Source | DaV Business ID | V-VIEWS

In 2020, among China's seven major beverage categories, only carbonated drinks saw growth, while all others declined. A reasonable explanation at the time was that sugary carbonated drinks are addictive. But by 2023, the situation had reversed: carbonated drinks were the only category in decline, while the other six grew significantly. China's market has ultimately turned its back on carbonated beverages.

Before 2022, carbonated drinks held the largest market share among the seven categories. But in 2023, that changed abruptly, with market share dropping by 3 percentage points, overtaken for the first time by ready-to-drink tea. According to Nielsen's China Beverage Trends 2023, carbonated drinks declined by 7%.

The shift in market share reflects the fact that the market giants involved are being forced to adapt to market adjustments. As the largest cola brand in China, Coca-Cola's 2024 performance was not ideal. Its barely maintained sales figures were achieved by raising prices to offset declining sales volume.

Meanwhile, domestic beverage brands such as Genki Forest, Dongsheng Beverage, Nongfu Spring, and Dayao have carved out their own niches in specific segments.

Coca-Cola's Negative Growth

Coca-Cola's declining sales may be the biggest variable in China's beverage market. After two years of declining sales, Swire Coca-Cola's mainland China performance finally turned around in 2024. According to Swire Coca-Cola's financial report, its sales in mainland China reached HK$25.234 billion in 2024, a slight increase from HK$24.725 billion in 2023.

However, this performance has not been well received by the market. Although sales recovered, this was achieved through price increases. In the first half of 2024, three Coca-Cola bottling companies in Hubei, Jiangxi, and Zhengzhou issued notices announcing price adjustments for various products, including carbonated drinks, juices, and flavored beverages, with overall increases ranging from 7% to 25%.

There are three Coca-Cola bottling companies in China: Swire Coca-Cola, COFCO Coca-Cola, and Coca-Cola China Industries (CCCI). The Hubei, Zhengzhou, and Jiangxi markets happen to be covered by these three companies, indicating that the price increases were not the action of a single bottler. The financial report also disclosed that gross profit per case increased by 8% year-on-year, corroborating the fact that Coca-Cola stabilized its performance through price increases.

Su Wei, President of Swire Coca-Cola, summarized the growth in the Chinese market in 2024 as "effective revenue management and market execution." She stated that through a "price mix optimization" strategy, Swire Coca-Cola achieved a 3% increase in revenue in local currency terms.

Behind the price increases, it cannot be ignored that Coca-Cola is not selling as well. Swire Coca-Cola's total sales volume in mainland China in 2024 decreased by 1% year-on-year. Additionally, its active retail outlets in mainland China also decreased by 1% year-on-year. The actual decline in carbonated drink sales volume may be even worse.

Swire Coca-Cola sells not only carbonated soft drinks but also juices, tea drinks, and energy drinks. Amid the overall sluggish sales of Coca-Cola, it is noteworthy that Swire Coca-Cola's energy drink revenue in mainland China in 2024 achieved significant growth, up 41% year-on-year, while coffee business revenue also saw a 1% year-on-year increase.

Ready-to-drink tea, energy drinks, and coffee have been the main growth drivers in China's beverage market in recent years. Nielsen's "2024 China Beverage Market Trends and Outlook" released in 2023 noted that China's beverage market grew by 6.2% overall in 2023, with categories exceeding the average including ready-to-drink tea, functional drinks, juices, and ready-to-drink coffee.

Who Took Away Carbonated Drinks' Share?

A product manager at Genki Forest shared a story: her self-developed sugar-free cola was given to her father to try, and he praised it highly. But after a while, she discovered that her father was secretly buying other brands' cola. She realized a truth: "Each generation has its own cola."

Each generation has its own products, which is actually the reason why many old products in the consumer goods sector are struggling. The same applies in the beverage industry: new brands are making an impact. Even within carbonated drinks, the younger generation's first choice may no longer be cola.

The main players in China's carbonated soft drink market include Coca-Cola, Pepsi, and domestic brands such as Wahaha's Future Cola, Genki Forest's sugar-free sparkling water, Arctic Ocean, and Dayao Guest. Dayao soda suddenly became popular in 2023 thanks to its penetration in the foodservice channel. According to Jiemian News, Dayao soda's revenue reached 3.2 billion yuan in 2023.

Dayao soda is actually a new "old national brand." Although the brand was established in the 1980s, its modern production lines only started operating in recent years. Tianyancha information shows that Ningxia Dayao was established in 2016, and its official website also indicates that the first phase of the Ningxia Dayao Beverage Intelligent Production Base was put into operation in 2017.

Another new "old national brand" is Arctic Ocean. Back then, "Two Colas flooded the seven armies," referring to the acquisition of seven major Chinese beverage brands—including Beijing Arctic Ocean, Shenyang Bawangsi, Tianjin Shanhaiguan, Qingdao Laoshan, Wuhan No.2 Factory, Chongqing Tianfu Cola, and Guangzhou Asian Soda—by Coca-Cola and Pepsi, leaving them without rivals in the domestic market. In 2011, Beijing Yiqing regained the Arctic Ocean brand and began operations. According to market reports, Arctic Ocean achieved sales revenue of 600 million yuan in 2017; in 2018, based on the official 30% growth rate, its annual sales were estimated at around 800 million yuan; in the first five months of 2019, Arctic Ocean completed sales of approximately 750 million yuan. Based on this, Arctic Ocean's annual sales are at least 1.5 billion yuan, making it a solid big product.

The rise of new products means a shrinking cola market. It's a simple logic: the domestic carbonated beverage market has not grown significantly, or even declined, but domestic beverage brands' sales are growing significantly. So whose share is being taken? It's obvious.

Moreover, this does not even account for Genki Forest's sparkling water, which saw a significant sales increase. Even if it fell short of expectations after 2022, it is conservatively estimated to reach 2.5 billion yuan. Adding Genki Forest's own cola and other products, the total carbonated beverage volume could reach as high as 4 billion yuan.

Ready-to-Drink Tea and Functional Drinks: Two New Tracks for Domestic Beverages

The beverage brand participants in the Chinese market mainly include Genki Forest, Nongfu Spring, Master Kong, and Dongsheng Beverage. Their advantageous products are mainly electrolyte water, ready-to-drink tea, and functional drinks. Nielsen's report pointed out that functional drinks grew by 11.4%, making them the second-fastest-growing category in 2023, while ready-to-drink tea ranked first with an 18.9% increase.

Nongfu Spring, relying on the growth of ready-to-drink tea, achieved positive annual performance in 2024 despite public opinion backlash. In 2024, Nongfu Spring faced a public opinion storm, with its packaged water business revenue falling 21.3% to 15.95 billion yuan. However, the full-year performance ultimately achieved a 0.5% increase, entirely thanks to tea beverage revenue of 16.745 billion yuan, a 32.3% increase from 2023. Nongfu Spring's tea beverage products mainly include Oriental Leaf and Chapi. Oriental Leaf, in particular, achieved market success in the past year with its sugar-free tea drinks.

In recent years, Oriental Leaf has regained popularity due to its sugar-free nature. In 2011, Nongfu Spring launched its first sugar-free tea, Oriental Leaf. In 2016, netizens voted it among the "five worst-tasting drinks in China," but by 2019, Oriental Leaf had become the market share leader in the sugar-free tea category. Similarly, in ready-to-drink tea, sugar-free has brought new growth points to bottled tea drinks.

On the other hand, functional drinks represented by Dongsheng Beverage and Genki Forest are on the rise. When it comes to functional drinks, foreign brands like Red Bull and Mizone come to mind first. But Genki Forest's Alien electrolyte water and Dongsheng Special Drink have become the fastest-growing beverage brands in recent years. In 2023, Dongsheng Special Drink achieved sales of 10.3 billion yuan, becoming a ten-billion-yuan big product. In 2024, its revenue reached 13.3 billion yuan, a year-on-year increase of 28.49%. Meanwhile, NielsenIQ data shows that in 2024, Dongsheng Special Drink's sales volume share in China's energy drink market increased from 43.0% in 2023 to 47.9%, making it the best-selling energy drink in China for four consecutive years. Dongsheng also launched an electrolyte water product called "Hydrate," which became a billion-yuan product in 2024, with sales reaching 1.5 billion yuan, a year-on-year increase of 280.37%. Genki Forest's Alien brand is not far behind; according to data platform Mayingying, its sales exceeded 3 billion yuan in 2023, nearly tripling year-on-year.

From Duopoly to New Power Trio

Domestic beverage companies are growing rapidly, changing the original duopoly landscape. Genki Forest, a newcomer, is estimated to have total sales of nearly 15 billion yuan in 2024. At the 2024 distributor conference, Tang Binsen revealed: "Genki Forest's absolute growth this year is second only to 2021." According to New Consumer Think Tank reports, Genki Forest's revenue in 2020 was 2.7 billion yuan, a 309% increase from 2019; in 2021, it broke through the 7 billion yuan mark, with annual revenue 2.6 times that of 2020, and the absolute growth that year reached an astonishing 4 billion yuan. Therefore, it is estimated that Genki Forest's sales in 2024 should be close to 15 billion yuan.

Thus, it can be seen that the domestic beverage market has gradually transformed from the previous "Two Colas" duopoly to a new power trio represented by Genki Forest, Dongsheng Beverage, and Nongfu Spring. Based on 2024 revenue, Coca-Cola China's sales were 23.5 billion yuan, Master Kong's total sales were 51.6 billion yuan (including Pepsi and Starbucks ready-to-drink tea), Nongfu Spring was 42.9 billion yuan, Dongsheng Beverage was 15.8 billion yuan, and even Genki Forest, the youngest company, is approaching 15 billion yuan.

Domestic beverages are not just challenging giants; in some categories, they are already leaders. Genki Forest founder Tang Binsen recently shared: "Back then, Genki Forest had nothing, just some ideas, and we were a bunch of young people who dared to do it. Now Genki Forest is a bit professional, so why shouldn't we try again?" Tang Binsen's "a bit professional, let's try" seems to carry a hint of provocation, doesn't it?