---
title: "Hershey Sues Former Jinzihou Employees and Distributors; Functional Drinks Market Enters 'Post-Red Bull Era'; AB InBev Plans $2 Billion Investment to Revitalize US Market"
description: "Hershey has filed lawsuits against over 130 former office directors and nearly 1,000 distributors of Jinzihou, a company it acquired, amid a 16.6% sales decline in China. Meanwhile, AB InBev plans to invest $2 billion in the US market, and the functional drinks market in China is expected to grow significantly."
author: "New Distribution"
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published: "2017-05-25"
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# Hershey Sues Former Jinzihou Employees and Distributors; Functional Drinks Market Enters 'Post-Red Bull Era'; AB InBev Plans $2 Billion Investment to Revitalize US Market

> Hershey has filed lawsuits against over 130 former office directors and nearly 1,000 distributors of Jinzihou, a company it acquired, amid a 16.6% sales decline in China. Meanwhile, AB InBev plans to invest $2 billion in the US market, and the functional drinks market in China is expected to grow significantly.

Heard it? Geniuses are reading the New Distribution Morning Report.

1
Corporate Headlines

1. Hershey Massively Sues Former Jinzihou Employees and Distributors
Since last year, Hershey has been filing lawsuits against over 130 office directors and nearly 1,000 distributors nationwide. They are all former employees and partners of Shanghai Jinzihou Food Co., Ltd. (hereinafter referred to as Jinzihou), a company acquired by Hershey.
In Hershey's fourth-quarter earnings report, sales in China plummeted by 16.6% year-over-year. Besides the overall sluggish consumer market, poor control over sales channels is also an urgent issue for Hershey to address.
The full acquisition of Jinzihou was seen as a way to gain control over third- and fourth-tier channels. However, Hershey underestimated the impact of e-commerce on traditional channels, and it has been left behind once again.
According to statistics, as Chinese consumers' shopping habits shift online, chocolate e-commerce sales grew by 27.3% last year. "In mainland China, nearly 20% of chocolate is sold through e-commerce, while in the US, UK, France, and other regions, online chocolate sales account for less than 5%."

2. AB InBev Plans to Invest $2 Billion to Revitalize US Market
AB InBev recently announced that over the next four years, it will invest $2 billion (13.76 billion RMB) to restructure its US market presence. "The long-term plan shows confidence in the US market," said Joao Castro Neves, head of AB InBev US.
This year, AB InBev intends to take small brands based in Washington and California global. Similar to how cola companies are no longer focusing solely on carbonated drinks, AB InBev is also looking beyond beer into other beverage businesses.
Last June, AB InBev and Starbucks jointly launched ready-to-drink Teavana bottled tea. Starbucks was attracted to AB InBev's distribution network of over 500 distributors across the US, while AB InBev was interested in tea-flavored beer.
This year, AB InBev also formed a joint venture with Keurig Green Mountain to develop home cocktail makers.

3. Coca-Cola Reduced Sugar Content, but Consumers Didn't Notice
Some Coca-Cola brands have already adjusted their sugar content, but without specific promotion.
In Australia, they replaced 15% of the sugar in Sprite with stevia, reducing the product's calories. In Europe, they similarly modified Fanta's formula, cutting calories by 30%. These changes are visible on product packaging labels, such as Sprite now containing stevia. After the modifications, Coca-Cola found that sales of both products remained unchanged; "consumers still like Sprite as before."
This adjustment may not make a difference to most consumers, but it's good news for Coca-Cola, which urgently needs to mitigate the negative impact of soda taxes on profits. For example, in the UK, the soda tax has three tiers. Classic Coca-Cola falls into the highest tier, with over 9 teaspoons of sugar per can, resulting in a tax of 12 cents per can, while drinks with 3-5 teaspoons of sugar are taxed at 9 cents per can. This means that if Coca-Cola can reduce sugar content without changing taste, it could save a significant amount of money.
Of course, with carbonated drink sales declining, merely reducing expenses is not enough; Coca-Cola still needs to find new growth points.

2
FMCG News

1. Functional Drinks Market Enters 'Post-Red Bull Era'
China's functional drinks market capacity is still expected to expand.
Functional drinks represented by Red Bull, Lehu, and Mizone already have a broad market and relatively stable consumer base in China. Media data shows that from 2009 to 2014, the compound annual growth rate of functional drinks in China reached 31.6%, making it the fastest-growing category in the non-alcoholic beverage sector. It is estimated that by 2019, China's functional drinks market will reach 101.3 billion yuan.

2. After Unicorn Frappuccino, Starbucks Tests Another Social Media Sensation
According to foreign media BI, in the past few days, some Starbucks baristas have uploaded photos of a suspected new product, "Ombre Pink Drink," on Instagram, sparking heated discussion. This pink drink is made with lemonade, coconut milk, and iced black tea.
Ombre Pink Drink is actually a modified version of Pink Drink, which was launched last year. A Starbucks spokesperson said the company will not share any details about the new Ombre Pink Drink, as everything is under wraps.
Starbucks baristas are gearing up to create more creative cold drinks, including modified Pink Drink, Nitro cold brew, coffee ice cream mixes, and even coffee ice cubes.

3. Century-Old 'Zheng Guang He' Enters Juice Industry, Launching Six Tropical Juice Drinks
Century-old brand "Zheng Guang He" previously focused on products for summer heat, lacking year-round regular products and those for cold seasons. To enrich its product line, it is now launching a tropical juice drink series. The choice of the juice industry is because it represents the overall development trend of the beverage industry, with vast market prospects. He said that product development took over two years, and to attract young consumers, the packaging design incorporates a postmodern style, which was well-received by young people in preliminary tests.
This time, Zheng Guang He launched six tropical juice drinks, including "First-Pressed Coconut Juice," which received enthusiastic responses from distributors at the product launch. Li Jinze stated that new products will be launched continuously based on market demand.

3
B2B Column
What Will Happen After JD.com Opens Its Logistics?
The news of JD.com opening its logistics has flooded social media. Today, from a B2B perspective, we will interpret the profound impact of JD.com's logistics opening on FMCG:
In 2016, the market size of China's consumer goods industry is expected to reach 33 trillion yuan, with online penetration of offline expected to reach 12% this year. In stark contrast, pure B2C penetration of FMCG offline is less than 4%.
Data source: Analysys International's "China FMCG E-commerce Development Research Report 2015"
JD Logistics, like JD Finance, will operate completely independently. In the future, it will not only serve JD Mall but also open its three major service systems to the entire e-commerce and express delivery industry, and even society: integrated warehousing and distribution supply chain services, JD Express services, and JD Logistics Cloud services.
Fu Bing, Vice President of JD Group and Head of JD Mall Logistics Planning and Development, stated that after opening to the public, JD Logistics will strive to become a "provider of infrastructure for China's commercial retail sector," helping millions of merchants reduce supply chain costs and improve circulation efficiency.
At the beginning of 2016, Liu Qiangdong designated New Channel as JD's No. 1 locomotive project and assigned capable executive Du Shuang to lead it, showing his emphasis on this FMCG B2B project. However, after a year of operation, the New Channel team must have truly felt that while B2C penetration is difficult, B2B is even harder!
Where are the difficulties?
1. Supply of Goods
Due to doubts about B2B e-commerce distribution capabilities and protection of existing offline distributor systems, manufacturers generally are unwilling to cooperate with platforms on best-selling products. Not just JD, all manufacturers are reluctant to cooperate with platforms on best-sellers. Moreover, all manufacturers require payment before delivery, but JD, similar to KA channels, operates on a pay-after-delivery basis with a settlement period of 45 days after sale. Large manufacturers certainly won't accept such channel capital occupation.
2. Pricing
In FMCG, price is one of the core competitive advantages. Even if companies cooperate with JD on best-sellers, prices are basically the retail supply price including VAT, or the second-tier wholesale price, making it impossible for New Channel's best-seller prices to compete with distributors.
3. Logistics
Because New Channel's best-seller prices are high, offline small stores' order rates are insufficient, order density is low, and average order value cannot increase, making logistics fulfillment costs very high.
What does high fulfillment cost mean? In B2B, if the per-vehicle fulfillment cost exceeds the per-vehicle gross profit, B2B will never make a cent from price differences! For a self-operated platform, how can this be acceptable?
Therefore, JD's opening of logistics to reduce costs of the existing logistics system through socialized order consolidation—whether intentional by Liu Qiangdong or a stroke of genius—New Channel will leverage low-cost large-item logistics and central warehousing to achieve rapid low-cost market expansion!

Editor: New Distribution Team, Long Xiaolong
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