Click image for details At a time when the trademark authorization is still unresolved, China Red Bull Vitamin Drink Co., Ltd. (hereinafter referred to as "China Red Bull"), a leading enterprise in China's functional beverage industry, has come under external scrutiny over its product's functionality. Recently, media reports revealed that in the "2016 Commodity Classification Decisions (III)" published on the official website of the General Administration of Customs on April 1, 2016, Red Bull functional beverage was determined to "not possess typical functional beverage characteristics" and to fall within the scope of "waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored." In addition, there has been no definitive news regarding the renewal of the "Red Bull" trademark license between China Red Bull's parent company, Huabin Group, and the brand owner, Thailand's TCP Group (i.e., "Thai Red Bull"), as well as major shareholder Red Bull Austria. Currently, many companies remain optimistic about the huge potential and growth space of functional beverages in the Chinese market. Brands such as Dongpeng Tequila, Heika, and Zhongwo Energy are developing rapidly. Large enterprises like Nongfu Spring, Wahaha Group, and Dali Foods have entered this field, and the domestic functional beverage market is entering a stage of intense competition. Brand marketing expert Lu Shengzhen believes that due to the excessive concentration of claims related to sports and fatigue relief, product homogeneity is severe. Red Bull's Predicament According to the announcement "Announcement on Publishing 2016 Commodity Classification Decisions (III)" by the General Administration of Customs, the composition of Red Bull functional beverage is: carbonated water approximately 90%, sucrose and glucose 9.5%, and other ingredients (per 100 ml) including taurine 400 mg, caffeine 20 mg, inositol 20 mg, vitamin B2 6.4 mg, niacinamide 4 mg, pantothenic acid 2.4 mg, vitamin B6 0.4 mg, and vitamin B12 0.4 micrograms. The General Administration of Customs believes that "apart from carbonated water, sucrose, and glucose (approximately 99.5%), the content of other ingredients is extremely low, and the product does not possess typical functional beverage characteristics. It does not exceed the scope of subheading 2202.10 'waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored.' According to General Rules of Interpretation 1 and 6, the product should be classified under tariff heading 2202.1000." According to materials provided to reporters by Pang Lipeng, a partner at Beijing Jingshi Law Firm, China defines sports beverages as "beverages whose nutrients and their contents can adapt to the physiological characteristics of sports or physically active people, can supplement the body with water, electrolytes, and energy, and can be rapidly absorbed." However, Lu Shengzhen stated that China has not yet established clear standards for functional beverages. He believes that most functional beverages are immediate-effect drinks aimed at relieving fatigue and improving tolerance. They typically have an explicit or implicit effect promise, and their ingredients are more functionally significant than ordinary vitamin or nutritional beverages. Zhu Danpeng, a researcher at the China Brand Research Institute's Food and Beverage Industry, told reporters that the above questioning is an industry dispute and has little impact on consumer purchasing behavior, so its impact on China Red Bull is extremely limited. The long-pending trademark authorization remains one of the main issues facing China Red Bull. According to previous reports, negotiations are ongoing between Huabin Group, the parent company of China Red Bull, and the brand owner Thai Red Bull, as well as major shareholder Red Bull Austria, regarding brand authorization. During this period, rumors of layoffs and production halts at China Red Bull have continued to circulate. In response, a person in charge of China Red Bull told reporters that the company is currently undergoing adjustments in its beverage business and is not accepting external interviews for the time being. An industry insider told reporters that the likelihood of China Red Bull obtaining the trademark authorization is relatively high. The negotiation between the two parties should be about the price of brand usage rights. "The competition in China's functional beverage market is very fierce, and China Red Bull has a strong market share. If Red Bull Austria were to take over at this point, the dominant position previously established by Red Bull might not be maintained," Zhu Danpeng said. It is understood that Red Bull Austria entered China in 2014 and established Ruibu Beverage Trading (Shanghai) Co., Ltd. However, it has not made many moves in the Chinese market in the past two years. The Battle Has Just Begun According to public data from Euromonitor International, in 2015, China's functional beverage market reached 60.6 billion yuan, a year-on-year increase of 15.16%. In addition, the "2016-2020 China Functional Beverage Market Investment Analysis and Prospect Forecast Report" indicates that there is still significant room for growth in China's functional beverage consumption. In 2015, per capita consumption of functional beverages in China was less than 1 liter, and it is expected to reach about 1.8 liters by 2019, leaving a considerable gap compared to the global average of 7 liters per capita. Behind the huge market space is the emergence of many functional beverage brands. Currently, besides Red Bull, domestic functional beverages include Dongpeng Tequila under Shenzhen Dongpeng Beverage Industry Co., Ltd., Heika under Guangzhou Heika Food & Beverage Co., Ltd., and Zhongwo Energy under Henan Zhongwo Industrial Co., Ltd. In addition, large domestic food and beverage companies have also entered this field. Reporters learned that Nongfu Spring Co., Ltd. launched Scream in 2004, Wahaha Group launched Qili in 2012, and Dali Foods launched Lehu in 2013. In addition, COFCO Group and Dutch beverage company Refresco have developed a new functional beverage called bigbang, which has also entered the market. Huabin Group, the parent company of China Red Bull, also plans to launch War Horse this year. At the same time, competition among major brands for market share is intensifying. According to public data from Euromonitor International, in 2015, Dongpeng Tequila accounted for approximately 10.91% of the national market share, ranking second in the industry. Additionally, the brand is making full efforts to expand into the northern market. Reporters called Dongpeng Beverage to inquire about the product's sales, but the person in charge did not answer the phone. Lehu has captured a large share of the market in third- and fourth-tier cities and townships with low prices. According to Dali Foods' financial report, Lehu's sales revenue in 2015 was 1.419 billion yuan, a year-on-year increase of 78.7%. In the first half of 2016, Lehu continued to maintain high growth, with sales revenue reaching 1.092 billion yuan, a year-on-year increase of 71.4%. Qili's market share has been gradually declining amid fierce competition. According to a research report by CITIC Securities, Qili's market share fell rapidly from 4.9% in 2012 to 0.9% in 2015. Terminal retail sales have also declined year by year, with negative growth of -60% and -38% for two consecutive years. Another brand marketing expert, Chen Wei, told reporters, "China Red Bull is dominant and highly competitive in the national market. In the southern market, brand loyalty is high, and functional beverages with less influence have little room to survive. In the northern market, consumers are more price-sensitive, and competition among brands is more intense." Lu Shengzhen stated that the increasing number of functional beverage brands has led to more intense market competition. "China's functional beverages have overly concentrated claims on sports and fatigue relief, resulting in severe product homogeneity. If innovation is made in functions and product ingredients, it would be a good choice," he said. Another brand marketing expert, Chen Wei, believes that there is still significant room for improvement in product packaging and marketing methods for China's functional beverage brands. The entry of strong foreign brands into the domestic market may further escalate the industry's internal battle. Monster Beverage, the number one functional beverage brand in the U.S. market, has entered the Chinese market under the name "Ghost Claw" and will leverage Coca-Cola's distribution channels in China. After integrating with Coca-Cola in 2015, its U.S. market share reached 52.8%. Industry experts say this will intensify competition in the domestic functional beverage market, making it more difficult for small and medium-sized domestic brands to break through. -END-