For Huanxingyuan, a functional beverage that entered the market just months ago, competition from incumbents like Red Bull and Lehu is not to be underestimated. Your "stay-up-late神器" might need an upgrade. When it comes to functional drinks, Red Bull is definitely the first brand that comes to mind, having long held half of the domestic market. Unfortunately, its internal strife over trademark disputes has attracted a wave of new players. Four months ago, dairy giant Yili also set its sights on functional beverages, launching the energy drink Huanxingyuan. The latest official word is that "market feedback is currently positive." This is just a small step in Yili's broader cross-industry expansion. Benchmarking Red Bull, Breaking Through Is Not Easy In April 2018, Yili officially announced its entry into the energy drink market on its official Weibo, calling the product a "pioneer" in the energy beverage industry. Huanxingyuan focuses on relieving fatigue, replenishing energy, and a refreshing taste, targeting the 18-35 age group. Its official price is 6 yuan, and its formula emphasizes fortified taurine and vitamin B, directly benchmarking Red Bull. In terms of market strategy, it also follows Red Bull's display placement to quickly increase product exposure. The functional beverage market has welcomed an unexpected disruptor. According to an insider at Yili, the product is now available across all channels. Why enter the functional beverage market? Yili responded to 21CBR, saying, "As national health awareness and consumption levels gradually improve, and the number of sports participants in China increases, the demand for energy drinks is growing." Yili is eyeing the huge potential for rapid growth in the coming years. Data from Euromonitor International shows that by 2020, the scale of China's functional beverage market is expected to expand by one-third, reaching $10.1 billion. In fact, Dali's Lehu has already set a precedent, successfully becoming a product with revenue exceeding 1 billion yuan, and in 2017, it achieved high growth of over 30%. Coincidentally, the leading brand has run into trouble. Since the expiration of China Red Bull's trademark license in 2016, there have been constant disputes between Hua Bin Group, the operator of China Red Bull, and Thai Tiansi, the trademark holder. In July 2017, "Thai Red Bull" even took "China Red Bull" to court, with both sides engaging in intensive litigation over the trademark. To this day, Red Bull remains mired in internal strife over trademark disputes. According to Nielsen retail monitoring data, Red Bull's sales fell 7% year-on-year in 2017, with its market share dropping to 58%. This is a good time to enter the market while the industry is loosening. Of course, Huanxingyuan has no shortage of competitors: Wahaha's Suran, Uni-President's Goran, China Resources C'estbon's Moli, By-Health's F6 Supershot, and Monster (which is partly owned by Coca-Cola) are all ready to grab a share. Yili admitted to 21CBR that challenges do exist, but one of its advantages in breaking through is its channel control that penetrates down to townships. According to data provided by Yili, as of the end of 2017, Yili had nearly 530,000 directly controlled village-level outlets, a year-on-year increase of 54%, and its market penetration capability continues to strengthen. For Yili, new product promotion can share the existing powerful channel network, enabling rapid nationwide channel distribution. Currently, Huanxingyuan's online and offline interactive marketing activities have been rolled out in various places to increase awareness of the new product. During the World Cup from late June to mid-July, Yili held "Huanxingyuan Football Carnival Night" events in Guangzhou, Beijing, and Shanghai, inviting former national team player Peng Weiguo and host Han Qiaosheng to endorse the product, and set up "Huanxingyuan 24-Hour Energy Stations" in convenience stores in Suzhou for in-store tastings. On the online channel, Huanxingyuan is not visible on Yili's Tmall flagship store, but it has quietly launched on JD.com's official flagship store, sold only in cases, with no sales records yet shown. In a food specialty store on JD.com, some consumers have already given positive reviews for Huanxingyuan: "I've alternated between Red Bull and this one; Red Bull has a stronger taste, but I prefer this one, which is lighter and quenches thirst." However, the total number of reviews is only in the dozens. "Jack-of-All-Trades," Bold Cross-Industry Moves Before entering the energy drink market, Yili had been frequently testing non-dairy businesses, launching juice drinks and soy milk products. This wave of operations has indeed sparked curiosity: As the undisputed leader in the domestic dairy industry, what is Yili up to by "not focusing on its main business"? In fact, Yili's cross-industry moves have a clear pattern. In December 2014, Yili Group Chairman Pan Gang announced that by 2020, the company would enter the top five global dairy companies, achieving a leap from a ten-billion-yuan enterprise to a hundred-billion-yuan enterprise. Notably, he upgraded the corporate vision to "the world's most trusted provider of healthy food." At the end of that year, Yili extended from animal protein to plant protein for the first time, launching the plant protein beverage "Walnut Milk," which immediately secured the largest order in Yili's ordering meeting history, marking the first step in its cross-industry layout. Starting in 2017, Yili accelerated its expansion into non-dairy businesses. In June, it launched "Meiyitian" live bacteria fruit juice drinks, officially entering the beverage industry. A month later, it launched another new product, Meiyitian Gold Small Bottle. Both live bacteria drinks highlight digestive benefits and emphasize the "health+" element. At the end of 2017, Yili again pushed into the plant protein field, launching the soy milk product "Zhixuan." It is reported that this product underwent two years of research and development. Following classic hits like Ambrosial and Jindian, Yili spared no expense to create another "blockbuster," even inviting popular actress Ni Ni as spokesperson and sponsoring the 2018 Hunan TV "Chinese New Year Gala" during the Spring Festival, showing extraordinary importance for this strategic product. Regarding whether there will be more cross-category attempts in the future, Yili did not respond to 21CBR. However, a series of signs indicate that Yili's moves have clear strategic intent. In May this year, Pan Gang appeared at Yili's shareholders' meeting and mentioned in his speech that in terms of products, Yili would "continue to increase investment in mid-to-high-end innovative categories and accelerate cross-category industrial layout." According to Yili's operating plan, the 2018 targets are total revenue of 77 billion yuan and total profit of 7.5 billion yuan. In dairy categories such as room-temperature milk, low-temperature milk, and dairy beverages, Yili already holds a high market share, and the "two-strong standoff" with Mengniu is unlikely to change in the short term. Based on the vision of being a "healthy food provider," trying more categories and seeking more profit points is also a viable choice. It is worth noting that according to the 2018 "Global Dairy Top 20" list released by Rabobank, Nestlé and Danone, which entered the top three, both adhere to a diversification strategy, extending their product lines from dairy to liquid beverages, culinary prepared products, and even pet food and nutritional skin care products. Yili's management, benchmarking against global players, clearly understands this. However, the main position of the dairy industry has not changed. Yili told 21CBR that milk and dairy products remain the focus, and "the main business has not undergone major changes." In the first half of 2018, sales revenue from key product lines such as Jindian, Ambrosial, Changqing, Joy Day, Jilinguan, Qiaolezi, and Zhenxi all increased by more than 30% year-on-year. From January to June 2018, Yili's revenue was 39.589 billion yuan, a year-on-year increase of 18.88%, of which the proportion of new product sales revenue increased by 5 percentage points compared with the same period last year. In its semi-annual performance report, Yili commented on the performance of new products such as Huanxingyuan and Zhixuan series soy milk, saying "market feedback is currently positive." Of course, for Huanxingyuan, which has only been on the market for a few months, the competitive pressure from incumbents like Red Bull and Lehu is not to be underestimated. Especially Red Bull, which has been deeply rooted in China for over 20 years, still firmly holds the top position in the segmented market. Whether Yili can successfully leverage its channels to profit from functional beverages remains to be seen. Source: 21st Century Business Review (ID: weixin21cbr) -END-