Countless outstanding beverage brands have emerged from the foodservice channel.
The foodservice channel has historically been instrumental in building many successful beverage brands.
The most classic example is Wanglaoji, though this case was executed by the then JDB team. Wanglaoji's journey from Guangdong to nationwide success, and herbal tea's transformation from a regional specialty to a representative national beverage, owes much to the foodservice channel.
Seasoned marketers and distributors will still remember the slogan "怕上火喝王老吉" (Drink Wanglaoji to prevent getting heaty) and its fiery red brand color, which became familiar to consumers through millions of foodservice outlets.
Promoters dressed in Wanglaoji brand uniforms were stationed in countless restaurants, offering one or two cups of Wanglaoji herbal tea to diners. It was through persistent direct-to-consumer promotion in the foodservice channel over a long period that Wanglaoji established its market position as a national beverage.
Many products from the same era as Wanglaoji also grew into leading brands through this approach, such as Jingjiu, Jiangxiaobai, Weiyi Soy Milk, and more recently, Dayao Soda and Beibingyang.
Of course, this also applies to major beer brands, for which the foodservice channel remains a battleground to this day.
However, we also observe that many beverage brands, when designing their channel strategies, intentionally or unintentionally avoid the foodservice channel, instead starting with e-commerce or retail distribution. Why is that?
A Love-Hate Relationship: The Foodservice Channel You Want to Do but Dare Not
Today, the foodservice channel is becoming a type of terminal that is both loved and feared, desired yet avoided.
Why do you want to do it?
For beverage products, the foodservice channel is the best promotional channel, bar none. It integrates brand awareness, product promotion, experience, purchase, and even repurchase, making it the ideal venue for scenario-based selling.
Moreover, it has considerable entry barriers and a degree of exclusivity. Once a restaurant is selling your product, in many cases, it is reluctant to accept competing products.
Foodservice outlets and retail stores have different functional roles: retail stores are for product display and consumer choice, while foodservice outlets, to a large extent, substitute for consumer choice.
Therefore, we see that the beer category still treats foodservice operations as the core terminal strategy today.
Furthermore, for many new market entrants, foodservice outlets can provide a degree of brand endorsement, and products can command a premium. As long as the product is strong enough, the likelihood of sell-through in foodservice is higher than in retail.
Why do you dare not do it?
First, high barriers and costs make it difficult for distributors to profit.
In most cases, it's not that manufacturers don't want to do it, but that distributors are unwilling and unable to afford it.
The entry barriers for the foodservice channel are relatively high, mainly in three aspects: relationship, capital, and promotion.
One is the relationship barrier. If a distributor does not have popular beer or low-end liquor brands in hand, it is not easy to get into restaurants.
Two is the capital barrier. The foodservice channel often involves credit periods, especially for A and B class restaurants; the better the business, the longer the credit period. The beer category also has increasing exclusivity fees. Therefore, distributors face significant capital pressure when operating in the foodservice channel; the more they sell, the greater the pressure.
Three is promotional costs. It's not enough to just get the product into foodservice; you need to invest in brand materials such as signage and in-store promotions, which is a significant expense. Additionally, some new brands may need to hire promoters and pay bottle cap fees to restaurant staff.
Under these three barriers, few distributors in a regional market have the willingness and capability to operate the foodservice channel. Compared to retail stores, foodservice outlets are almost a pure investment channel.
As one distributor put it, foodservice is a hard bone; if your teeth aren't good, you can't bite it, and even if you do, there's no meat. The retail channel is where the meat is. Therefore, typically, distributors who do foodservice also do retail.
Second, capital pressure is high, and risks are increasing.
It is a recognized fact in the industry that operating the foodservice channel involves high capital pressure and increasing risks.
Take beer as an example: to operate the foodservice channel, you need to prepare at least four types of capital: product inventory, foodservice credit, prepaid market expenses, and bad debt losses.
In total, a beer distributor with annual sales of 50 million yuan needs to prepare at least 13 million yuan in capital, with a capital turnover rate of only about 4 times.
Coupled with the high operational risks and high turnover of restaurants in recent years, if management is not careful, bad debts in foodservice can easily reach millions.
Therefore, the current situation is: manufacturers are very willing to do foodservice and are willing to allocate more resources; distributors are very unwilling to do foodservice and find it hard to make money from it.
Both beverage manufacturers and distributors need to re-evaluate the strategic value of the foodservice channel.
We should note that several new brands that have risen in recent years fully demonstrate the strategic value of the foodservice channel.
Xiaofangping in the low-end liquor category has emerged as a dark horse through meticulous cultivation of the foodservice channel, with annual sales exceeding 2 billion yuan.
Dayao Soda also focused on foodservice to break through, rapidly expanding from Inner Mongolia to the entire northern market and gradually covering the southern market. With annual sales exceeding 3 billion yuan, it is the largest domestic soda brand.
Songyouzhi from Youxianggu became a dark horse in the industry during the pandemic by focusing on the foodservice channel in Zhejiang. In just Zhejiang province alone, annual sales exceeded 10 million cases, with sales revenue exceeding 600 million yuan.
Guangming's Look has also long focused on the foodservice channel, selling nationwide over ten years, with a single product exceeding 2 billion yuan in scale.
Moreover, unlike other internet-famous new consumer brands that rise and fall quickly, these brands have a solid channel foundation, entirely thanks to treating the foodservice channel as a strategic priority from the start.
According to a survey by New Distribution, more and more ambitious beverage brands are gradually recognizing the strategic value of the foodservice channel and have formulated matching channel strategies, such as "Huayang" in soda and "Chunguang" in coconut juice.
How to succeed in today's foodservice channel?
Not all beverages are suitable for the foodservice channel; only those suited for "accompanying meals" have extraordinary strategic value in this channel.
For beverages positioned as thirst quenchers, such as green tea and mineral water, the foodservice channel accounts for a small proportion and holds no special value.
First, regional distributors need to re-understand the core value of the foodservice channel to their business.
It is true that foodservice operations are becoming increasingly difficult and risky, but the strategic value of the foodservice channel for beverage brands cannot be ignored. Precisely because this channel is difficult to operate and has unique value, it holds special significance for a distributor's business.
Having barriers means high requirements for capability and resources. Once successful, it means the distributor's channel operation capability in the region is significantly higher than peers, and they have the ability to promote new brands and products, gaining more business opportunities.
Distributors who succeed in foodservice operations face little challenge when operating retail channels.
The barriers of the foodservice channel also mean that once you succeed, it becomes more challenging for competitors to overturn your position in foodservice. The harder the task, the longer-lasting the dividends once achieved—this is almost a certain rule.
In the Anhui market, some foodservice distributors have upgraded their business model to "foodservice beverage operation solution providers" based on successful foodservice channel experience.
Under this new model, the distributor no longer merely sells a few beverage brands but provides tailored beverage solutions based on the restaurant's cuisine characteristics, price range, and consumer positioning. On one hand, it offers diners more suitable meal-pairing beverages; on the other hand, it significantly boosts beverage sales and profits in the foodservice channel.
Even for terminal materials, this distributor no longer uses brand-provided refrigerators but customizes display refrigerators according to terminal scenarios.
Second, brand owners need a comprehensive set of scientific strategies and tactics for the foodservice channel.
Operating the foodservice channel is not easy, so ad-hoc strategies and tactics will not work.
Once the foodservice channel is determined as a strategic channel, the brand's product, pricing, marketing organization, channel partners, channel policies and resources, and sell-through strategies must all be designed and implemented around foodservice as the core.
What is the reason for customers to consume your product during meals and continue to do so?
At what price point should the product be positioned in foodservice to achieve volume and profit while driving the entire channel value chain?
What positions and functions should the sales organization set, and what capabilities and experience are required for team members?
What is the profile of the ideal channel partner? How to find them, how to attract them, and how to build their confidence and motivation?
What are the distribution policies, terminal promotion methods, and sell-through strategies? What are the operational focuses at each market stage, and how should resources be effectively allocated and used? Are there model markets and proven systematic methods?
If the foodservice channel is determined as strategic, the answers to the above questions are completely different.
The foodservice channel has historically built many excellent beverage brands. Despite the current environment presenting more challenges, the strategic value of the foodservice scenario has not changed; in fact, it is increasing.
We believe that more and more ambitious brands will recognize the unique value of the foodservice channel, and it will continue to produce a succession of successful brands.