On a weekday noon in May, Shi Wenzheng stood before the chilled shelves at FamilyMart, choosing a drink to pair with her lunchbox. She makes this decision at least three times a week, so familiar with the four shelves that she knows exactly what sits in each spot. She always hopes to spot something new to try, and that day, Nestlé's quietly launched tea drink called 'Cha Cui' quickly caught her eye. Among the four shelves, one entire shelf displayed tea drinks from various companies and brands, but Nestlé's 'Cha Cui' stood out with its bold text design emphasizing real juice, low sugar, tea, and cut fruit imagery, as if it couldn't wait to tell her something, Shi said. Which one would attract you? | Image: Xu Shiyu To stand out among hundreds of new products, it's crucial for brands to effectively convey product image and spark consumer curiosity. 'Using text as the main visual element, combining logo, product name, and selling points in a modern layout, and then wrapping the text with cut watercolor fruit illustrations above and below, we felt this could clearly convey the beauty of juice tea in a minimalist style,' said Ji Weiru, CMO of Xiamen Yinlu Foods, in an interview. Yinlu is a wholly-owned subsidiary of Nestlé, responsible for R&D, production, and sales of Nestlé beverage products. As Shi observed the packaging of Cha Cui, she already imagined the taste of tea mixed with fresh juice. Many new tea drinks like Nestlé's Cha Cui are trying to squeeze into consumers' sight. According to Nielsen data, as of 2019, the compound annual growth rate of China's tea beverage market over the past three years was about 15.2%, making it one of the fastest-growing beverage categories. Meanwhile, during these three years, the ready-to-drink tea market saw over 100 new SKUs each year. This is also evident from the aggressive product launches by major companies in April this year to prepare for the upcoming summer peak season. Besides Nestlé, many beverage companies have launched a wave of new ready-to-drink tea products. For example, Yinlu's sugar-free tea 'Shanyun Huacha' features Dahongpao, Lapsang Souchong, and Four Seasons Spring flavors. Uni-President's new sugar-free tea 'Chaba' follows a similar route, offering Oolong, Jasmine, and Tieguanyin flavors. Yili's premium flavored milk brand 'Weikezi' and Panpan's 'Shuishui Fruit Tea' also launched their first juice tea drinks similar to Nestlé's, offering flavors like Peach Lychee, Green Orange Lemon, Green Mango Four Seasons Spring, and Peach Dahongpao. Additionally, Jinmailang's new 'Dicha' offers five flavors: Lemon, Apple, Peach, Coffee Black Tea, and Milk Black Tea. Xiangpiaopiao launched a cheese oolong milk cap tea for e-commerce channels, imitating street-side tea shop drinks. Meanwhile, competition in just the lemon tea flavor segment is extremely fierce. Last year, Master Kong launched 'Chashenting' lemon tea with a Hong Kong-style positioning. Coca-Cola's bottler Shenmei's own brand Xuefeili also launched a lemon-flavored tea drink and this year adjusted its taste and upgraded packaging. The tea drink market looks so lively partly because in recent years, its survival space has been squeezed by new-style tea shops like Heytea, Lelecha, and Sexy Tea, diverting consumers of tea and juice products. On the other hand, the current overcapacity in the tea drink market determines the supply-demand relationship. 'If consumers don't have demand, no matter how much we produce, we can't spark their interest,' Ji Weiru explained. -01- The Evolution of Ready-to-Drink Tea—From 2 Yuan, 3 Yuan to 5 Yuan, 8 Yuan In the early 1990s, the launch of Xurisheng Iced Black Tea officially opened the curtain on China's mainland tea drink market. The successive launches of iced black teas by Master Kong and Uni-President further accelerated the rapid development of the black tea beverage category and laid the foundation for the entire tea beverage market. After over a decade of rapid expansion, iced black tea has become one of the most mature tea beverage categories and a major revenue source for major companies' beverage businesses. But starting around 2013, the tea drink market faced sluggish growth because the post-90s generation of young consumers grew up, and with rapid economic, income, social, technological, and cultural development, their needs became diversified. According to Euromonitor data, China's tea beverage market began to decline in prosperity around 2013-2014. From 2014 to 2017, sales volume continued to decline but sales value remained flat, indicating a shift from quantity to quality, entering a phase of transformation and upgrading. In 2015, Uni-President launched the market's first cold-brew tea product, Xiaoming Tongxue, using a cartoon character to penetrate the youth market, successfully bringing the combination of juice and tea into mainstream consumer view. In its launch year, it even saw stockouts in multiple regions. Then in 2016, Nongfu Spring launched 'Tea π', which achieved 10 billion yuan in sales over four years, becoming a phenomenal product in the tea drink market. A related business insider revealed to the author that Tea π's success made many major companies see new opportunities in the tea drink market, thereby reactivating its second growth. Ji Weiru also observed that between 2015 and 2016, the tea beverage market saw its first structural price shift from 2 yuan to 3 yuan and 5 yuan. She attributes this to brands offering products with better aesthetics and more diverse flavors, gaining emotional recognition from consumers. Thanks to their early layout in iced black tea and green tea categories, Master Kong and Uni-President have firmly held the top two positions in tea drink market share to this day. In 2019, Master Kong's ready-to-drink tea (including milk tea) sales exceeded 3.53 billion liters, with a market share of 45.7% according to Nielsen statistics. However, in 2019, Master Kong and Uni-President's tea beverage revenues fell by 110 million yuan and 330 million yuan respectively, down 0.7% and 5.88% year-on-year—the era of iced black tea dominating the market is over. 'Actually, iced black tea made consumers aware of ready-to-drink tea and got them to accept it,' Ji Weiru said. Over the past 5-6 years, 5 yuan has become the mainstream price point for ready-to-drink tea. Some milk tea products can sell for 7-8 yuan, and some pure tea products not targeting the mass market can even sell for up to 28 yuan. To get consumers to pay high prices, beverage companies need to provide added value in health, taste, ingredients, functionality, etc., and carve out their own niche markets. -02- From Sweet Tea to Sugar-Free Tea, the Transition Isn't Simple Yinlu spent a total of three years preparing the two new products, Cha Cui and Shanyun Huacha. The first two years were mainly spent trying to answer the question 'How should the market be segmented?' Besides collecting data from market research firms like Nielsen, Yinlu's marketing team conducted multiple consumer surveys across the entire tea beverage market to understand young people's real needs for the tea category and their perceptions of existing tea brands. 'It wasn't until the third year that we truly began positioning Cha Cui and Shanyun Huacha,' Ji Weiru told the author. Statistics show that Asian tea beverages account for about 64.4% of global tea beverage sales, and China, as the largest region in Asia's ready-to-drink tea market, holds about 48% of that share. This is a massive market size, indicating that tea beverages are a high-awareness and high-frequency category for Chinese consumers. 'We can see a clear premiumization trend in the market, and its main driver is consumers' increasing health demands,' Xu Wenxin, food and beverage analyst at UK market research firm Mintel, told the author. 'Consumers are becoming smarter; they start paying attention to whether the ingredients are real, not just concentrated liquid, and even carefully read the calorie and sugar content on the label.' Sugar reduction is an inevitable trend across the entire beverage industry. Although the tea drink market is still in the 'iced black tea era,' meaning most products are sweet tea, Xu observed that more low-sugar, sugar-free, and sugar-substitute tea drinks are becoming increasingly popular. For example, Cha Cui's Lemon Iced Black Tea is far less sweet than traditional iced black tea, while its other two flavors, Peach Oolong and Passionfruit Green Tea, use low-sugar versions. Shanyun Huacha, which markets sugar-free as one of its selling points, is more thorough. Yinlu clearly wants to use these two new products to capture both the low-sugar and sugar-free markets, which are currently the most promising. 'Sweet tea and sugar-free tea are quite different categories. Tea drinks with sweetness, fruit flavor, or even milk are easier for the public to accept because they pursue a refreshing, pleasurable experience, while sugar-free tea targets consumers who are more culturally connected and health-conscious,' Ji Weiru explained. In Japan, where the tea beverage category is relatively mature, sugar-free tea has long become a mainstream beverage widely accepted by consumers. Over the past decade or so, Taiwan and Hong Kong in China have also transitioned from sweet tea to sugar-free tea, which has grown into a large niche market. Data Ji Weiru obtained shows that although sugar-free tea currently holds only a single-digit market share in mainland China, its growth rate is in the high double digits. According to Xu Wenxin, Japan's sugar-free tea category alone is filled with a variety of niche products with rich selling points. For example, some products are based on whole-leaf tea with added floral and herbal ingredients, some add rice or grain ingredients, some mix fruit juices, and some pure teas offer blends of multiple tea leaves. Because competition is fierce and they can't manipulate sugar content, these products must be innovative enough to survive long-term. Currently, many Japanese sugar-free tea brands have entered the Chinese market, and ITO EN has even opened a factory in Nanjing, Jiangsu. Xu believes this external competition can help drive more niche products in China's tea drink market. The recently popular domestic brand Genki Forest's black and white 'Ran Tea' is a successful example—using fruit juice and sugar substitutes to promote a sugar-free, zero-calorie concept, while also adding dietary fiber to emphasize functionality—and it has been well-received in the consumer market. To differentiate from existing Chinese tea products, Shanyun Huacha took the route of famous Chinese teas, hence launching flavors like Lapsang Souchong and Dahongpao, which highlight the tea variety. Do you prefer sweet or sugar-free tea? | Image: Xu Shiyu Since the tea leaves used in ready-to-drink tea beverages have traditionally been low-end products like tea dust and broken leaves, using relatively high-quality tea leaves to improve tea beverage quality requires beverage companies to readjust their supply chains and establish quantifiable, testable standardized procurement systems to meet the mass production needs of beverage launches. -03- Competitors Emerging Internally and Externally Besides the major trends of health, sugar-free, and functionality, there's a special presence in the tea drink market—lemon tea. Looking back at the development of China's tea drink market, lemon tea is arguably the earliest juice tea category widely accepted by the market, even though its early ingredients were just black tea powder and lemon juice. To this day, among all ready-to-drink tea subcategories, lemon tea may be the most competitive. Vitasoy's lemon tea, which emphasizes the tea's astringency and lemon's bitter-sweetness, is estimated by industry insiders to have annual sales of around 2.5 to 3 billion yuan, with potential to enter the 5 billion yuan club. Last year, Master Kong launched 'Chashenting' lemon tea, offering not only regular rectangular paper packaging and bottles but also aluminum cans, emphasizing authentic Hong Kong flavor, and enlisted Hong Kong star William Chan as spokesperson. Swire Coca-Cola, which already owns the Sunshine brand lemon tea, saw its bottler Shenmei's own brand Xuefeili launch a new lemon-flavored tea drink in 2019 as a strategic product, with Sunshine and Xuefeili targeting the East and South China markets respectively. The same year, Dongpeng Special Drink launched 'Yougan Lemon Tea', adding yokan (a fruit) flavor to the lemon base. In 2020, these brands again launched upgraded packaging and updated product taste. According to Guo Tinghui, deputy general manager of new business at Swire Coca-Cola, who oversees the Xuefeili business, during the R&D of this lemon tea, the Xuefeili marketing team conducted extensive research on product taste, packaging, and market positioning, and applied the findings to product development, directly affecting the final sweetness, astringency, tea powder concentration, tea soup color, and other aspects. 'Besides taste, the packaging design, material, graphic design, and highlighting of selling points also adopted the optimal choices from blind tests with young consumers,' Guo told the author. If competition in the relatively mature lemon tea segment is currently more focused on channels, then relatively niche and new-flavored subcategories are less affected by channel distribution barriers. The channel capabilities that major companies have built over decades, reaching small shops in fourth-, fifth-, and sixth-tier cities, are certainly a competitive barrier that emerging brands find hard to match. However, the development of relatively mature chain retail channels like hypermarkets and convenience stores, as well as third-party e-commerce platforms and property industries, has given emerging brands a relatively easy entry barrier. Making a small, beautiful brand is physically much easier than it was a decade or two ago. 'The influx of many emerging brands has also put major companies in an awkward position. Emerging brands are certainly more flexible, while major companies' decades of accumulation have established mature and complete brand images in consumers' minds, making it hard to directly copy these emerging brands' methods,' Xu Wenxin pointed out. 'But ultimately, the key is to find ways to capture the 18-24 age group. Our research shows they are the group that determines trends in the FMCG food and beverage market.' This is also why there's a trend of mutual imitation between new-style tea shops and the ready-to-drink tea market. Tea shops that make drinks on demand and bottled tea beverages are fundamentally different business models, each offering consumers different experiences and values. Tea shops mainly rely on storefronts to meet consumer needs, having an advantage in taste over bottled drinks, with more flexibility in using fresh ingredients and customizing flavors. Bottled ready-to-drink beverages, on the other hand, have their own unique advantages of convenience, safety, and storability. But now, more and more tea shops are launching ready-to-drink tea beverages with longer shelf life and better portability to meet customer needs, while ready-to-drink tea is also learning from tea shops to innovate in taste. For example, Xiangpiaopiao's Oolong Milk Cap Tea imitates tea shop products, and Shanyun Huacha's Four Seasons Spring flavor references the popular 'Four Seasons Green' drink from many milk tea shops. Early Chinese tea drink market promoted iced tea beverages to highlight the thirst-quenching selling point. Now, the tea drink market is shifting to natural, healthy, and functional selling points, essentially aiming to make tea drinks more of a daily consumption beverage, breaking the industry pattern where summer is the only peak season. Source: CBNweekly YiMagazine (ID: CBNweekly2008) Tips will be paid 400-2000 yuan upon adoption.