Has the Herbal Tea Market Really Gone Cold? Who Owes an Apology?

It seems this winter is no calmer than previous years, nor does it promise the expected warming. In fact, some brands are already shivering at the threshold of winter, deeply chilled. In the herbal tea market, two fiercely competing brands, Wanglaoji and JDB, are seeing further sales declines, indicating the market has truly cooled, with JDB possibly suffering the most.

JDB has not been comfortable this month, scurrying around with PR activities to maintain an external signal of 'doing just fine' and claiming it 'fears no darkness.' Despite this, the decline in JDB herbal tea sales and the significant reduction in marketing expenses have left those at the end of the industry chain feeling less confident. The 'herbal tea war' seems far from over. While the domestic herbal tea market heats up, we must also be wary of the infiltration of foreign giants eyeing the market, lest we end up with the 'fisherman's profit' scenario.

Is the herbal tea market cooling, or is JDB cooling?

Wanglaoji, under Guangzhou Pharmaceutical Group, has won 19 consecutive lawsuits against JDB, with JDB ordered to pay 2.9 billion yuan in compensation. Previously, consumers had been subconsciously imprinted with the impression 'Fear of getting heaty? Drink Wanglaoji (JDB).' But the habit of grabbing a can of herbal tea at the slightest sign of heat is now undergoing fundamental changes.

According to authoritative sources, the growth rate of the herbal tea industry's sales scale will slow significantly in 2016, expected to be only around 10%. From 2012 to 2014, the herbal tea industry maintained high annual growth rates of 50% to 100%. However, with the overall beverage market performance declining in recent years, the herbal tea industry's growth has also slowed. Additionally, Nielsen data for 2014 showed that in the canned herbal tea segment, JDB held a market share of 62.1%, leading the market. Later, the China Food Industry Association released a 2015 beverage industry report showing JDB's 52.1% market share still ranked first in China's herbal tea industry. Regarding 2016 sales, coupled with JDB's recent setbacks, industry insiders are generally concerned.

Besides declining sales, JDB's marketing expenses have also been decreasing year by year. From 2012 to 2015, JDB's sponsorship fees for 'The Voice of China' rose annually, from 60 million yuan in the first season, 200 million in the second, 250 million in the third, and 300 million in 2015 for title sponsorship. While this huge sponsorship fee was criticized as not worth it, JDB adjusted its strategy and subsequently ended its title sponsorship.

Its former parent company, Wanglaoji, has also significantly reduced its advertising and promotion expenses. According to public financial reports, in 2013, expenses reached 1.312 billion yuan, a year-on-year increase of 139.85%; in 2014 and 2015, they were 945 million and 1.095 billion yuan respectively, both considerably lower than in 2013.

Numerous substitute beverages are crowding the market

Beyond declining sales and reduced marketing expenses, more people are recognizing that herbal tea is not a national beverage. According to sales layer analysis, the red zones for JDB and Wanglaoji are mostly in the south; herbal tea seems unable to capture the taste buds of northerners. In terms of taste and health habits, the southern market is stronger. Therefore, while expanding nationally, herbal tea brands should consider this aspect. Over the past five years, natural health drinks represented by plant protein beverages (such as coconut juice and walnut milk) have been favored by the market for their nutritional 'content' and 'appeal to all ages.' Data shows that since 2010, China's plant protein beverage market has developed steadily, with compound annual growth rates of 24.4% in sales value and 21.3% in volume.

In addition to plant protein drinks, the functional beverage market is also popular among young people, becoming a trend.

It is reported that China's functional beverage market was approximately 37.8 billion yuan in 2015. From 2009 to 2014, the compound annual growth rate reached 31.6%, making it the fastest-growing category in the non-alcoholic beverage sector, with an expected market size of 101.3 billion yuan by 2019. Clearly, the Chinese market has huge potential, and this field is already occupied by brands like Red Bull, Lehu, Mizone, and Scream, with foreign capital eyeing it.

Therefore, in the battle between 'archrivals,' the focus is more on market share and the covetous gaze of foreign capital, which is a serious issue. The current situation indicates that only by stopping internal strife and undergoing transformation can JDB and Wanglaoji promote industry development. For example, Coca-Cola and Pepsi, both carbonated beverages, have long-standing competition, but it remains within a healthy range, with few instances of vicious competition. They focus on business operations, strength comparison, marketing promotion, and channel operations, rather than underhanded attacks.

As the 'leader of the herbal tea market,' JDB, no matter how much it conveys a message of well-being to the outside world, cannot compare to its own transformation and reform. Only then can it truly seize opportunities and rise to challenges in the herbal tea market. Moreover, with the state-owned Wanglaoji around, doesn't JDB feel the weight on its shoulders?

This article is from Ruixun Finance

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