---
title: "Despite Many New Products, Why Did Uni-President's H1 Performance Still Decline?"
description: "Uni-President's good days from 2015 were short-lived. On August 9, the company reported H1 2016 revenue of RMB 11.713 billion, down 2.4% year-on-year. While its instant noodle business grew 9.8% to RMB 4 billion, its beverage business fell 8.2% to RMB 7.448 billion, dragging overall performance."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2016-08-21"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/wBPOOyVsA2huJH64_E-VpQ"
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---

# Despite Many New Products, Why Did Uni-President's H1 Performance Still Decline?

> Uni-President's good days from 2015 were short-lived. On August 9, the company reported H1 2016 revenue of RMB 11.713 billion, down 2.4% year-on-year. While its instant noodle business grew 9.8% to RMB 4 billion, its beverage business fell 8.2% to RMB 7.448 billion, dragging overall performance.

Uni-President's good days from 2015 were short-lived. On August 9, the company released its H1 2016 results, showing revenue of RMB 11.713 billion for the first six months, down 2.4% year-on-year. In H1, its two main businesses—instant noodles and beverages—showed starkly contrasting trends.
Data show that benefiting from an overall recovery in the instant noodle business, Uni-President's H1 instant noodle revenue reached RMB 4 billion, up 9.8% from the same period last year. Its beverage business, however, declined: H1 beverage revenue in China was RMB 7.448 billion, down 8.2% year-on-year.
Uni-President attributed the decline to the fact that China's overall macroeconomy had not yet recovered in H1 2016, coupled with abnormal weather in Q2, including lower summer temperatures and excessive rainfall.
Is the beverage industry now truly at the mercy of the weather? Several industry insiders said that although the instant noodle segment performed well, Uni-President failed to achieve revenue growth in H1, especially with its largest revenue contributor—beverages—declining. This indicates that creating another sustained-growth super product in the beverage industry will be difficult, as consumer tastes are changing, testing the future growth of Uni-President's most prized beverage business.
**Is It All the Weather's Fault?**
According to Coca-Cola's results, its revenue fell 4.57% year-on-year. Master Kong has not yet released its annual report, but institutional expectations for its H1 performance are not optimistic.
With high-margin products, Uni-President's 2015 revenue fell 1.7% to RMB 22.1 billion, but net profit surged 192.3% to RMB 835 million, making it one of the few winners in the beverage industry. But the good times did not last long. Uni-President, which had relied on strong beverage performance, saw an embarrassing H1 this year, contrasting with last year's beverage growth.
Uni-President attributed the cause to the still-unrecovered macroeconomy and the cooler, rainier summer. According to Nielsen data, the overall beverage market grew only 2% in sales, a continued slowdown from the same period last year.
A Uni-President marketing staffer in Hainan told China Business Journal that distributors' inventory of Hai Zhi Yan (Sea Salt) was not large, and poor H1 sales were indeed partly due to weather, as the product's salt-replenishment concept faced resistance.
Weather may be an unavoidable factor, but poor performance is not simply about the weather. The reporter found that Uni-President's beverage categories include juice, tea drinks, and milk tea. Compared with the same period last year, the juice category dragged down performance the most. In H1, juice revenue in the mainland was RMB 1.671 billion, down 40.8% from RMB 2.736 billion a year earlier.
"Last year, Uni-President profited from hit products like Hai Zhi Yan and Xiao Ming Tong Xue. The hit-product profit model can generate huge profits in a short time, but creating another sustained-growth super product in the future is difficult because consumer interests and taste preferences are changing, with a habit of seeking novelty," said marketing expert Xiao Zhuqing, general manager of Wenhe Liquor. He believes Uni-President's super-product strategy is somewhat outdated and needs to be driven by consumer demand to force innovation.
According to food industry commentator Zhu Danpeng, products that stay hot for more than five years basically no longer exist. A beverage hit typically ends in 2-3 years, which is an industry rule. Hai Zhi Yan's decline is normal, as it targets first- and second-tier cities where consumers are more discerning.
The reporter sent an interview request to Uni-President, and a PR representative responded: "According to Hong Kong Stock Exchange regulations, we cannot disclose information beyond the financial report."
**Juice Drinks Drag Down Performance, Channel Inventory Crisis Emerges**
The financial report shows that in tea drinks, Uni-President's H1 revenue was RMB 3.737 billion, up 13.6% year-on-year. In 2015, Uni-President launched "Xiao Ming Tong Xue," priced above RMB 5 and targeting post-95s consumers, and its popularity continued into 2016. Compared with Xiao Ming Tong Xue, Hai Zhi Yan became an embarrassment. According to HSBC's research report on Uni-President's results, the beverage revenue decline was due to juice, and the main product in Uni-President's juice business is Hai Zhi Yan.
In 2015, Hai Zhi Yan saw high-multiple growth, helping Uni-President's juice business outperform the national average. It even impacted other beverages, especially Mizone, a lightly flavored functional drink in the same RMB 4 price range. Why has Hai Zhi Yan declined so sharply so soon?
"Hai Zhi Yan is a category-following concept; competitor Mizone already existed. Xiao Ming Tong Xue, with its packaging more aligned with youthful, cute, and quirky traits, has a longer life cycle than Hai Zhi Yan," Zhu Danpeng said.
An FMCG industry observer believes Hai Zhi Yan's decline may be largely due to high inventory, or that last year's impressive results had some water, with channel inventory not truly absorbed by the market.
Earlier, CICC analysts issued a forecast report on Uni-President's H1 performance, estimating Xiao Ming Tong Xue revenue at about RMB 700 million, while Hai Zhi Yan was expected to decline 20%. Morgan Stanley analysts also noted in a February report that after exceeding RMB 1.7 billion in sales in 2015, Hai Zhi Yan's growth had already slowed in H2 of that year.
Several Uni-President distributors told the reporter that compared with other Uni-President beverages, Hai Zhi Yan had relatively high profit margins. It attracted many distributors to stock up when launched, but after Q1 restocking, some distributors faced small inventory issues, which also lowered factory shipments.
In the financial report, Uni-President mentioned Hai Zhi Yan's performance: "As the Group's first light-flavored beverage, it has been well received by consumers since its launch in 2014. According to Nielsen data, actual retail consumption growth did not match shipment pace. To pursue long-term brand value and profit maximization, Hai Zhi Yan adjusted its sales pace in H1 2016, making phased shipment adjustments."
"For channel distributors, if products don't sell, they won't restock. Manufacturers need to help distributors with promotions. It's possible that Hai Zhi Yan had many promotions at launch, but as the product matured, expenses were cut in H1, losing consumer interaction. Consumers gradually forgot the brand, and distributors lost brand loyalty," Xiao Zhuqing believes.
**Instant Noodle Growth to Normalize**
Compared with the downturn and decline of the instant noodle industry in 2015, the overall market began to recover in H1 2016, with sales up 1.9% year-on-year. Uni-President's H1 instant noodle sales were RMB 4.011 billion, up 9.8%, outperforming the market. Meanwhile, Uni-President's instant noodle market share rose to 20.8%, up 2.8 percentage points year-on-year.
Undeniably, the increased revenue share of new and premium products, which have higher profitability than traditional products, lifted overall corporate profits. Additionally, lower raw material costs in H1 indirectly improved gross margins.
A Uni-President instant noodle distributor in Fujian told the reporter that competitor Master Kong's premium instant noodle products have not yet captured the market, giving Uni-President an opportunity. Additionally, Uni-President's promotion of Laotan Sauerkraut Noodles has weakened, with sales flat compared with last year, while payments are still tied to Tang Daren (a premium brand). A distributor in Kunshan also said that Laotan sales grew moderately in H1, while Tang Daren grew faster as consumer purchasing habits are forming.
BofA Merrill Lynch believes Uni-President's H1 instant noodle performance benefited mainly from market share gains and Tang Daren's strong performance. However, since Master Kong launched its classic series, which will affect Uni-President's market share growth, BofA Merrill Lynch expects Uni-President's instant noodle growth to normalize in H2.
"Although premium instant noodles can improve corporate performance in the short term, this development is not sustainable. As more companies enter the field, more players will compete for this already small pie, and premium product profitability will decline," Zhu Danpeng said. He expects Uni-President's H2 revenue to decline slightly. Especially, newly appointed Uni-President Group General Manager Hou Ronglong and Uni-President China Investment General Manager Liu Xinhua must deliver good results. Between protecting revenue and profit, Uni-President will definitely choose the latter.
Source: China Business Journal | Reporter: Huang Rong
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