Recently, pork prices have become one of the most discussed topics among consumers. Today, we take this opportunity to talk about food price increases. According to the National Bureau of Statistics, pork prices rose 46.7% in August this year, bringing new anxiety in the Year of the Pig—'pork freedom.' Recalling previous 'toon freedom,' 'cherry freedom,' 'milk tea freedom,' and 'yogurt freedom,' we are spending more and more on food. From January to August this year, the average consumer price index rose 2.4% year-on-year, with food prices up about 5.9%. In the packaged food and beverage sector, many brands have announced price increases. First, let's look at food. Wang Wang Snow Rice Cakes and Senbei, and Qiaqia sunflower seeds, which many people grew up with, all raised prices last year. This year, PepsiCo China's Lay's and Cheetos puffed snacks, and Mondelez China's Oreo, Chips Ahoy!, and Ritz crackers have also become more expensive. Global food and beverage prices are rising. Source: FBIF Infographic Next, beverages: Master Kong and Uni-President announced price increases last year. Drinking alcohol is not cheap either—beer brands like Tsingtao, Snow, and Budweiser, and baijiu brands like Wuliangye, Yanghe, and Luzhou Laojiao all raised prices last year. Abroad is no exception. Nestlé, Unilever, Coca-Cola, and Nissin Foods have all raised prices in the past two years. For example, Hershey's increased prices for bagged candies, gum, and mints by 2.5% this year and announced in July that prices for some of its chocolates and candies would rise by another 9%. The global food and beverage market is in the midst of a 'price hike wave.' So today, we discuss three questions:

  • 1. Besides changes in the value of money itself, what industry development logic lies behind price increases?
  • 2. Price increases are a risky move. Why do some brands become more popular after raising prices, while others die out?
  • 3. How can the extra money from price increases be spent wisely? Global food price increases: From price wars to value wars Every brand gives the same reason in its price increase announcement: rising costs. This is an objective factor that cannot be ignored. Raw materials, packaging, labor, and transportation costs are all rising, and with stricter environmental regulations, production costs in the food industry are higher. Beyond coping with rising costs, the deeper significance of price increases lies in industry optimization. On one hand, price increases can motivate distributors, leading players to gain more market share, and industry concentration increases. On the other hand, price wars between brands are alleviated, shifting to value wars—focusing on product structure upgrades. In April this year, Nestlé and Unilever both reported sales growth after raising prices on some products. In July, Mondelez's organic food sales in the U.S. and Canada grew 2.5% because the company raised prices. It can be seen that price increases have not stopped consumers. Consumers now have more money in their pockets and are more willing to spend. People's sensitivity to price has relatively decreased. In the past, shopping was price-oriented; now it is more product- and brand-oriented. With consumption upgrading, more and more consumers prefer high-quality, innovative, and personalized products. With the deepening of supply-side reform, consumers' willingness to buy is constantly being activated. Although price increases may lose some consumers at certain levels, they do not negatively affect overall purchase demand. Instead, they encourage companies to focus on product innovation, improve product quality, and escape the quagmire of price wars. Take JDB and Wong Lo Kat as examples. Starting in 2012, the price war between the two herbal tea giants began. To compete for market share, both sides increased market share by indirectly lowering wholesale prices for channel distributors. At that time, Wong Lo Kat's approach started with 'buy 10 get 1 free,' then developed to 'buy 10 get 3 free.' In 2013, in Chongqing's catering channel, some places even reached the level of 'buy 100 boxes get 120 boxes.' JDB's wholesale price even dropped from 72 yuan per box to over 40 yuan in one year. JDB. Source: Tmall 'This was a brutal battle, truly bloody,' said JDB President Li Chunlin, reflecting on the experience since 2012. Years of confrontation left both JDB and Wong Lo Kat with no extra energy for normal business operations and product upgrades. As is well known, the daily FMCG industry changes rapidly. From Coca-Cola and Pepsi to Master Kong and Wahaha, the competitiveness of old brands continues to decline. Only by constantly innovating can they keep up with consumers' ever-changing tastes. Even Coca-Cola, with its 130-year history, has continuously launched packaging suitable for young people, such as 'nickname bottles,' 'lyrics bottles,' and 'movie quote bottles,' and introduced new flavors like Coke Zero to meet consumer needs. In the herbal tea sector, have there been any improvements in product and marketing thinking? It seems not. In 2006, Wong Lo Kat launched the concept 'Drinking herbal tea can reduce internal heat.' Ten years later, it is still the same slogan. Wong Lo Kat. Source: Tmall Especially in recent years, the peak of the herbal tea industry has passed, and it is time to think about transformation as performance declines. Unfortunately, as the two giants of the herbal tea industry, JDB and Wong Lo Kat are busy fighting each other, only relying on the old 'heat-clearing' marketing. Coupled with frequent price wars like 'buy 4 get 1 free' or 'buy 3 get 1 free,' both sides' profit margins have been declining. In the long run, the result is mutual destruction and falling behind in competition. Returning to the topic of price increases, in the past, the industry rule was 'whoever raises prices first dies first,' engaging in price wars. But the current situation is more inclined to 'whoever doesn't raise prices is waiting to die.' In the past, the food industry was in a stage of low-price competition. Faced with rising price levels, companies had to squeeze labor time and even sacrifice product quality to achieve low prices and profits. This business model is inherently unhealthy and will gradually be abandoned by consumers. At the end of April 2018, JDB's distributors received a price adjustment notice stating that from May 1, 2018, a new price system would be used, with the ex-factory price for a 24-can box adjusted to 50 yuan and a 20-can box to 44 yuan. Subsequently, Wong Lo Kat also adjusted product prices, which is considered the official end of the herbal tea war between the two sides. Rather than saying these two herbal tea giants were forced to raise prices, it is better to say they returned low-price competition to normal market behavior. After price increases: Some sell better, some die out Although price increases can boost a company's scale and profits in the short term, high growth carries the risk of breaking the industry's price band. If brand strength is insufficient, it can easily lead to a consumption gap, causing false prosperity and harming the long-term healthy development of the entire industry. Take Fuling Zhacai as an example. Since 2016, it has raised prices four times: July 2016, February 2017, November 2017, and October 2018, with increases of 8%-12%, 15%-17%, 10%-17% (indirect), and 10%, respectively. Since its establishment, Fuling Zhacai has been raising prices for over a decade, yet it has become more popular with each increase. From 2013 to 2017, Fuling Zhacai's sales volume grew by 25%, revenue nearly doubled, and net profit increased nearly 2 times. In 2018, Fuling Zhacai achieved revenue of 1.914 billion yuan, a year-on-year increase of 25.92%, and net profit of 662 million yuan, a year-on-year increase of 59.78%. On March 29 last year, Fuling Zhacai hit the daily limit on the first day of trading resumption, closing at 18.35 yuan per share. Since then, the stock price continued to rise, reaching a peak of 30.78 yuan on August 1, with a total market value of 24.2 billion yuan at one point. After announcing a price increase on the evening of November 1, 2018, the stock hit the daily limit on November 2. It can be said that with the continuous rise in product prices, Fuling Zhacai achieved a simultaneous increase in performance and stock price. But Fuling Zhacai's price increase is not just about making consumers pay more. For example, nearly 80% of the original 100-plus products were cut, leaving only the most profitable 20-plus main varieties. Then these 20 products were optimized and refined, greatly increasing the added value of the pickled vegetables. Fuling Zhacai products. Source: Tmall Regarding product prices, Fuling Zhacai responded at the end of May: 'In 2006, the company launched the crispy product. Many people thought it was expensive, but gradually consumers recognized the importance of product quality and brand, and became less sensitive to price. The company also conducted market research. If the price level has not risen, it is impossible to raise prices significantly. Unreasonable price increases will still affect sales. When raising prices, we must also consider the industry price level and consumers' perceptions.' This is also confirmed by Fuling Zhacai itself. In the first quarter of 2019, Fuling Zhacai's revenue growth entered single digits, and net profit growth began to slow. In the first half of 2019, Fuling Zhacai achieved revenue of 1.086 billion yuan, a year-on-year increase of 2.11%; net profit attributable to shareholders was 315 million yuan, a year-on-year increase of 3.14%. On July 31, Fuling Zhacai's stock price hit the daily limit down, and on August 1 it fell 6.35%, with market value evaporating by 3.472 billion yuan in two days. Fuling Zhacai attributed the performance decline to macro factors: first, changes in the external situation facing the company; second, changes in consumption scenarios; third, the impact of transportation convenience. But in addition, the more important factor is: has the small pack of pickled vegetables seen a disconnect between price and value? Is the brand added value not as large as imagined, unlike Laoganma? Compared with other products, pickled vegetables still play a minor 'small role' in our daily consumer goods. And the low-end nature of the pickled vegetable product itself is a ceiling that cannot be changed by price increases. In fact, in recent years, Fuling Zhacai has been working hard for the company's future diversified development. From 2013 to 2014, Fuling Zhacai successively entered related categories such as bean paste, olive vegetables, seaweed shreds, dried radish, and dried tofu. In 2015, Fuling Zhacai acquired Sichuan Huitong and officially entered the kimchi market. But none of these new categories became the main profit growth point for Fuling Zhacai. It can be seen that the success of price increases ultimately depends on market acceptance and consumer acceptance. For brands, to 'raise prices with reason,' they need to pay attention to the following three aspects. Before raising prices, think: What stage of development is the brand in? What is the product structure? Can it meet consumer demands? Does it need to be upgraded now? To what extent does it need to be upgraded? Price increase decision: Upgrading cannot be done overnight. Based on the current state of the brand and the overall market, choose the most appropriate upgrade ladder to evaluate the timing and magnitude of the price increase, spend money wisely, and genuinely upgrade and optimize so that the price matches the value. Balance after price increase: After a price increase, some consumers will inevitably be lost, and new consumers will be attracted. In addition to comparing immediate gains and losses, consider whether it is more conducive to long-term development, and whether the company can survive the transition period, making timely adjustments based on market feedback. Where should the extra money from price increases go? Next, let's delve into the most important issue in 'price increase decisions': in practice, how to spend money wisely? For food categories, new product upgrades can be in formula, packaging, process, etc., and need to be creatively conceived based on the category's attributes. From the brand level, marketing methods have also changed, requiring more flexibility to capture the new generation of consumers.

1. Raw materials: Use higher quality, reduce unhealthy ones

First is raw materials. By choosing suitable high-quality raw material origins and varieties, and controlling upstream supply chain quality, you can create upgraded products. A common strategy is: limited production areas produce limited products, highlighting the 'scarcity' benefit. A typical example is bottled water products, which use the location of the water source as an entry point and the label of exclusive origin to create product value. Kunlun Mountain uses 'Kunlun Mountain Snow Mountain Mineral Water' as its core selling point, highlighting the 'rarity' of Kunlun Mountain water in product promotion—after 50 years of filtration and mineralization. Kunlun Mountain has become the leader in the domestic high-end water category. Kunlun Mountain Snow Mountain Mineral Water. Source: Kunlun Mountain official website In the dairy industry, milk sources are also a major competitive point for major brands. For example, Yili Jindian's Jersey milk focuses on the origin and scarcity of the Jersey breed, bringing the benefit of high milk protein, forming an upgrade comparison with other Jindian product lines. Jindian Jersey Pure Milk. Source: JD.com Ready-to-drink coffee has also upgraded coffee varieties in the past two years. In the past, ready-to-drink coffee mostly used a blend of 'Robusta beans + Arabica beans.' Now more and more brands are choosing higher-quality 100% Arabica beans, such as Yili's recently launched Saint Rest coffee. Yili Saint Rest Coffee. Source: Yili Using more natural and healthier ingredients in formulas to replace unhealthy parts, or removing parts that consumers perceive as unhealthy, is also an important direction for new product upgrades. For example, using natural sweeteners instead of white sugar to reduce sugar intake. Heytea launched a natural stevia formula, where customers can add 1 yuan to replace it when ordering. Coca-Cola also launched Coca-Cola Life using a stevia formula. Heytea launches stevia formula. Source: Heytea official Weibo

2. Process: Reduce flavor and nutrition loss, increase convenience

Process upgrades are also a common means of upgrading. With the development of new food technologies, many new technologies can be applied. The main upgrades are in flavor, nutrition, and consumption methods. Through process upgrades, reduce the loss of flavor and nutrition caused by high-temperature operations. For example, the specialty coffee brand Saturnbird uses cold brew and other processes to lock the coffee flavor into pure coffee powder, breaking the cheap formula of traditional instant coffee. Saturnbird Coffee. Source: Tmall Nongfu Spring's Tanbing carbonated coffee, launched in May this year, uses Probat's top German equipment for green bean roasting and Italian cold brew technology to preserve the aroma, richness, and mellow taste of coffee to the greatest extent in the coffee extract. Nongfu Spring Tanbing Carbonated Coffee. Source: Tmall With the acceleration of life pace, users have higher demands for product timeliness. Through process upgrades, products can greatly increase convenience and reduce user operation time. For example, brands apply freeze-drying technology from aerospace technology to food, launching freeze-dried noodles, freeze-dried white fungus soup, and freeze-dried self-heating rice. Jinmailang Yicai Yimian (freeze-dried noodles). Source: Tmall

3. Packaging: More interesting, more convenient, more fresh

Packaging upgrades are reflected in packaging design and packaging materials. Packaging design can give products more visual impact, making users' eyes light up. For example, Nongfu Spring refreshed the packaging of Tea π this year, changing the visual style to fresh and exquisite illustrations, more in line with young people's aesthetics and fashion sense. Nongfu Spring Tea π new packaging. Source: Tmall Packaging form upgrades are on one hand about fun, increasing interaction with consumers, and on the other hand about convenience, expanding eating or drinking scenarios. For example, Telunsu announced in July this year that it would upgrade all its product lines, not only making packaging more refined but also upgrading traditional straws to more convenient Tetra Dream Caps. Telunsu upgraded to Dream Cap packaging. Source: Telunsu Packaging material upgrades are reflected in better flavor preservation, more convenient storage and transportation conditions, and can expand the product's sales radius. For example, Zhou Hei Ya's fresh-lock packaging uses gas-flush packaging machines to treat food with gas for fresh-lock protection, which has the effect of inhibiting bacteria and suppressing the respiration of living cells. Zhou Hei Ya fresh-lock packaging. Source: Tmall

4. Marketing: Say goodbye to 'brainwashing' output, let consumers 'enjoy'

Traditional marketing methods are large-scale, high-frequency advertising output that 'brainwashes' consumers. But with consumption upgrading, marketing is also upgrading. The era when users flocked to limited choices is over. Basic needs have long been met, and enjoyment-oriented and service-oriented consumption is now the trend. In such a situation, both traditional and emerging enterprises find that traditional marketing methods—such as placing hard ads and distributing press releases—have declining effectiveness. Marketing in the new era emphasizes scenario-based, precise, and interactive approaches. The prevalence of social networks and the rise of opinion leaders and internet celebrities are also marketing fulcrums that brands cannot ignore. For example, Heytea, a 'phenomenal internet celebrity' in recent years, is known for cross-border collaborations. Each collaboration makes consumers feel 'interesting' and 'playful,' and WeChat articles about its activities typically get over 400,000 reads. Heytea presents different content based on brand tone and fit, bringing freshness and surprise to consumers. For example, for fashion-conscious young groups, it collaborates with Nike to show a cool, avant-garde trend; for young female groups, it collaborates with B.Duck to create a cute, dreamy feel. Heytea × B.Duck. Source: SocialBeta Another example is Lai Yifen, which had few marketing activities in the past. This year, leveraging the popularity of 'Nezha,' it joined forces with Tmall Food Big Day to create the 'Dragon Palace' IP. The event's warm-up started with official Weibo announcements, calling out Tmall to urge the 'Dragon King' to sign the contract, and hinting at a snack launch event under the sea. The Weibo topic for this event had over 39 million reads, Lai Yifen's total transaction volume reached nearly 10 million yuan, a 966% increase compared to daily averages, and new customers exceeded 1 million, a 20-fold increase compared to daily averages. Lai Yifen 'Four Seas and Eight Delicacies' gift box. Source: Lai Yifen official Weibo Summary Finally, let's summarize the three questions we raised today.

  1. Global food prices are rising for three main reasons: first, rising costs; second, consumers' reduced sensitivity to price; third, the need for industrial structure upgrades, more healthy industry development, and a shift from 'price wars' to 'value wars' in brand competition.
  2. Price increases can boost profits in the short term, but if the 'virtue does not match the position,' consumers will abandon the brand. Consumption upgrading is not simply changing a number. Products and services must match the increased price. For enterprises, whether to raise prices, why to raise prices, and how to raise prices reasonably are all issues that need careful consideration.
  3. To 'raise prices with reason,' you must genuinely upgrade, mainly in four areas: raw materials—use higher quality, rarer, and healthier raw material formulas; process—use technology to improve product flavor, nutrition, and convenience; packaging—attract young consumers with eye-catching, interesting designs and develop more convenient and fresh-keeping packaging forms; marketing—say goodbye to traditional advertising output and engage in diversified, scenario-based precise marketing. Brands need to understand one point: price increases not aimed at upgrading are 'rogue behavior.' No matter how deep consumers' pockets are, they are not 'foolish with money.' In the value war, do you have the confidence? Source: FBIF Food & Beverage Innovation (ID: FoodInnovation)