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Source: Times Weekly Facing rapid changes in China's beverage and drinking water markets, French food giant Danone is making significant product adjustments. In 2019, Danone will no longer sell its Yili bottled water. At the same time, its vitamin drink Mizone will change its formula to address its slowing growth in the Chinese market in 2018. On February 19, Danone released its 2018 performance report, showing full-year sales revenue of €24.7 billion, a year-on-year increase of 2.9%; recurring operating profit was €3.6 billion, with the recurring operating margin increasing by 51 basis points to 14.45%. However, unlike the high growth in overall operating profit, Danone's water and beverage business performed poorly last year, with net sales revenue growing only 5.3% year-on-year. Before the report data was released, in January, Danone's Yili factory in Longmen, Huizhou, Guangdong, had already posted a notice to stop production and sales of Yili bottled water. Danone confirmed to Times Weekly reporters, saying that to adapt to rapid changes in the local market and achieve sustainable development, Danone China Beverages evaluated its business development strategy and decided to make business adjustments, stopping production and sales of Yili bottled water. The Yili bulk water business and other brands under Danone China are not affected. Danone's board chairman and CEO Emmanuel Faber also publicly stated at the beginning of the year's investor meeting that he was dissatisfied with Mizone's performance in the fourth quarter of 2018. Danone responded to Times Weekly reporters that in the next quarter, Mizone will have some innovations and formula changes, and it is expected that 2019 will still be a year of positive growth for Mizone overall. In response to Times Weekly reporters' question about whether new products will be launched in the drinking water and beverage business in 2019, Danone did not respond. At this point, Danone has temporarily exited the mid-to-low-end bottled drinking water market in China, and its sales leader Mizone has seen slowing growth in recent years. The details of future innovation plans have not yet been disclosed, and performance remains to be seen. 01 Multiple Market Positioning Setbacks "Actually, Danone's discontinuation of Yili bottled water was quite surprising at first, after all, it's a brand with over 30 years of history, and Danone has been managing it for over 20 years. But thinking about it carefully, it makes sense," a drinking water industry insider told Times Weekly reporters. "In recent years, Yili has become increasingly marginalized, which can also be seen in shelf displays. Its presence is appearing less and less, consumers find it hard to buy, gradually forget the brand, and naturally its market share declines." The latest data from Nielsen shows that in October 2018, the Chinese bottled water market structure was: Nongfu Spring and C'estbon held the first and second market shares respectively, with Ganten ranking third at 10.1%, Master Kong fourth, Ice Dew and Wahaha following closely in fifth and sixth places. These six major packaged water brands occupied about 80% of China's packaged water market, with best-selling products all being affordable items. Yili, in the remaining 20% of the market, had clearly undergone some adjustments and changes. Starting in 2017, Yili replaced Kunlun Mountain in Beijing to cooperate with Didi Chuxing; in packaging, it not only launched new packaging but also introduced Disney cartoon bottled water for the children's market. "Actually, before this, Yili had another packaging change. A few years ago, Yili reduced the weight of the bottled water packaging, making the bottle texture softer, the cap thinner and flatter, approaching the packaging of low-priced water. It was a strategy of self-downgrading. At the time, there were some puzzled voices in the industry because Yili was still recognized for its quality. Later, Yili switched back to heavier packaging, which indirectly proves that the decision's effectiveness was probably mediocre," the above-mentioned drinking water industry practitioner told Times Weekly reporters. A head of a public welfare organization who had been invited to inspect Yili's Longmen bottled water factory told Times Weekly reporters that Yili was indeed too low-key in publicity and marketing. 02 Mizone Sales Fluctuations Unlike Yili's low-key presence in the market, Danone's Mizone has been relatively stable, with more active performance in channel expansion, marketing, and advertising creativity exposure. From the "tilted person" to the "launched person" advertising creativity, Mizone has left the public with a brand image that is both a functional drink and a vitamin drink, while also having up to 9 flavors, giving it certain advantages in category display. It also entered the vitamin drink market early, seizing the first-mover advantage in market awareness. Since 2010, Mizone has consistently ranked first in market share in China's bottled functional drink market. Its terminal retail sales from 2013 to 2015 were 6.7 billion yuan, 8.6 billion yuan, and 9.8 billion yuan respectively, with annual growth rates stable at double digits. As of 2015, Mizone's market share was as high as 91.2%. However, in recent years, more competitors have entered the market. According to a 2018 report by market research firm Mintel, sports drinks and energy drinks are the two most mature functional drinks, with both categories expected to grow at double-digit rates in the five years before 2021. Red Bull, Gatorade, Pocari Sweat, Dongpeng Special Drink, COFCO's BigBang, Coca-Cola's Monster, American brand Monster, C'estbon's Magic, Nongfu Spring's Scream and Vitamin Water, Wahaha's Activate, Huabin Group's War Horse... In the red ocean market, competitors keep entering. In 2016, Mizone's sales in China declined for the first time. Similar to this year's situation, in 2017, Mizone returned to an upward track by adding new flavors and launching a differentiated new drink, "Mizone Chire Energy." Among them, there were innovative flavors like cucumber and cactus; currently, the cucumber flavor has been discontinued. In the new year, Danone still regards innovation as a bargaining chip for market growth. Times Weekly reporters noticed that Danone's chairman and CEO Emmanuel Faber emphasized at the 2019 investor meeting that through innovation, Danone's water and beverage business increased sales revenue per liter by 50% in 2018, and it is expected that in 2019, innovation will contribute 25% to Danone's sales revenue. -END-