Recently, a price adjustment notice from JDB showed that products in five packaging specifications would undergo price adjustments, with increases ranging from 2 to 3 yuan per case. Moreover, distributors revealed that Wong Lo Kat has also raised prices. Industry insiders believe that due to increased cost pressures and the near conclusion of the 'Wong Lo Kat' dispute, companies can now focus on daily operations, prompting the price increases. At the same time, since the price hikes are implemented at the distributor channel, they will inevitably pressure distributors, and whether distributors will accept them tests the operational capabilities of JDB and Wong Lo Kat.

Simultaneous Price Increases Unlike previous occasions, JDB and Wong Lo Kat have raised prices almost simultaneously this time. In its price adjustment notice, JDB stated that starting from May 1, 2018, it would implement new pricing policies. Specific policies include: For the 24-can specification, the wholesale purchase price per case is 53 yuan, the terminal purchase price is 56 yuan per case, and the suggested retail price is 3.5 yuan per can; for the 12-can specification, the wholesale purchase price per pack is 27.5 yuan, the terminal purchase price is 29 yuan per pack, and the suggested retail price is 32 yuan per pack; for the 15-bottle specification, the wholesale purchase price per case is 43 yuan, the terminal purchase price is 46 yuan per case, and the suggested retail price is 4 yuan per bottle; for the 24-box specification, the wholesale purchase price per case is 38 yuan, the terminal purchase price is 40 yuan per case, and the suggested retail price is 45 yuan per case; for the 16-box specification, the wholesale purchase price per case is 27 yuan, the terminal purchase price is 30 yuan per case, and the suggested retail price is 35 yuan per case. It is reported that while JDB raised prices, Wong Lo Kat also made price adjustments. In response, reporters contacted Wong Lo Kat, but a relevant person in charge said, 'Not clear.'

Reporters found through visits that the terminal market has not reacted significantly to this price increase, and terminal product sales prices have not risen. JDB products in supermarkets, convenience stores, restaurants, and online terminals range from 3 to 6 yuan, while Wong Lo Kat's prices are also 3 to 6 yuan. However, in the same store, JDB products are generally priced 0.5 yuan higher than Wong Lo Kat.

Regarding the reasons for this price increase, JDB stated in its notice that due to increases in raw materials, labor, warehousing, transportation, and other costs, the price increase is necessary to ensure the healthy and sustainable development of the market. It is understood that, taking beverage packaging boxes as an example, due to environmental pressures, paper mill costs have risen, leading to higher paper product prices. As of April 23, the national average monthly price of yellow board paper was 2,557 yuan per ton, up 5.22% month-on-month and 79.82% year-on-year.

Prepared Moves The 'joint' price increase by JDB and Wong Lo Kat is not a whim but a well-prepared move.

In 2016, Wong Lo Kat sponsored the Zhejiang TV reality show 'We Are Seventeen.' At the sponsorship launch, Wong Lo Kat announced, 'We have the confidence to no longer engage in price wars.'

Industry analysts believe that Wong Lo Kat raised prices because raw material costs were rising too fast, and continuing a price war would be difficult to sustain. Among these, sugar price increases were one of the most important reasons. In the first half of 2016, due to the El Niño phenomenon, sugar production in Thailand, India, and China decreased, international sugar prices nearly doubled, and there was a sugar shortage of 1.42 million tons. In China, sugar prices rose nearly 10% in the first half of 2016.

However, even with rising sugar costs, Wong Lo Kat did not directly raise prices but chose to launch new products at higher prices. In 2016, Wong Lo Kat introduced sugar-free and low-sugar herbal tea, with a darker red can and slimmer body, priced at 5 yuan, 25% higher than regular Wong Lo Kat herbal tea. At that time, Wong Lo Kat claimed that the product sold over 10,000 cases on the first day it was listed on Tmall. However, Beijing Business Today reporters found that the product has been removed from the Tmall flagship store and is also unavailable on JD.com.

Industry insiders believe that in recent years, JDB and Wong Lo Kat have been at odds, and any minor change could lead to defeat in the competitive landscape. Even if they had planned price increases for a long time, they could only remain inactive, and even during the recent wave of price increases by beverage companies, they dared not follow suit.

The 'grievances' between JDB and Wong Lo Kat originated in 2010, involving trademark cases, advertising slogan disputes, and the red can dispute, ultimately ending with JDB being unable to use the 'Wong Lo Kat' brand, the slogan 'Afraid of getting heaty? Drink Wong Lo Kat,' and the advertising claim 'National authoritative agency released: JDB has won the 'China's No.1 Beverage Can' for 7 consecutive years.'

Zhu Danpeng, a researcher at China Food Industry, believes that the two companies have similar products and prices, and under intense competition, any price adjustment could lead to significant fluctuations in product sales.

Status Swap It is worth mentioning that a previous ruling by the Supreme People's Court brought an end to the dispute between JDB and Wong Lo Kat.

On August 17, 2017, the Supreme People's Court final judgment stated that Guangzhou Pharmaceutical Group and JDB Company both made significant contributions to the formation of the packaging and decoration rights of the 'Red Can Wong Lo Kat Herbal Tea' and jointly enjoy these rights.

However, during the ongoing entanglement between JDB and Wong Lo Kat, their positions have swapped. In 2013, JDB's sales once approached 26 billion yuan, but by 2016, despite industry growth, sales fell to 24 billion yuan. During this period, Wong Lo Kat achieved a comeback. According to the first-quarter 2018 report, Baiyunshan's net profit increased by 553 million yuan year-on-year, with Wong Lo Kat contributing 358 million yuan. Wong Lo Kat's shipments reached 74.68 million cases, up 50.69% from the same period last year; inventory also decreased to 8.42 million cases. Currently, Wong Lo Kat holds a 70% market share and has invited Zhou Dongyu and Liu Haoran as spokespersons, targeting the new generation market.

The change in status has led to strategic adjustments for both companies. On August 10, 2017, COFCO Packaging invested in JDB's only professional concentrated juice production facility, Qingyuan JDB, and acquired a 30% stake in the factory. On March 22, 2018, JDB removed Group President Wang Qiang and Deputy General Manager Xu Jianxin from their positions and appointed Li Chunlin as Group President. A new broom sweeps clean; Li Chunlin's first appearance unveiled JDB's new strategic goals: 'Second entrepreneurship, cost reduction and efficiency, integrate advantageous resources, and achieve successful listing within three years.'

Zhu Danpeng stated that this price increase by JDB may be a measure brought about by strategic adjustments. Additionally, corporate profitability is fundamental; as the environment changes, both companies need to adjust, and now is the time to go with the flow.

Distributor Pressure Through market research, reporters found that many terminal stores do not sell JDB or Wong Lo Kat, and some stores only sell one of them.

'Our store only sells Wong Lo Kat, not JDB,' said a convenience store clerk. 'Wong Lo Kat's price has been 4 yuan, and there has been no change recently.' In response, Zhu Danpeng believes that terminal prices are not significantly affected because the terminal situation is complex. Even if the wholesale price increases by 3 yuan per case, it only amounts to one or two jiao per can, which is hard to reflect, so all the pressure will be borne by distributors.

In this regard, a distributor calculated for reporters: based on JDB's annual sales of 24 billion yuan, with a case at 50 yuan and 24 cans per case, 4.8 billion cases are sold annually. If each case increases by 2 yuan, each company can increase revenue by 960 million yuan. This is considerable for JDB and Wong Lo Kat, whose profit margins are only single digits. Additionally, a distributor providing herbal tea to the catering channel told reporters: 'During the peak season, competition between the two is still fierce, and price increases should not be good for them.'

Zhu Danpeng said that there have been instances where distributors stopped stocking after learning about upcoming price increases. However, as the peak season approaches and herbal tea sales are expected to rise, the two companies are raising prices at this time to minimize the impact on distributors.

Source: Beijing Business Today -END-