Amid the national fitness craze, energy drinks are becoming a hot category in the beverage sector. According to Euromonitor, China's energy drink market reached RMB 51.314 billion in 2021, with a CAGR (compound annual growth rate) of 23.04% from 2007 to 2021, the fastest growth among soft drinks. Over the past five years, penetration has continued, with a CAGR exceeding 10%.
Currently, the domestic energy drink market is highly competitive. Besides the most well-known Red Bull, there are brands such as Dongsheng, Lehu, Tizhi Nengliang, and Monster.
Recently, the biggest news in the energy drink industry may be the court ruling in the "Red Bull trademark" dispute between Reignwood and TCP Group.
The Tianhe District People's Court in Guangzhou, Guangdong, recently ruled on a trademark infringement and unfair competition lawsuit filed by TCP Group (Thailand) against Guangdong Red Bull, Zhuhai Red Bull, Guangzhou Red Bull, and other companies (all three are controlled by Reignwood Group, collectively referred to as China Red Bull). The court ordered Reignwood Group to stop using the Red Bull trademark and cease production and sales of "Red Bull Vitamin Functional Drink," and to pay RMB 219 million in trademark infringement damages. In response, Reignwood stated it would appeal to a higher court.
A single stone stirs a thousand waves. As the battle over the "Red Bull trademark usage rights" between Reignwood Group and TCP Group intensifies, the energy drink industry is brewing a new round of reshuffling.
The Reignwood-TCP "Red Bull Trademark" Dispute: Boiling Beans with Bean Stalks
The trademark dispute between Reignwood Group and TCP Group began in October 2016. At that time, TCP Group filed a trademark infringement lawsuit against Red Bull Vitamin, demanding that Red Bull Vitamin stop using the "Red Bull" brand, citing that the 20-year trademark license agreement with the joint venture had expired on October 6, 2016, and was not renewed. Production and sales of Red Bull drinks after that date constituted trademark infringement. However, Reignwood Group argued that the two parties had signed a 50-year agreement, and the authorization had not yet expired.
Subsequently, TCP Group started a separate operation in China, producing Anjier Red Bull, which is similar in packaging and taste to Reignwood's Red Bull, and established sales agency cooperation with companies such as Yangyuan Drinks.
On February 23, 2022, Reignwood issued a statement saying it had formally submitted the original 50-year agreement to the Supreme Court as an important basis for the retrial of the case. Reignwood claimed it had obtained the original of the "50-year agreement." The first clause stipulated that "only China Red Bull has the right to produce and sell Red Bull drinks within China" and "TCP Group shall not produce or contract other companies to produce or sell similar Red Bull drink products within China."
Although photos of the "50-year agreement" have circulated, they were all copies, and no original photo has been released. So the Red Bull case remains murky.
Previously, various media reported that to counter Reignwood's strong position in the Chinese market, TCP's layout in China has gone through three stages: first, authorized production and sales of Anjier; second, importing Red Bull flavored drinks; third, investing in factories. The latest news is that TCP plans to invest RMB 2 billion in Sichuan to build a 400-mu production base.
Reignwood, on the other hand, has invested resources in sales to consolidate its market position. It is reported that its order sales in 2021 reached RMB 21.8 billion.
In addition, Reignwood is continuously increasing its layout for its self-developed and self-sold energy drink brand "Warhorse." In 2022, it replaced competitor Baofali as the CBA sponsor.
China's energy drink market is about RMB 50 billion in size, with Red Bull holding more than 50% market share. Reignwood's China Red Bull market is over RMB 20 billion. Such a high market share requires extensive upstream supply chain and factory layouts, thousands of distributors, and millions of terminal outlets.
If China Red Bull suddenly collapses, it is a big question whether TCP Group can take over overnight with its existing production capacity, distributor scale, and brand influence.
If TCP cannot take over, the Chinese energy drink market will definitely be competed for by brands such as Dongsheng, Lehu, and Tizhi Nengliang. These brands are stronger than TCP and, relying on their existing market size, sales networks, and brand power, are the most likely to grab market share. In the end, TCP may only get the name, ending up with "the hen flying and the eggs breaking."
******Dongsheng Beverage: ****May Be the Biggest Beneficiary of the "Red Bull" Dispute
If Reignwood loses the Red Bull trademark dispute, the biggest beneficiary is likely Dongsheng Beverage.
On May 27, 2022, Dongsheng Beverage celebrated its first anniversary of listing. In his latest internal speech on the anniversary, Dongsheng Beverage Chairman Lin Muqin revealed that Dongsheng's market size has reached nearly RMB 7 billion, with 2,400 distributors and over 2.3 million terminal merchants.
What is noteworthy is not just the scale, but its continuous expansion of production capacity to the north. In 2021, Dongsheng's new production bases were successively established in Changsha, Hunan; Quzhou, Zhejiang; Guangming, Shenzhen; and Haifeng, Guangdong.
Dongsheng Beverage has surpassed TCP in production bases, distributor scale, and brand influence. If it can make up for its shortcomings in the northern market in the next two years, it will not be TCP's turn to take over Red Bull.
From the data, although Dongsheng's main market is still Guangdong, with revenue in Guangdong reaching RMB 3.199 billion in 2021, a year-on-year increase of 29.67%, other regions have grown more significantly. East China achieved sales revenue of RMB 772 million in 2021, a year-on-year increase of 79.07%; Southwest China achieved sales revenue of RMB 432 million, a year-on-year increase of 65.37%; North China (including the northern region) achieved sales revenue of RMB 339 million, a year-on-year increase of 45%; Central China achieved sales revenue of RMB 753 million, a year-on-year increase of 44.32%. Although the northern market has lower revenue, it is already growing rapidly.
If China Red Bull collapses, with the current pace of development, Dongsheng Beverage may break through RMB 10 billion in the near future.
Investors have also seen this trend. When Dongsheng Beverage was first listed, it received 13 consecutive limit-up boards, with the stock price reaching a high of RMB 285.7. Although the stock price has halved, it is still one of the highest-priced beverage companies except for liquor companies.
At the same time, Dongsheng Beverage's investors are cashing out. On May 27, Junzheng Capital released 36 million shares and planned to reduce its holdings by no more than 12,000,300 shares through centralized bidding and block trading. Based on the then stock price, the estimated cash-out amount was about RMB 1.6 billion.
Currently, the competition between Dongsheng and Red Bull in the energy drink market has not reached the final stage, and it is still unknown who will laugh last. The variable is TCP.
Lehu: Insufficient Resources,
Gap with Leaders Widening
Actually, Lehu also has a chance. In 2018, Lehu's revenue exceeded RMB 3 billion.
But under the pincer attack of the two giants Red Bull and Dongsheng, Lehu faces great pressure from the top, and its performance in the past two years may not be ideal. Dali did not disclose Lehu's performance for 2019 and 2020.
However, Dali stated in its annual report that Lehu achieved a year-on-year sales revenue growth of 16.3% in 2021, reaching RMB 3.222 billion, through differentiated specification positioning and brand marketing. This means that in 2020, Lehu's revenue may have been only about RMB 2.77 billion.
The reason for Lehu's lack of upward momentum may be scattered resources.
In 2013, Dali Group launched the energy drink brand "Lehu," which once maintained a volume of over RMB 3 billion. But after 2017, Dali Group successively launched the soy milk brand "Doudouben" and the short-shelf-life bread brand "Meibeichen." Since then, Dali has tilted resources toward these two categories.
From the endorsers, Doudouben's current endorser is popular star Wang Yuan, and previously invited Sun Li. Meibeichen's endorsers are Huang Lei and Yang Zi. In contrast, Lehu only used CBA player images for promotion when sponsoring CBA.
Dali Group may believe that with Red Bull and Dongsheng firmly holding the top two positions, the marginal benefit of Lehu's investment in the functional drink market is diminishing, so it is better to put eggs in multiple baskets.
This has indirectly led to Dali Group's current situation of having no strong products. In the plant protein field, Yangyuan's single product reaches RMB 7 billion. Doudouben's revenue in 2021 was only RMB 2.245 billion. Taoli's bread revenue exceeded RMB 6.1 billion, while Meibeichen's revenue was only RMB 1.39 billion, and the household consumption segment revenue was only RMB 3.635 billion. In snacks, it cannot compete with Pepsi's Lay's, and Lehu's gap with Dongsheng is widening.
Tizhi Nengliang:
Synonym for Low-End Energy Drinks
"Tizhi Nengliang is very popular in the North China and Northeast markets." A beverage distributor once told Moose New Consumption.
Tizhi Nengliang is an energy drink brand under Henan Zhongwo Beverage Co., Ltd. (hereinafter referred to as Zhongwo). It was reported that Tizhi Nengliang's sales exceeded RMB 2 billion in 2016 and exceeded RMB 2.5 billion in 2018. In 2019, Zhongwo focused on the strategic new product 330ml carbonated black can Tizhi Nengliang, hoping to become a new growth engine.
Tizhi Nengliang is cheap, mainly in third- and fourth-tier cities in the north. A 600ml bottle sells for RMB 4-5, following a "large volume, low price" market route, mainly in Northeast, Northwest, and North China markets.
Tizhi Nengliang also hopes to upgrade its grade. It previously launched a gold can energy drink, aligning with Red Bull, Dongsheng, and Lehu products, and based on this, launched Tizhi Nengliang black can carbonated, with slim can types including 330ml and 500ml specifications. In February 2022, at Shanghai Hongqiao High-Speed Railway Station, Tizhi Nengliang's advertisement even appeared on high-speed train body ads, claiming to start a new brand expansion journey.
But Tizhi Nengliang's genes are positioned as low-end products, and consumer perception is deeply rooted, making it difficult to leap upward. Unless Zhongwo is determined to invest heavily in building an independent brand, completely overturning the existing brand positioning from product flavor R&D, production processes, sales channels, and VI brand image.
However, Zhongwo may lack such boldness. Currently, Zhongwo's products include six series: functional drinks, healthy water drinks, coffee energy, fruit-flavored tea, fruit juice, and protein milk drinks, totaling 60 products. Among them, functional drinks have as many as 21 single products, all using the Tizhi Nengliang brand.
Baofali: A Flash in the Pan Old Brand
In 2013, Panpan Food launched the energy drink brand "Baofali" and sponsored CBA in the 2019-2020 season, entering the national consumer's view.
However, in the 2021-2022 CBA season sponsor list, Baofali was absent, replaced by Reignwood's self-developed energy drink brand "Warhorse."
The overall effect of Baofali's CBA sponsorship was not obvious. Due to the pandemic, few people watched CBA games on-site in 2021. Although CCTV and local media broadcast the games, the event's influence was greatly affected. Baofali's cessation of CBA sponsorship is likely because it did not achieve the expected communication effect.
The entry threshold for CBA official sponsors may be RMB 15 million to 20 million. Currently, a bottle of Baofali costs about RMB 4, meaning at least 4 million bottles must be sold for Baofali to recover the sponsorship fee.
In fact, Baofali is an old brand under Panpan Food. In 2013, Panpan entered the beverage market, launching vitamin energy drinks like Baofali and a series of products. Later, it imitated Pocari Sweat to launch Baofali Water, and launched a customized can "Yizhan Baofa" targeting the college entrance examination crowd.
Panpan Food is not a small brand. Data from the Top 100 Manufacturing Enterprises in Fujian shows that Panpan Food's revenue in 2020 and 2021 reached RMB 6.626 billion and RMB 7.62 billion, respectively. However, in mainstream supermarkets in first-tier cities, Baofali products are rarely seen. Consumers only know Panpan has French-style small bread, but almost no one knows Baofali is also produced by Panpan.
A person engaged in energy drink sales told Moose New Consumption that Baofali's sales performance in the past two years has not been ideal. "The main reason is that the product and brand are not good. Red Bull, Dongsheng, and Lehu are all very strong in the market. It won't work without three to five years."
Perhaps the energy drink market structure is relatively stable, and a brand launched nearly 10 years ago is still unknown. Therefore, Panpan Food has turned its resources to categories like small bread. Panpan Food also sponsored the 2022 Winter Olympics, but the main promotion was also around small bread and other products.
Panpan Food is not originally a beverage professional, but it wants to learn from its provincial brother company Dali and make a comprehensive layout. However, because it is not a listed company, funds are hard to guarantee, leading to deficiencies in R&D, production, channels, and brand.
When Moved, Mountains and Seas Shift; When Still, the Pattern is Hard to Break
In addition to the above brands, major companies are not absent from China's energy drink market, such as Yili's Huanxingyuan and Coca-Cola's Monster. But they are all "loud thunder, small raindrops." After Yili launched Huanxingyuan, it soon went quiet. Coca-Cola's Monster, despite large distribution, has not become a successful single product.
In addition, there are foreign products like Carabao from Thailand. When it entered the Chinese market in 2017, it was exceptionally high-profile, claiming to invest $300 million to open the Chinese market. That year, revenue exceeded RMB 200 million, a good start, but since then it has declined, with only RMB 140 million in 2021, and it is still struggling at gas stations.
And "Warhorse," mentioned multiple times in this article, as Reignwood's own energy drink brand, has grown rapidly relying on Reignwood's production layout and sales channels. Its market size should now be nearly RMB 2 billion. But if it loses the protection of Reignwood Group, whether Warhorse can stand alone and support the Red Bull market is unknown.
Currently, the pattern of one superpower and multiple strong players formed by Red Bull, Dongsheng, Lehu, Tizhi Nengliang, and other brands is still hard to break. As industry insiders assert, energy drink consumers have high loyalty; whoever they drink first, they will keep drinking. Unless Reignwood completely loses the Red Bull trademark dispute, which could lead to a major industry upheaval. Otherwise, the pattern is hard to change, and other brands may have no more opportunities.
Source: Moose New Consumption (ID: tuolu360)
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