---
title: "Is There Really a Bubble in the Sugar-Free Sparkling Water Market?"
description: "The article examines the decline of traditional carbonated drinks and the rise of sugar-free sparkling water in China, driven by health consciousness and market opportunities. It discusses how both established giants and new brands are competing in this rapidly growing segment, with channel penetration and product innovation being key strategies."
author: "吴怼怼"
publisher: "New Distribution"
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published: "2020-11-17"
language: "en"
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# Is There Really a Bubble in the Sugar-Free Sparkling Water Market?

> The article examines the decline of traditional carbonated drinks and the rise of sugar-free sparkling water in China, driven by health consciousness and market opportunities. It discusses how both established giants and new brands are competing in this rapidly growing segment, with channel penetration and product innovation being key strategies.

****Click "Read the original text" for details****
**-0****1-**
**People May Not Love Cola Anymore**
Carbonated drinks may be becoming a thing of the past.
Since 2005, sales in the U.S. carbonated beverage market have declined for 11 consecutive years. According to the U.S. Beverage Digest report, in 2015, global per capita carbonated beverage consumption hit rock bottom, the lowest level in 30 years.
The crimson liquid that once drove people around the world crazy has also lost its appeal.
Official data shows that in recent years, in the North American market, sales growth for both Coca-Cola and Pepsi has been almost single-digit. In 2018, Coca-Cola's organic sales growth in North America was almost zero.
**Clearly, the positions of traditional beverage giants are being shaken.**
The shift in end-consumer health awareness is undoubtedly the underlying reason for the cooling of the carbonated beverage market. In addition to sluggish sales, carbonated drinks, which generally exceed sugar limits, also face the pressure of sugar taxes following lobbying by health organizations.
As early as July last year, the World Health Organization announced that the standard daily sugar intake for adults is 25 grams. Against this policy backdrop, some countries have introduced new requirements for sugar reduction standards and measures in food and beverages, which is where the "sugar tax" originates.
In 2014, Mexico became the first country to impose a sugar tax on carbonated beverages, at a rate of one peso per liter (note: peso is the Mexican currency unit). Since then, several countries, including Chile, Portugal, the UK, France, and Ireland, have joined the sugar tax ranks.
U.S. media QUARTZ reported that this directly increases the cost pressure on carbonated drinks and, through a statutory tax, deepens consumer concerns about sugary drinks.
**On one hand, consumers are gravitating toward healthy, sugar-free drinks.** Beverage Marketing Corp., tracking multiple sales data, estimates that as early as 2017, healthy beverages accounted for 41% of the total U.S. beverage market. IBWA, the International Bottled Water Association, also notes that among all non-alcoholic beverages, 72% of consumers prefer bottled water, both sparkling and still.
**On the other hand, beverage giants are trying to turn the tide by acquiring established new health beverage brands or launching their own product lines to supplement their product portfolios and project a healthier image.** For example, Coca-Cola has acquired ZICO coconut water and cold-pressed juice brand Suja Life, and added healthy tea brands like Honest Tea.
Clearly, health and sugar-free have become the main theme for the next decade.
**-02****-**
**Sparkling Water Booms in China**
Similar to North American consumption trends, China's carbonated beverage market has also faced a slowdown in recent years.
Data from Euromonitor and Caitong Securities show that since 2012, the growth rate of China's carbonated beverage market has continued to decline and tends to stagnate. In 2017, carbonated beverages held only about 17% of the market share, with Pepsi and Coca-Cola together accounting for over 90% of that.
In contrast, the sparkling water market in China has seen explosive growth.
More than a decade ago, when high-end sparkling waters like San Pellegrino arrived in China with a Parisian identity, their class attributes were as distinct as Starbucks'. Now, the industry has evolved to make prices accessible to everyone.
This "accessible" affordability has broadened the sparkling water market more than a little.
Forward-looking data shows that in 2019, the overall market size of domestic sparkling water was around 15 billion yuan, expected to reach 32 billion yuan by 2025. Other data indicates that in 2018, sales of sparkling water in the Chinese market grew 43.9% year-on-year, far higher than the 5% growth rate of ordinary mineral water.
Among these, healthy carbonated alternatives, mainly flavored sparkling water drinks, have gained momentum in recent years. Nielsen omnichannel sales data shows that as of August 2019, annual retail sales of flavored sparkling water reached $2.45 billion. Although its share in carbonated drinks is not high, the growth trend is obvious.
There are reasons for the popularity of sparkling water. In terms of taste, the moment the bubbles burst on the tongue, carbon dioxide brings a tingling sensation to the mouth, similar to the numbing spiciness of Sichuan pepper in the Sichuan-Chongqing region or the heat of chili in Hunan.
Most sparkling waters on the market also follow the health rules of this era. **"0 sugar, 0 calories, 0 fat"** has almost become a standard for brands. Consumers can indulge without guilt, whether at a late-night eatery or a seaside restaurant; sugar-free drinks are irresistible.
Unlike the U.S. sparkling water market described in Beverage Industry, in China, there are still relatively few consumers of unflavored natural sparkling water; people prefer fruit-flavored water or sparkling water.
Giants, trapped in crisis but keenly sensing opportunities, have both launched their own fruit-flavored drink series and new sparkling water products.
In February 2018, Pepsi launched a sugar-free sparkling water called Bubly, available in eight flavors including mango and strawberry. The brand's emphasis on Bubly is evident: Pepsi bought two TV commercials during the Oscars live broadcast, touted as the "most lavish" new product launch.
Coca-Cola is not to be outdone, launching AHA, a low-caffeine sparkling water brand, in March this year. CEO James Quincey said in a fireside chat at a Beverage Digest conference that Coca-Cola should have acted earlier in sparkling water.
In fact, not only giants but also local beverage players are eyeing the huge opportunity in sparkling water.
Frankly, the beverage industry as a whole exceeds one trillion yuan, but for years, various segments have coexisted peacefully. In the cola sector, Pepsi and Coca-Cola are far ahead; packaged drinking water is dominated by Kangshifu, Nongfu Spring, C'estbon, and Wahaha; fruit juice drinks have four giants: Kangshifu, Uni-President, Huiyuan, and Coca-Cola; in functional drinks, Red Bull and Mizone are leaders; and the tea drink market has its own standouts.
But in recent years, during the chaotic competition in the new tea drink sector, with milk tea and coffee, almost all players have surprisingly discovered that the era of each ruling its own domain is over; every company has quietly invaded others' backyards.
Take the sparkling water field: not only new brands like Genki Forest, Bestinme, and Heytea, but also old manufacturers like Hankou No.2 Factory and Jianlibao, the just-listed packaged water giant Nongfu Spring, and even dairy giant Yili and coffee veteran Nestlé all want a piece of the pie.
It's worth noting that with so many players entering, when the entire consumer market is on the eve of a big explosion, whether in sales channels, consumer connections, or logistics infrastructure, the industry as a whole is undergoing an iterative upgrade.
Take sucralose, one of the sweetener substitutes used in some sugar-free sparkling waters. Upstream suppliers like Jinhe Industrial have achieved sequential improvements in performance, not only increasing the proportion of fine chemical business but also attempting to become leaders in the sugar-free, zero-calorie industry through 2C product construction.
**This indirectly proves that the cycle for new sugar-free beverage products is about to shorten, and the speed of product iteration is about to accelerate. For new entrants focused on the sugar-free field, this is a massive acceleration engine.**
**-03****-**
**Channel Penetration is Also a Scene Revolution**
Frankly, industry analysts have always marveled at Genki Forest's distribution speed.
From launching on Tmall to appearing in Li Jiaqi's live stream, from offline entry into FamilyMart, Bianlifeng, and other chain convenience stores, this newcomer has occupied the sight of the younger generation with an almost anywhere, high-frequency presence.
Consumer attention is limited; when appearance passes muster, appearing frequently in their field of vision will certainly deepen brand impression and recognition.
The beverage industry is different from others. Although Genki Forest spends heavily on marketing, strong channels are always the sales guarantee. This also explains why in the 1990s, domestic soda had a market with a hundred flowers blooming, segmented by geography.
Beibingyang firmly occupied the Northeast market, Jianlibao dominated the Yangtze River Delta, Shaanxi's Bingfeng was famous far and wide, and Taipei's Heysong Sarsaparilla was refreshing to think about.
This was also the common way for foreign brands to acquire domestic soda brands and quickly capture channels when they entered later. As mentioned earlier, Pepsi and Coca-Cola occupy over 90% of the soda market.
**But the market opportunity lies in the fact that when the wave of consumption upgrade begins to sweep through, and even niche categories like milk tea have produced new brands like Heytea, it means that market shares in most categories begin to overlap, and consumer turnover rates rise rapidly.**
**This also suggests that the positions of old industry giants are beginning to loosen, industry concentration has decreased, and the marginal benefits of channel dividends have become apparent.**
In this contest, the first mover Genki Forest moves like a rabbit, while latecomers can only run faster.
When old players launch new products, their offline channel accumulation is quite advantageous. For example, Beibingyang's sugar-free soda sparkling water brand Beiji Youxiong appeared on the shelves of Bainian Yili, Wumart, Duodian Convenience, JD Super, and Hema Fresh as soon as it was born. But the Beibingyang Food flagship store on Taobao has not yet started selling it.
In contrast, emerging brands are much more flexible in their tactics.
Take Heytea's sub-brand Hey Shicha as an example. The name itself carries the brand advantage of Heytea. When going offline, it chooses scenes like streets and campuses in lower-tier cities, not core business districts. Its channel penetration strategy is already clear, so site selection is naturally fast.
Similarly, even amid the black swan of the pandemic, the distribution pace of new beverage brand Bestinme from May to October was unaffected.
New brands are familiar with online operations; they already sell on Tmall flagship stores, and have expanded to offline convenience stores, new retail, vending machines, campus convenience stores, gyms, and other scenes. They are also frequently seen in Hema and Bianlifeng. These are direct touchpoints between brands and consumers.
Here's an interesting point.
It's not surprising for new brands to penetrate supermarkets and convenience stores like Hema, Yonghui, and Bianlifeng, but directly attacking vending machines like Youbo, as well as campus and gym locations with dense target users, is very interesting.
After a tour of gyms in Shanghai, I found that this brand is available at Will's and Yijia Weide. For sugar-free drinks, a sweaty gym is almost a necessity.
Exercise novices who simply want to lose weight already prefer sugar-free drinks; after getting thirsty, it's natural to consume the target brand within sight. Professional fitness enthusiasts also combine nutritional supplements with sugar-free drinks alternately. For example, Bestinme's Qing 0 coconut electrolyte flavored water can replenish a large amount of electrolytes after exercise.
As for campuses where young people gather, channel penetration is like overtaking on a curve. The new generation of consumers is the main consumer group for beverage products; the earlier a target brand enters consumers' awareness, the earlier it occupies their minds.
Jieshu Consulting believes that the main consumer group for online carbonated drinks is 18-24 years old, and for bottled water, it's 25-29 years old. This cleverly overlaps with the age range of campus students.
On campus, whether in cafeterias or classrooms, libraries or stadiums, multi-point distribution will surely meet the needs of young people in different scenes.
Wu Sheng mentioned in "Scene Era" that scenes are not fixed but superimposed. For example, a relatively fixed campus space can also derive countless offline scenes. Redesigning scene solutions for the "sugar-free era" and "psychological immunity" may bring huge markets to some niche categories. This is where the opportunity for sugar-free water and energy water lies.
As can be imagined, this is accelerated channel penetration and an upcoming scene revolution.
**-04****-**
**No One Can Sit Firmly in the Top Seat**
Even if Coca-Cola makes a high-profile entry and Genki Forest is popular, they all need a rival.
In fierce market competition, no brand can sit firmly in the top seat. According to Tmall data, in this year's 618 beverage product sales ranking, Genki Forest's sales surpassed Coca-Cola to rank first. Before this, Pepsi, which had been entangled with Coca-Cola for years, had never won in this ranking.
Thus, the world giant that has dominated for nearly a decade will reassess its differentiation in the first loss in China's sugar-free sparkling water competition.
The difference lies in the fact that everyone is sugar-free; who tastes better and who is healthier. Domestic new brands mostly use erythritol, which costs more than 10 times more than the aspartame used by Coca-Cola.
It is precisely this attention to detail that is helping domestic brands strongly seize positions.
A Mintel survey shows that 40% of Chinese soft drink consumers prefer to try novel flavors. The fact that Heysong Sarsaparilla and Laoshan Cola also have a large number of loyal fans is enough to illustrate this point.
Local brands that understand the Chinese population clearly have an advantage over foreign brands in flavor selection.
Currently, the preferred flavors in the Chinese market should follow the feeling of being refreshing and healthy in both sound and appearance. For example, sour and refreshing flavors like lemon and citrus are popular; green fruits and vegetables like cucumber and green grapes are auxiliary ways to increase a sense of coolness; and plants like coconut and aloe naturally carry a refreshing icon.
Take Bestinme's Qingqi series as an example: five flavors—lime mojito, fresh white peach, green grape sea salt, refreshing ice orange, and white strawberry lactic acid bacteria—can basically meet consumers' needs for a refreshing feeling and exploration of novel flavors.
In terms of functionality, in addition to replenishing water and electrolytes, adding dietary fiber like polydextrose and fructo-oligosaccharides is also beneficial for improving intestinal function.
In the current trend of national trend retro, some brands have also found new opportunities by using local culture as an entry point.
KellyOne, which has deep ties with Wahaha, launched a green plum sparkling water, with a story on the bottle from a thousand years ago. During the Tang Dynasty, green plums were brought to Japan by Japanese envoys via sea routes and have been popular ever since. The creative image of huge green plums and ships floating on waves allows young consumers to better appreciate the connotation of traditional Chinese culture.
The rise of new brands is indeed not to be underestimated. Building on mature production chains, sales channels, and logistics infrastructure, they may find it easier to get close to young consumers in terms of appearance packaging, creative design, and taste selection.
And when memes like "worker" become popular, sparkling water brand Bestinme also jokes on its WeChat official account, "Working is not easy, need Qingqi to relieve anger"; and the sparkling water brand chill, originating from Panda Brewing, has thought of excuses for "workers" to skip work: "Had emotions this morning, left late, so need to take leave." To some extent, new brands have long learned how to communicate with the younger generation.
Looking at the longer timeline, with the development of the health and slimming economy, an obvious trend is that de-sugaring is likely to become the core of China's beverage market consumption.
And when old leading brands become more adept offline and new internet-famous brands shed their internet-famous labels, whether it's sparkling water or sugar-free tea, the competition in China's sugar-free beverage market is just beginning.
Source: Wu Duidui (ID: esnql520), Author: Li Xiaowai


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