The beverage industry, traditionally stable, is undergoing significant transformation. Internationally, PepsiCo has begun targeting more health-conscious consumers and acquired carbonated beverage producer SodaStream in 2018. Coca-Cola entered the tea beverage market a decade ago; its subsidiary Honest Tea sells organic tea-based drinks certified by Fair Trade. Additionally, Coca-Cola acquired coffee chain Costa in 2019, determined to fully enter the rapidly growing coffee market. Meanwhile, emerging product Boxed Water is gradually replacing plastic bottles with paper packaging. In China, the rapid rise of Luckin Coffee and Heytea has squeezed the space of packaged beverages. The new generation of consumers' broad acceptance of domestic brands and niche products has also contributed to the rapid success of products like Xiangpiaopiao and Rio. At the same time, brands like Yakult have thrived by creating a niche market with their unique positioning and consistent marketing strategies. Today's consumers desire more healthy and environmentally friendly beverage options, a demand that is likely to continue driving major changes in the beverage industry. In this article, we will closely examine how trends in four areas—consumer, product, brand, and distribution—are driving the transformation of the beverage industry, and explore how beverage companies should adapt to the market early to maintain long-term market position. New Consumers: Value-Driven Individualists Beverage products are the most mass-market consumer goods and have always been closely linked to consumer demand trends. Therefore, demographic changes will trigger market upheaval. Internet natives born between 1998 and 2017 will become the main consumer group in the future market. By 2020, this age group is expected to account for about 40% of all consumers[1]. By 2026, internet natives will become the largest consumer group globally, with purchasing power exceeding $50 billion. To cater to this consumer group, companies must deeply understand what products they are looking for and how they search for them (see Figure 1). Internet natives have abandoned traditional media; they watch much less TV than previous generations. They are the first true "digital natives," quickly adapting to new technologies. So it's no surprise that smartphones are the most used device among internet natives, who spend about 5 hours a day on their phones.[2] The internet native generation prefers customized experiences, local brands, and personalized products. They value affirmation of their values, connectivity, authenticity, and local traditions. They seek brands with strong values; 41% of internet natives distrust big brands, compared to 31% of millennials.[3] Instead, internet natives trust social media influencers more, such as popular bloggers, YouTube/Douyin celebrities, and Instagram/WeChat influencers. They want more choices; products should not only have appealing taste and design but also be sustainable and align with their values. In many developed countries, these value-driven individualist consumers prioritize health and prefer sustainable products. For example, they drink less alcoholic beverages and prefer drinks without artificial sweeteners. In China, internet natives prefer local brands more than older generations; meanwhile, the younger generation, fond of cute pets, favors products like Xiaoming Tongxue that tell stories and reflect their lives and values. Growing up during rapid economic growth, the younger generation has more national confidence; imports are no longer a key purchase criterion, undoubtedly providing unprecedented opportunities for local Chinese brands. The "guochao" (national trend) has succeeded in this environment, and this trend is expected to bring opportunities to local beverage companies. At the same time, internet natives have more modern value systems and new expectations for brand experiences; consumer goods companies must strive to meet these new demands. In the long term, to win over internet natives as the future consumer group, beverage companies must focus on two aspects. First, create shopping and consumption experiences that foster emotional and community connections. Second, leverage existing data and new information sources to capture consumer preferences and grasp emerging consumption trends. When big data is transformed into smart data, giving companies the ability to continuously obtain the latest consumer needs and thus continuously launch products that align with consumer trends, thereby solving the pain point of products like Xiaoming Tongxue being easily copied and having short life cycles, customer loyalty and sales will both improve. New Products: Focus on Health and Premiumization In recent years, both the regulatory environment and consumption trends have shifted toward healthy beverages. With obesity becoming increasingly common, this trend is bound to intensify. The number of overweight people worldwide is rising, often linked to high-sugar diets (see Figure 2). These conditions have alerted regulators. For example, the World Health Organization recommends reducing free sugar intake to below 5% of total energy intake; Public Health England recommends regulatory action to urge the beverage industry to reduce promotion of sugary products while raising awareness of sugar intake risks. Some countries have already begun imposing sugar taxes to curb consumption, and future taxation may become stricter. For instance, Norway has a long history of taxing sugar, starting as early as 1922. In 2018, Norway raised the sugar tax rate on imported and domestic beverages by 42%, imposing a tax of 50 cents per liter on drinks with added natural or artificial sweeteners. Other countries have taken similar measures, such as France imposing a €7.5 sugar tax on high-sugar drinks, and India imposing a 40% sugar tax on sugary drinks. Additionally, Canada, Malaysia, Vietnam, and the Philippines plan to implement or increase sugar taxes in 2019. Not only regulators but also consumers are driving health awareness, bringing new opportunities and fostering innovation. A range of health-beneficial products are increasingly popular, including natural flavored water, naturally fermented tea, protein drinks, sports drinks, and functional drinks with added beneficial ingredients like amino acids, vitamins, and minerals. The reduction in alcohol consumption also reflects the growing health awareness. This is evident in Norway's example in Figure 3. Norway's alcohol consumption is lower than most European neighbors and continues to decline, with many popular low-alcohol and non-alcoholic alternatives on the market, including fermented drink Gaffels Fassbrause, non-alcoholic or low-alcohol beer Heineken 0.0, non-alcoholic cider Kopparberg, and non-alcoholic distilled spirit Seedlip. Because consumers are willing to accept alternative drinks, premium soft drinks are also gaining popularity, such as Nix & Kix's adult soft drinks and Square Root London's craft sodas. Consumers also enjoy buying drink machines and ingredients to make homemade sodas and lemonades. Monin is one company offering such products and services. Are Chinese consumers undergoing the same shift? The answer is yes. In fact, we have noticed that in recent years, categories like carbonated drinks, high-sugar juices, and high-sugar teas have faced decline in the market; Chinese consumers are voting with their feet, moving away from these unhealthy products. Meanwhile, new beverage categories such as bottled water, sports drinks, sugar-free tea, and NFC juices are being embraced by consumers and maintaining strong growth momentum. At the same time, consumers who are more health-conscious do not have a fully mature understanding of healthy products; the health loss of room-temperature NFC juices and yogurt compared to their low-temperature counterparts is not fully recognized, allowing these products to achieve high growth in recent years by overcoming cold-chain coverage limitations. Overall, consumers' pursuit of alternative beverages is shifting the market toward healthy products, light soft drinks, and non-alcoholic alternatives, causing traditional soft drinks and alcoholic beverages to shrink. To ride the wave of market development and become a market leader rather than a follower, beverage producers need to increase flexibility in product innovation. They need to establish more effective systems to continuously observe the market and track the latest trends. Understanding customers is important, but it's only the first step in keeping pace with rapid market changes. Companies should adopt lean product development and promotion processes as much as possible to shorten time-to-market, while building agile development capabilities to ensure distinct positioning and consumer acceptance of new products. Finally, it is essential to have adjustment processes in place for initial launch plans to respond flexibly to changing market demands. Forward-thinking companies have introduced effective product launch processes, respond quickly to market changes, and launch targeted products, thereby maintaining a leading edge in faster innovation cycles. New Brands: Coexisting with Emerging Niche Brands In addition to product and consumption trends, the brand itself will become a key success factor. In recent years, emerging small enterprises—small but strong niche brands—have proliferated and continuously captured market share from leading consumer goods companies[4]. Small brands like vodka brand Tito, smoothie brand Innocent, slimming drink brand NOCCO, and yogurt drink brand Chobani achieved annual revenue growth of up to 20% in 2016. These brands are small but vibrant, unafraid in the battle for consumers against big brands; we therefore call them "piranha" brands. On the other hand, industry giants generally have low or even negative sales growth, with market share continuously eroded by these emerging niche brands. What drives this trend? Consumers' trust and confidence in small brands are increasing, and the global wave of mass premiumization has favored their unique brand attributes and values (see Figure 4). The rise of "piranha" brands can be attributed to six secrets:

  • Establish a clear value proposition
  • Build an authentic brand close to consumers' lives
  • Construct an asset-light business model
  • Start fast, expand slowly
  • Maintain an adventurous mindset
  • Invest with clear purpose and planning "Piranhas" are beginning to eat into the market share of leading consumer goods companies. However, if they choose the right operating model, traditional big brands can still coexist with small but strong "piranhas." To counter the attack of such niche brands, established large companies must learn to coexist with new brands. Think about the image of "piranha" brands, learn from their strengths, and thus protect their market share. The following five actions can help big brands maintain competitiveness and market position:
  • Rethink new product development and promotion processes to improve innovation efficiency and accelerate innovation pace
  • Strive to change internal status quo and courageously drive change
  • Explore new marketing and organizational models that enhance brand strength
  • Find the most suitable open brand investment model
  • Create more flexible asset models One way to coexist with emerging niche brands is to establish your own niche sub-brands, such as Pepsi's new product Caleb's Kola. This "craft" soda aims to win over modern new consumers with simple ingredients, including sparkling water, fair-trade cane sugar, and kola nut extract, designed to meet internet natives' demand for transparency, sustainability, authenticity, and simplicity. Investing in and acquiring niche brands is another method Western beverage companies have actively used in recent years to obtain niche sub-brands. In addition to niche brands, local brands also pressure many international big brands; the cultural messages conveyed by local companies' products are more easily accepted by consumers. In a country as large as the United States, local brands often refer to regional brands with regional competitiveness. Global consumer goods companies must conduct marketing activities according to headquarters' regulations, but local companies can make quick decisions based on local market conditions. To stand out, companies must establish effective innovation processes. In the long term, developing local, regional sub-brands, acquiring "piranha" brands, and making targeted investments can help industry giants maintain their leading positions. New Distribution: Direct-to-Consumer Distribution Models To keep up with product trends, cater to the new generation of consumers, and continuously enhance brand awareness, companies also need to keep pace with the evolution of distribution models. Changes in mobile mobility are driving global distribution models in new directions. Four major demand trends in mobile mobility include road safety, smart highways, urbanization, and the sharing economy. In China, the construction of road and rail networks in recent years has greatly facilitated logistics and reduced logistics costs. In developed countries, the development of autonomous driving technology may eventually reduce distribution costs. Additionally, there is the development of smart highways that encourage autonomous driving. Most new highways and traffic signal facilities are equipped with sensors to reduce congestion and improve existing infrastructure. The trend of population migration to dense areas has also increased demand for public transport, ride-sharing services, and new transportation methods, potentially leading to a decline in private car ownership and an increase in delivery demand. With convenient transportation, more producers are exploring direct-to-consumer value chains—a disruptive development that will eliminate several steps in the traditional value chain. Products can be delivered directly from producers to consumers. With automated trucks, robots, and drones enabling on-demand pickup and delivery, warehouses may become redundant. In the future, bulk distribution from central warehouses to retailers may be eliminated. In this new world, all goods can be purchased in online stores, and physical stores will no longer be needed. Producers can directly access customer data, strengthen influence over customer experience, and reduce intermediaries, thereby reducing revenue loss. Distribution is an important topic that cannot be ignored or underestimated. Forward-thinking producers are actively adopting new technologies, striving to become trendsetters, satisfying customers while maintaining profitability. How to Win Market Competition? To maintain market position and competitiveness, beverage companies must make comprehensive efforts in four areas: customer, product, brand, and distribution, while learning lessons from other industries and small beverage companies. The transformation journey for beverage companies begins with the customer. With the rise of consumer individualism, common customer segmentation no longer applies; all B2C companies must start from themselves, actively cultivate the ability to acquire relevant customer data and analyze the data obtained. To acquire customer data, companies should strengthen partnerships with distributors and retailers; then supplement retrospective analysis with predictive modeling to fully utilize the data. Second, adjust the product innovation cycle to align with consumer trends. Use lean processes (often driven by lean teams and enabling teams) to shorten time-to-market; additionally, agile testing capabilities can quickly determine whether new products meet market demand. To convey a strong brand image to the new generation of consumers, mature beverage companies should learn from young, bold competitors. Brand proximity to life is crucial for internet natives, so brands must have a clear value proposition. If the core brand finds it difficult or impossible to connect with trendy new products, consider acquiring small competitors or launching new internal brands. In distribution, with the continuous development of e-commerce, flexible and innovative channels become more important. Innovative channels and direct sales can directly reach consumers, reducing reliance on distribution networks. However, do not rush to eliminate the standard deep distribution model that has worked well; continue to test new models in depth and transition gradually, since establishing new distribution models requires substantial capital investment, and failure in transformation could affect core competitiveness. Source: FBIF Food & Beverage Innovation (ID: FoodInnovation) Tips will be paid 400-2000 yuan upon adoption. China FMCG + Internet Professional New Media Committed to FMCG manufacturer and distributor transformation and channel digital solutions