Click to read the original article for details As one of Coca-Cola's partners in China, China Foods Limited (hereinafter referred to as "China Foods"), a listed company under COFCO Group, released its 2022 interim results on August 23, continuing to demonstrate its strategic resilience. According to the interim report, China Foods' revenue for the first half of 2022 was RMB 11.894 billion, a year-on-year increase of 6%; profit attributable to owners of the company was RMB 481 million, up 19% year-on-year. According to the financial report, due to significant increases in international commodity markets in the first half of the year, the company's gross margin decreased by 2.7% year-on-year in H1 2022. However, thanks to optimized product and packaging structures, despite a year-on-year decline in sales volume in H1 2022 amid the pandemic and international environment, China Foods still achieved 6% revenue growth. It is worth noting that in the financial report, China Foods expects raw material prices to remain high in the second half of the year. In response, management will continue to actively promote key strategies such as product structure upgrades, business portfolio optimization, and supply chain integration to mitigate the pressure of high raw material costs on profits. 01 Sugar-free products continue to perform strongly By category, revenue growth for its sparkling beverage category slowed during the period, with sugar-free sparkling beverages continuing to outperform traditional sparkling beverages and increasing their revenue share. New products under [Minute Maid Pulpy] sold well, with revenue achieving double-digit year-on-year growth. For water beverages, the company will continue to promote the mainstream brand [Ice Dew] in the second half of the year and actively develop high-end water products. Ready-to-drink coffee achieved double-digit year-on-year growth, maintaining its position as the second brand in key markets for ready-to-drink coffee. The ready-to-drink tea category saw revenue more than double during the period. According to the performance report, unsurprisingly, in catering to public demand, "sugar-free" continues to be the most prominent theme. 1. Sparkling beverages In the first half of the year, three new sugar-free products were added: Sprite Sugar-Free Lemon Mint, which uses a new sugar-free formula and adds real mint essence; Coca-Cola Sugar-Free Vanilla, which continues the taste of Vanilla Coke but is zero sugar and zero fat; and Fanta Baobab Fruit and Tamarind Sugar-Free, which focuses on novelty and niche flavors to surprise consumers with a fresh experience. Among them, Sprite Sugar-Free Lemon Mint, as a new product launched in the first half of the year, became a hot topic among consumers thanks to a TV commercial. In the video, two bottles of soda are placed in the distance; one looks very similar to a competitor's brand from afar, but when zoomed in, it turns out to be the new packaging of Sprite Sugar-Free. With just a few lines of narration, the ad takes consumers on an emotional rollercoaster—from curiosity and shock to doubt and contrast, and finally to the revelation. The tagline "Who else but us?" subtly showcases Sprite's status in the beverage industry. In addition to new products, new flavors are also a key tool to attract consumers. The [AH!HA!] sparkling water, launched last year, introduced two new flavors in H1 2022: Strawberry White Chocolate and Bayberry Baijiu. The traditional sparkling beverage family also launched Peach-flavored Coca-Cola. From the direction of product iteration, it is clear that Coca-Cola has chosen a "betting on both sides" approach: on one hand, launching peach-flavored products that have been validated by the market and are unlikely to fail; on the other hand, focusing on peculiar, niche, and novel flavors, and most importantly, sugar-free. In addition to usage experience innovation, [Coca-Cola]'s global creative platform "Coca-Cola Creations" continued to make efforts, launching space-inspired limited edition [Starlight] and metaverse-inspired [Byte] in the Chinese market, engaging in emotional dialogue with consumers through sensory value. 2. Juice category Besides zero-sugar sparkling beverages, juices that align with health perceptions also performed well. The performance report shows that the domestic juice industry continued its recovery momentum from last year in the first half of this year. Revenue from Minute Maid Pulpy increased significantly, and new products sold well, driving double-digit revenue growth for the juice category. The Minute Maid sparkling juice series, featuring zero sugar, zero fat, and real juice plus bubbles, exceeded RMB 10 million in revenue within months of launch. According to the report, the juice category continued to rank first in the industry in H1 2022. 3. Water category In the first half of the year, the drinking water products launched Ice Dew Pineapple Flavored Water, which is also zero sugar and zero fat. However, due to the pandemic, water category revenue declined. The company stated that under the normalization of the pandemic, it will continue to cultivate at-home consumption scenarios in the second half of the year, seize at-home consumption opportunities, and meet consumers' home water needs through e-commerce and community partners to drive growth in large-pack revenue. In terms of strategic planning for the water category, the company will continue to focus on promoting the mainstream brand [Ice Dew] products, while actively developing high-end water products to enhance the profitability of the water category and boost overall profits. 4. Ready-to-drink coffee and ready-to-drink tea Through a series of marketing activities, such as in-store promotions, free tastings, and O2O activities, the coffee category achieved double-digit year-on-year growth in H1 2022, higher than the industry level, with market share continuously increasing. [Costa] maintained its position as the second brand in ready-to-drink coffee in key markets. In the ready-to-drink tea category, to cater to health-conscious consumers, [COSTA] launched low-sugar, low-fat light milk tea beverages, and tea category revenue more than doubled during the period. 02 Seizing the trend of industrial digital transformation Changes in both 2B and 2C channels Digital transformation has become a hot topic across the industry. In the financial report, China Foods stated that it will seize the trend of industrial digital transformation, build capabilities in digital marketing, digital supply chain, and digital governance, carry out full-chain digital transformation, develop digital marketing projects, build a big data center, and use big data technology to gain deep insights into consumer needs and consumption scenarios. In 2B operations, it established a B-end operation platform [Cola GO]. According to the report, the number of installed customers for [Cola GO] has exceeded 1.8 million, with over 1.35 million active customers. The Cola GO platform is a service platform for offline retail channels in the FMCG industry, aimed at helping manufacturers build a marketing system that directly reaches target retail terminals (direct sales), standardize channel management, improve channel distribution efficiency and marketing investment effectiveness, achieve channel model transformation and upgrading, and thus gain sustainable operational capability for retail terminals. In 2C operations, relying on WeChat's open ecosystem, it established a C-end operation platform [Happy Club] to better interact with consumers and build a COFCO Coca-Cola consumer database, enrich consumer profiles, bring new increments to the system, and help bottling plants build 2C self-operation capabilities. Image source: WeChat mini-program [Happy Club] 03 Strengthening supply chain construction and enhancing system synergy In the performance report, China Foods specifically mentioned the acquisition of still beverage production business signed with Coca-Cola Company and Swire Pacific Limited in July this year. On July 15 this year, Coca-Cola Company and its Chinese bottling partners—Swire Coca-Cola Limited and COFCO Coca-Cola Beverages Limited—will transfer the production and operation of the still beverage business of the former Coca-Cola Bottling Investments Group through equity transfer, splitting and merging it into Swire Coca-Cola Limited and COFCO Coca-Cola Beverages Limited. This equity change will achieve regionalized production of Coca-Cola China's still beverage business, optimize production management efficiency, enhance supply chain synergy, and help accelerate production deployment and new product launches, enabling the Coca-Cola China system to better provide consumers with high-quality beverage choices that meet their needs. This means that the production models of many still beverages such as Minute Maid, Chun Tea She, and Costa ready-to-drink coffee will undergo significant changes, giving Swire and COFCO more "say." Combining the financial report and COFCO Coca-Cola's actions in the first half of the year, it is clear that the core is to improve production-sales coordination, establish a more efficient supply chain network, effectively reduce production management costs, and improve overall profit margins. On July 12, COFCO Coca-Cola's Guizhou plant officially commenced production, with a total initial investment of approximately RMB 270 million, and a second phase will be built in the future. This plant is COFCO Coca-Cola's 20th factory and the 46th factory in the Coca-Cola China system. The official commencement of production means that COFCO Coca-Cola's production-sales coordination capability has reached a new level. After the Guizhou plant goes into operation, it can directly and accurately meet the consumption needs of the region, achieve more efficient on-demand production, and form a linkage effect across Sichuan, Chongqing, Guizhou, and Hunan. According to the [Development Strategy] section of the financial report, in the second half of the year, China Foods will continue the theme strategy of marketization, internationalization, risk prevention, and high quality, promoting the achievement of sustainable development goals. Facing significantly increased external uncertainties, coupled with the fact that the domestic pandemic has not been completely eliminated, and the intertwining of demand contraction and supply shocks, China Foods management remains cautiously optimistic about the healthy development of the non-alcoholic ready-to-drink industry for the full year. The company will continue to implement key strategies such as product structure upgrades, business portfolio optimization, and supply chain integration to meet diversified consumer needs and create greater beverage value. -END-