Beverage Industry News

The rise of pre-mixed drinks has stirred up the industry: on one hand, various regional small distilleries are 'taking it seriously,' leading to a flood of brands of mixed quality; on the other hand, distributors are generally 'itching to act,' with a distributor from Jinhua, Zhejiang even 'begging' for RIO's contact information, which left us stunned. In reality, pre-mixed drinks are not as 'rosy' as imagined, but their recent development is indeed commendable. In response to the current frenzy, we want to 'cool down' the industry.

  1. We thought nightclubs were the main channel, but surprisingly: 36% of sales come from supermarkets, and convenience stores account for 29%.

According to a recent survey by Beijing Business Today, 36% of pre-mixed cocktail buyers purchase them in supermarkets; followed by convenience stores at 27%; e-commerce channels account for 11%; KTV as a sales channel also accounts for 11%; bars account for 6%; and nightclubs only account for 4% of total consumers.

  1. We thought beverage costs were the highest, but surprisingly: The largest operating cost is packaging materials, accounting for about 70% of costs.

Taking RIO as an example, packaging materials account for a high proportion of costs, with little difference between glass bottles and cans. The largest operating cost is packaging materials, accounting for about 70% of costs, of which glass bottle costs account for 48% of total costs. Purchased base liquor accounts for less than 8% of total costs.

The purchase price for glass bottles is 0.64 yuan each, and cans are 0.56 yuan each. The actual cost per bottle is 1.02 yuan for glass bottles and 0.90 yuan for cans. However, the majority of the company's products are outsourced, with purchase prices of 1.63 yuan per glass bottle and about 1 yuan per can.

  1. We thought RIO was high-volume with low profit, but surprisingly: The price difference from factory to terminal averages 5.5-6 yuan, with distributors earning 2 yuan per bottle, and the terminal-to-distributor price difference typically 3-4 yuan. It's truly high volume with high margins.

It is understood that the pre-mixed drink sector generally has high channel profits and large price buffer space. Some liquor prices have fallen, compressing channel profits, leading some distributors to shift to pre-mixed drinks. Distributors are highly motivated, and supermarket shelves are being stocked on a large scale. With high volume and large price differences, distributors constantly face stockouts. As future capacity is released and competition potentially increases, prices may decline, but this mainly compresses distributor and terminal profits, leaving significant buffer space for the company's ex-factory prices.

  1. We thought good taste was key, but surprisingly: For this new product, taste doesn't matter much; attractive packaging has become the biggest selling point.

Surveys of online terminals reveal that consumer satisfaction rates exceed 95%, with intentions to repurchase. For glass-bottled pre-mixed drinks, attractive packaging is the biggest selling point. Currently, consumption of pre-mixed drinks mainly occurs in entertainment, parties, weddings, and similar settings, where attractive bottles significantly enhance the atmosphere. Slightly alcoholic, fruity beverages bring pleasure; canned versions are more for daily home consumption, where taste and value for money are the main concerns.

Notably, a significant proportion of consumers (12%) have no specific brand preference and only focus on packaging. Additionally, 7% of consumers prioritize price. In the future, packaging may be the key to success.

  1. We thought young consumers were all about coolness, but surprisingly: The consumer base spans ages 18-30, with increasing use at parties and weddings.

According to flagship store statistics, users are mostly concentrated in the 18-24 age group, with some in the 24-30 range. As the former group ages into 24-30, their consumption habits are likely to persist. At their weddings and those of friends, pre-mixed cocktails are gradually becoming popular, with attractive bottles adding to the festive atmosphere.

Meanwhile, new 18-year-old consumers entering college or the workforce are attending more gatherings, and the new generation prefers relaxed, pleasant environments and sweeter tastes. RIO cocktails are becoming the new party drink.

  1. We thought pre-mixed drinks were, after all, alcoholic beverages, but surprisingly: Positioned as mass-market FMCG, they have shed the constraints of alcohol culture.

Adding foreign spirits enhances the selling point and exotic feel; attractive bottles, sweet fruit flavors, and affordable prices appeal to the new generation. RIO invested over 30% of its revenue in advertising in 2014, with comprehensive precision marketing through hit TV series, variety shows, campus activities, etc., quickly becoming the most recognized pre-mixed drink brand.

  1. We thought many companies would follow suit, but surprisingly: In RIO's view, current mainstream competitors are not particularly threatening.

Foreign companies | Low likelihood of large-scale entry | 1. Building factories in China and squeezing into existing channels to compete for the leader's share in an already small market would be too costly; 2. AB InBev's trial launch of Yemei pre-mixed drinks targets the high-end market, limited to nightclubs in first-tier cities, with very limited future space.

Liquor companies | Low likelihood of success | 1. Well-known brands are unlikely to easily use their distributors to distribute pre-mixed drinks; a single liquor company could potentially sell as much by changing packaging or launching new products as the entire pre-mixed drink market (unnecessary). 2. The liquor industry is recovering, and strong liquor companies are not focusing on pre-mixed drinks; weaker companies generally have weaker channel power, so there's no need to worry.

Large domestic food and beverage companies | Future competitors to watch | 1. Black Cow Food has launched the pre-mixed drink Taki with high investment, potentially promoting it heavily through online and TV media. 2. Wahaha, Master Kong, etc., have not yet entered the pre-mixed drink sector but pose significant potential threats with stable channels, strong brand power, and substantial capital.

  1. We thought RIO's supply shortage would drive prices up, but surprisingly: The manufacturer strictly controls terminal prices to expand market share, and there is no price disadvantage compared to ordinary competitors.

Currently, glass-bottled RIO is priced at 12.5-13 yuan in supermarkets, and online prices are declining; on Yihaodian, glass bottles have dropped from 16.9 yuan to 11.5 yuan. Despite a market shortage with an estimated gap of 15-20%, the company strictly controls prices to prevent brand damage from excessively high prices.

  1. In the coming years, RIO will continue to 'seek defeat in solitude,' with little risk of ex-factory price declines.

As the market expands and potential entrants emerge, there is indeed downward pressure on prices. The company has provided its own forecast for ex-factory prices: they will gradually decline from the current 6.77 yuan to 6 yuan, and canned versions from 3.44 yuan to 3 yuan.

The company's products have high channel profits, large price buffer space, and strong brand power, so ex-factory price declines will not exceed the company's expectations. Based on the analysis of ex-factory and wholesale price differences, with a 1 yuan reduction in terminal retail price for glass bottles, a 0.5 yuan reduction in distributor price, and a 0.25 yuan reduction in ex-factory price, when the terminal price drops to 9 yuan, the ex-factory price would drop to 6 yuan; similarly, for cans, when the terminal price drops to 4.5 yuan, the ex-factory price is expected to be 3.1 yuan. Given RIO's current brand and sales performance, it is unlikely that glass bottles will drop to 9 yuan and cans to 4.5 yuan in the future.

Comparing with major competitors and Japan's pre-mixed drink development, it is expected that in the future, glass bottle terminal prices of 10 yuan and cans above 5 yuan are more likely.

(Thanks to Dong Guangyang and Yang Yongsheng, two experts, for their intellectual support of this article.)

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