that sugar-free soda brands, including Coca-Cola Zero, Pepsi Zero, Genki Forest, and Watsons, saw growth peaks in 2022 but all experienced slowing growth in 2023. In the sugar-free track, the real winners are traditional Chinese health drinks and sugar-free tea beverages. Currently, there are up to 300 sugar-free tea products on the market, led by Oriental Leaf. Kantar consumer reports show that in 2024, new growth in the domestic beverage industry came from process innovation, ingredient enhancement, and traditional Chinese health concepts. 46% of consumers often or always check ingredient and nutrition labels. The traditional Chinese health drink category is becoming a new hotspot after sugar-free tea, with sales growing over 182% year-on-year in 2024. Brands like Genki Forest, Nongfu Spring, Master Kong, and Uni-President have ridden this wave, directly diverting consumers away from carbonated drinks. Moreover, the sugar-free track is nearing saturation. According to iiMedia Research, China's sugar-free beverage market is expected to reach 61.56 billion yuan in 2025, but growth has slowed from 40% (2014-2019) to 12%. Second, the "growth myth" of sugar-free cola brings significant cost issues. Leading carbonated beverage companies like Coca-Cola rely on external supply chains for sweeteners. Supplier financial reports show that Coca-Cola is consistently among the top two customers, with combined revenue from Nestlé and Coca-Cola accounting for 40.5%, 39.3%, and 32.4% in recent years. As the sugar-free track exploded, raw material costs climbed. In 2023, sweetener raw material prices stabilized at around 100,000 yuan per ton. Starting in August, prices rose steadily, and by January 2025, they returned to 200,000-250,000 yuan per ton. In just five months, some sweetener prices increased six times. Additionally, in the sugar-free market, the brand power of Coca-Cola and Pepsi has been replaced by emerging brands. The "White Paper on Sugar Reduction in Healthy China Beverage and Food" shows that major erythritol users like Genki Forest and Coca-Cola saw revenue growth rates of 309% and 40%, respectively. In other words, in the sugar-free business, Genki Forest's revenue growth is seven to eight times that of Coca-Cola. Transitioning to sugar-free will not make the carbonated beverage market worry-free. Under the triple pressure of health consumption upgrades, accelerated category substitution, and brand value dilution, the growth space for sugar-free cola has been severely compressed. Struggling to Break Through? Are carbonated drinks really not selling anymore? Looking closely at the entire consumer market, there are still some areas with undeniable growth potential. To this day, in scenarios like festivals and night-time economy, carbonated drinks remain irreplaceable. During the Spring Festival, sales of Coke and Sprite typically surge. Swire Coca-Cola data shows that the Spring Festival holiday once contributed 30% of its sales. This inspires carbonated beverage companies to explore new consumption scenarios. In 2024, on-the-go, dining, sports events, and festivals have become battlegrounds. For instance, Coca-Cola launched a 248ml pocket pack for on-the-go scenarios and, capitalizing on the BBQ dining culture, held "Refreshing BBQ Festivals" in nine cities. As milk tea further enhances its social attributes, carbonated drinks' value is increasingly concentrated on the dining table. Surveys show that by purchase channel, consumers buy carbonated drinks in restaurants, convenience stores, and mid-to-large supermarkets at 78.4%, 55.9%, and 31.2%, respectively. Domestic carbonated brands have overtaken Coca-Cola and Pepsi precisely through the dining channel. It is reported that over 85% of Dayao's sales come from the dining channel. Interestingly, the dining channel can further stabilize brand profits compared to other retail channels. For example, when Dayao soda is supplied to restaurants, a 500ml glass bottle costs only 2.3 yuan; buying 10 cases (9 bottles per case) gets one free, and returning 9 empty bottles earns one bottle. Dayao soda's retail price is 5-6 yuan per bottle, giving restaurants and grocery stores a gross profit of 3-4 yuan per case. For the company, the margins are even more impressive: in 2023, Dayao's gross margin reached 300%, and as of May 2024, it remained as high as 230%. Currently, increasing traditional channel coverage has become a collective goal in the carbonated beverage track. In 2024, Coca-Cola added over 250,000 sales points and nearly 600,000 refrigeration units globally. This move aims not only to expand dining channels but also to further penetrate lower-tier markets. If there is one tier where carbonated drinks are disappearing fastest, it is first- and second-tier cities. Conversely, lower-tier markets have become the core engine for Coca-Cola and others. Previously, Genki Forest quickly rose to prominence by aggressively expanding into lower-tier markets, even subsidizing mom-and-pop stores to grab territory. Finally, carbonated drinks must continue to innovate. Although the sugar-free trend may be slipping away, diversified consumer demand means consumers still have high expectations for higher quality, healthier, more functional, and more scenario-driven products. This is key to breaking the deadlock. Currently, leading companies are trying to "educate" the consumer market. In February 2025, Coca-Cola announced the launch of its first prebiotic soda line, Simply Pop, in the U.S. market. Meanwhile, Pepsi is also eyeing prebiotics, planning to launch a prebiotic soda new product this spring. From the sugar-free concept to prebiotics, the latter is attempting to create a new trend. Prebiotic sodas are already selling well overseas, with sales soaring, and emerging brands like Culture Pop, Turveda, Cove, and SunSip have appeared. Relevant reports mention that the proportion of new carbonated beverage products with functional claims related to probiotics, digestive health, and prebiotics increased from 1% in 2019 to 12% in 2023; among them, products related to digestive health grew from 2% to 10%. Although there is no movement domestically yet, judging by Coca-Cola's intentions, they may soon catch wind of it. Will the Beverage Circle See More Winds in the Future? In 2024, China's beverage industry output reached 188 million tons, up 7.5% year-on-year; total revenue was 534.8 billion yuan, up 4.8%; and total profit was 57.3 billion yuan, up 13.9%. This was the first growth after two consecutive years of decline. But today's beverage market no longer has a place for carbonated drinks. According to Euromonitor data, as early as 2023, ready-to-drink tea's market share was on par with carbonated drinks, each accounting for about 19% of retail sales. Leading companies like Uni-President and Nongfu Spring saw ready-to-drink tea revenue surpass their other main businesses. Will there be other opportunities in the beverage track in the future? For Coca-Cola, this carbonated beverage giant is trying to change its image in the consumer market, transforming from a carbonated beverage company into a diversified beverage brand. When Nongfu Spring's Oriental Leaf became popular, Coca-Cola launched its own tea brand; when Vita Lemon Tea became popular, Coca-Cola acquired Hong Kong's Sunshine Lemon Tea; when coffee won over young people, Coca-Cola introduced Costa Coffee... The beverage circle has always been good at imitation, and the volatile consumer market makes it hard for companies to adapt, making following trends the most advantageous strategy. Even brands that have benefited from consumption trends can lose their way. Currently, Suntory, Genki Forest, Master Kong, and other leading companies are launching new products at an increasingly fast pace, leading to severe homogenization. Notably, these big brands not only face sudden changes in the consumer market but also must guard against the rise of small brands, especially in the short-video era. In 2024, Douyin e-commerce beverage category grew 65.2% year-on-year, with a compound annual growth rate of 116% from 2021 to 2024. On short-video platforms, brands like Maigucun, Lan'an Shenlin Zhi Quan, Qingshang, ONLYTREE, Changsheng Zhi Mai, Sangjia 1, and Weikesian have performed well. In the first 10 months of 2024, Qingshang achieved sales of over 400 million yuan on Douyin, surpassing well-known brands like Huiyuan, Coca-Cola, and C'estbon to become the top share holder. A stark comparison: Nielsen data shows that Coca-Cola's brand awareness among Generation Z fell from 78% to 63% in 2023, reflecting the reality of the carbonated beverage industry. But new brands thriving on short-video platforms quickly capture young people's attention by partnering with influencers. Chanmama data shows that since 2024, Qingshang has associated with over 60,000 influencers, up 56.18% year-on-year, with influencer accounts contributing 54.57% of sales. Consumer taste changes are fully visible on short-video platforms. Currently, popular categories on Douyin include coconut water, prune juice, yogurt drinks, plant protein drinks, coffee drinks, grain meal replacement drinks, liquid salads, and solid drinks... Emerging brands precisely capture localized needs and leverage traffic dividends to rise quickly, delivering a dimensionality reduction attack on traditional brands. Additionally, while Coke and Sprite are raising prices, these short-video brands offer extreme cost performance. For example, Huabang's 100% NFC apple juice is only 11.9 yuan for two bottles, and Qingshang's prune juice is 4 yuan per bottle, half the price of Yingbeijian. With frequent promotions, price-sensitive consumers are tempted. Among them, Huabang's single-link sales exceeded 1 million units in three months, with GMV over 10.4 million yuan in 90 days. Of course, traditional brands mainly sell offline, but some brands are starting to move from short-video to offline, gradually appearing in large supermarkets, leading snack discount stores, and convenience stores. The birth of new brands in the beverage market is not only possible but inevitable. Although traditional giants are hard to shake, when their main business is sluggish, every move by newcomers seems significant.