Source: Condiment Business Circle (twpsq0909)
After nearly two decades of development, apple cider vinegar drinks remain a niche beverage, but PepsiCo's sudden entry at this moment raises the question: can it stir up this lukewarm market and create waves?
Five experts—Zhu Qiming, Zhang Ji, He Mu, Zhu Danpeng, and Zhang Feng—jointly 'take the pulse' of the situation.
- PepsiCo's Push into the Apple Cider Vinegar Market
According to PepsiCo's Shanghai official WeChat account, to align with the trend of healthy eating, PepsiCo will launch a new product in August 2018: Vinegar Words - Fruit Vinegar Sparkling Drink.
It is understood that this series uses brewed apple cider vinegar, paired with fresh fruit flavors and rich bubbles, with a low-sugar formula, suitable for drinking with meals to refresh and cut through grease. It comes in two flavors: caramel apple and salted plum, available in 330ml and 1.25L sizes.
Why is PepsiCo entering the apple cider vinegar market at this time? Is it a blue ocean?
According to data from Zhiyan Consulting, in 2015, China's vinegar drink market exceeded 3.5 billion yuan, with an average annual growth rate of 24% for three consecutive years. If this growth rate is maintained, by 2020, China's apple cider vinegar beverage market is expected to exceed 10 billion yuan.
Looking at the more than 200 vinegar beverage producers nationwide, only the 'Tiandi No.1' brand, founded in 1997, dominates.
In 2015, Tiandi No.1 was listed on the New Third Board. This beverage company, which started in Jiangmen, Guangdong, holds over 80% of the market share in Guangdong. According to its annual report, in 2017, the company's revenue reached 1.711 billion yuan, a year-on-year increase of 22.12%.
As consumer demand for healthy beverages increases, the development space for apple cider vinegar drinks is relatively considerable, but fruit vinegar has not yet been widely accepted by the mass consumer, and the overall market size is still small. Therefore, even though condiment companies like Hengshun, Zilin, and Haitian have been cross-industry entrants for years, they have seen little success.
So, after PepsiCo's entry, can it stir up big waves in the entire fruit vinegar sector?
- Five Experts Diagnose the Fruit Vinegar Market
Zhu Qiming expressed confidence in the future development of the vinegar beverage industry.
Consumers' resistance to sweet products has become an irreversible trend. Low sugar and low calorie are already common trends in the global food and beverage industry, and industries related to sugar have also shifted towards 'big health'.
In recent years, as (compound) vinegar beverages, which are recognized by consumers for their multiple health benefits, have become the new favorite for major companies, Pepsi has been laying out its strategy in the big health beverage industry for years. This entry into the vinegar beverage battle will certainly intensify competition in the vinegar beverage industry.
Pepsi's strong product development and promotion capabilities are conducive to enhancing the influence of the vinegar beverage category on consumers and helping to cultivate consumption habits. Once these habits are successfully cultivated, it will undoubtedly rapidly increase the market capacity of this category, expanding the initially limited market capacity and promoting vinegar beverages from 'regional niche' to national mass market.
Condiments and vinegar beverages are inherently two different industries. The former is mainly used for seasoning, with consumption purposes and cycles quite different from ready-to-drink vinegar beverages. The terminal channels, display areas, profit distribution among links, and operational techniques for reaching consumers are also quite different.
Therefore, when condiment companies venture into fast-moving consumer beverages, due to the significant differences between industries, most have experienced 'acclimatization issues' in the early stages.
Pepsi's entry into apple cider vinegar might make it 'brothers in adversity' with Hengshun, Zilin, and Haitian.
The consumption essence of any niche market, if it is a beverage, must follow the principle of 'tastes good'. However, apple cider vinegar is neither good nor bad tasting, so the key lies in whether the company can find the point to bridge the market and capture consumer minds.
Take herbal tea as an example. In fact, herbal tea tastes average, but the success of JDB and Wong Lo Kat lies in finding their brand positioning, seizing consumers' psychology of liking spicy food but fearing getting heaty, and using the advertisement 'Afraid of getting heaty? Drink...' to capture minds.
But what is the core selling point of apple cider vinegar? For operating companies, this is an unresolved challenge and also the main reason the apple cider vinegar industry has not grown its market size over the years.
Regarding vinegar companies crossing over to make fruit vinegar beverages, Zhang Ji suggested, 'Just sell the product; don't treat it as a strategy, don't take it too seriously. Because it is wrong for vinegar companies to do the whole industry chain; crossing into different markets is too difficult.'
'Condiment companies may not do well in apple cider vinegar beverages, but Pepsi may not do much better either.'
Being in the same beverage distribution channels, Pepsi has more sufficient reasons and capabilities to make apple cider vinegar than Hengshun, Zilin, and Haitian. Moreover, most condiment companies have 'thinking inertia', using condiment methods to make beverages, which obviously won't work.
Currently, the sales channels for apple cider vinegar are mainly foodservice channels. Condiment companies have no advantage in this regard, and Pepsi's advantage is also not significant. Instead, beverage giants like Wahaha, JDB, and Daliyuan have a relatively higher chance of success.
The core resource of FMCG is channels. If Pepsi can truly bring in these 'wolves' like Wahaha, JDB, and Daliyuan, then the apple cider vinegar market would become lively, but at present, this probability is very small.
Pepsi selling vinegar beverages has advantages from both the consumer and channel perspectives because of high overlap. But the disadvantage is that different beverage categories require different market strategies.
Take China Resources as an example: its subsidiary C'estbon drinking water leads national sales, but the same China Resources team has not seen much improvement in other beverages. The reason is that even within the beverage category, different sub-categories require different operational thinking and behaviors.
Furthermore, Pepsi's vinegar beverage sales also depend on its raw materials. If the raw material is fermented vinegar, it will promote the entire vinegar industry; but if it is blended with vinegar essence, it will be a blow to the traditional vinegar industry.
The earliest to start making apple cider vinegar beverages was a company in Xinxiang, Henan. Over the past decade or so, there have been two waves of promoting apple cider vinegar, but ultimately they did not succeed because apple cider vinegar drinks are a niche market and not widely accepted or recognized by the mass consumer.
Looking at the current market landscape of apple cider vinegar drinks, even with Pepsi's entry, the possibility of apple cider vinegar beverages becoming a major product is almost zero. This is evident from the leading vinegar drink brand 'Tiandi No.1', whose main sales area is still limited to Guangdong Province after many years.
Pepsi's advantages in making apple cider vinegar lie in its brand influence and channel control, but it is best to downplay the concept of apple cider vinegar. If Pepsi can truly 'heat up' the apple cider vinegar industry and activate this category, it would actually be a good thing for Hengshun, Zilin, and Haitian.
- How Can Domestic Fruit Vinegar Brands Defeat Pepsi?
Zhu Qiming believes that Pepsi's Vinegar Words fruit vinegar drink, as a strategic breakthrough product, will surely use its strong channel network and skilled market promotion capabilities to quickly seize market share in future market competition. This will undoubtedly put pressure on domestic brands whose main battlefield is still regional markets.
In the beverage industry, Pepsi has over a century of consumer research and channel refinement, coupled with strong foodservice and terminal channels. Therefore, in terms of advantages in promoting vinegar beverages, Pepsi is clearly more prominent.
Thus, facing Pepsi, which is highly proficient in the beverage market and entering strategically, domestic brands that are not familiar with beverage industry operations must remain highly vigilant, carefully examine the competitive landscape, and quickly make necessary adjustments.
Zhu Qiming suggests domestic fruit vinegar brands:
- Fully tap into the essence of traditional Chinese medicine for health conditioning, combined with modern food industry technology, to develop more new products that meet consumers' health conditioning needs.
2. Strictly control product quality.
Resolutely eliminate blended products that are harmful to health, maintain consumer confidence in category products, and expand market demand. At the same time, in competition with foreign brands like Pepsi, maintain sufficient comparative competitive advantages that consumers can recognize.
3. Cultivate and attract talent simultaneously.
Without a strong professional operations team as support, it is difficult for companies to build a win-win marketing ecosystem across the value chain; without professional support, companies are prone to falling into passivity and heading towards defeat in competition.
Therefore, it is necessary to build a professional operations team that is proficient in the beverage market.
4. Establish an airtight terminal network.
Whoever is closest to consumers is more likely to be understood and purchased by them. Focus fully on deep cultivation of target markets, use point-to-area expansion, and promote the company from local markets to regional markets, ultimately achieving a national layout.
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