As consumers' health awareness rises, once-popular tea beverages are declining, with the beverage category structure shifting towards water, functional drinks, and plant-based proteins, leading to a negative growth in tea drinks. Nielsen data shows that in 2014, overall tea beverage sales (excluding milk) fell by 3.6%, partly due to cooler summer temperatures and partly due to consumption shifts between categories, indicating consumers' desire for innovative beverage products.
Tea beverages continue to decline this year In 2014, Nestlé's Nestea was discontinued and exited the Chinese market, reflecting the awkward position of the tea beverage market—gradually being marginalized from a best-selling category.
China's tea beverage market started in 1993 and entered a rapid development phase in 2001. According to AC Nielsen, in 2009, China's tea beverage consumption reached nearly 9 million tons, accounting for 10% of the liquid beverage market, becoming the third-largest beverage category after carbonated drinks and purified water.
"Now tea beverages have declined from a mass market to a niche market," said Zhu Danpeng, a researcher at the China Food Business Research Institute. He noted that tea beverages continue to decline this year, with the market showing severe polarization. Related data shows that in the tea beverage market, Master Kong and Uni-President each hold a 40% market share.
The contraction of tea beverages is comprehensive. A survey of several supermarkets and convenience stores found that the tea beverage segment, which had been selling well for years, is shrinking, with the proportion of tea beverages on shelves significantly reduced. A convenience store owner in Beijing said that tea beverage sales have declined sharply over the past two years, and this year sales are even worse. In the not-yet-ended May, the owner reported that tea beverage sales in his store were only half of the same period two years ago. Due to longer restocking cycles, he deliberately reduced his tea beverage orders.
Healthiness of tea beverage ingredients needs consideration The decline in tea beverages is also related to changes in consumer habits. Industry insiders point out that consumers are increasingly health-conscious, so they pay more attention to additives and high sugar content in beverages. "When I was in college, I used to buy green tea drinks, but now I mostly drink plain water, and if there's no water, I choose freshly squeezed juice," said a former tea beverage fan.
Tea beverages are one of the largest categories in China's beverage market. Recently, the China Quality Association and the National Users' Committee conducted a satisfaction survey on tea beverage consumers. The results showed that the consumer satisfaction index for the tea beverage industry in 2014 was only 72 points (out of 100). This indicates that consumers' overall perceived quality of tea beverages is at an average level.
Data analysis found that the healthiness and purity of beverage ingredients, the uniqueness of tea aroma, the credibility of advertising, and the safety of drinking were the most frequently mentioned areas for improvement. This suggests that tea beverage companies should actively improve product quality, enhance processing, storage, and color stability technologies, and consider healthiness more in formulas and ingredients.
Uni-President's beverage business saw first decline in 2014 Uni-President Group's 2014 financial report showed a net profit drop of 68.8%, the largest decline in five years, with beverage revenue also declining for the first time since 2009.
In Uni-President's business, instant noodles and beverages accounted for 35.4% and 62.3% of revenue, respectively. However, both main businesses saw severe declines. Beverage revenue was 14 billion yuan, down 7.6% year-on-year; net profit was 702 million yuan, down 17.02%. Uni-President's tea beverage sales were 5.526 billion yuan, compared to 6.143 billion yuan in 2013.
Regarding the decline, Uni-President publicly stated that in 2014, the overall economic slowdown, industrial restructuring, changes in consumer preferences, and lower summer temperatures in most parts of China affected overall beverage demand, impacting the group's performance.
Tea beverage 'blockbuster' model unsustainable Industry insiders believe that Uni-President's model of relying on "blockbuster" products is no longer sustainable. Uni-President's beverage business has been driven by hits like Assam Milk Tea and Uni-President Ice Black Tea, but now this model seems unsustainable.
Zhu Danpeng, a researcher at the China Food Business Research Institute, believes that the sales growth of Uni-President's star products has slowed, and the previous strategy of big single products is gradually losing its contribution to performance, leading to weak overall growth. The lack of innovation in traditional categories like tea drinks, juices, and milk tea may also contribute to declining growth.
Uni-President is also aware of the bottlenecks facing its main products. In its 2014 annual report, it stated that in fiscal 2015, tea beverages would undergo a comprehensive product structure adjustment: "In 2015, our tea beverage business will stabilize the market with existing main products 'Uni-President Ice Black Tea' and 'Uni-President Green Tea', and drive new sales growth points with differentiated innovative products, comprehensively adjusting the product structure."
Master Kong's performance decline seeks growth drivers Master Kong was the first Taiwanese enterprise to enter the tea beverage market in China, entering the beverage industry in 1995. How did Master Kong perform in 2014 amid Uni-President's beverage decline?
In 2014, Master Kong's beverage sales were $5.801 billion, down 7.46% year-on-year; net profit was $71.656 million, up 1.35% year-on-year, or up 50.21% after excluding restructuring costs during the year.
Comparison shows that Master Kong and Uni-President had similar sales declines, but Master Kong's beverage net profit grew while Uni-President's declined. However, in overall profitability, Uni-President outperformed Master Kong.
In the beverage market, Master Kong holds a 53.9% share of the tea beverage market, ranking first, while Uni-President has not disclosed its share.
Due to weak consumption and declining beverage segment performance, Master Kong decided to seek redemption by partnering with Starbucks. Master Kong will produce Starbucks ready-to-drink beverages in mainland China and help expand local distribution channels. Thus, Master Kong will become the OEM and sales company for Starbucks ready-to-drink beverages.
Industry insiders analyze that leveraging Starbucks' brand influence, Master Kong can fill product line gaps and take an early position in emerging beverage segments, but it will not fundamentally change the reality of declining beverage business growth with a single ready-to-drink coffee category.
Zhu Danpeng analyzed: "Master Kong's beverages include tea, water, juice, carbonated drinks, and other categories. Currently, the five fastest-growing beverage categories are herbal tea, plant protein drinks, functional sports drinks, milk-containing drinks, and water. Master Kong's products only include water, and it has no presence in the other best-selling categories. So for Master Kong, the performance decline caused by structural issues in its beverage products will eventually erupt. The push into ready-to-drink coffee can only slow the pace of decline."
Nestlé fully stops ready-to-drink tea business in mainland China Last year, Nestlé, the world's largest food group, announced that it had fully stopped its ready-to-drink tea business in mainland China, and in the future, it will fully expand composite protein drinks.
According to industry insiders, Nestea had been hard to find since the first half of 2013. "It wasn't selling well, and Nestlé intentionally scaled back."
It was in 2001, when China's tea beverage market entered a rapid development phase, that the two global food and beverage giants decided to customize tea beverages for consumers. To expand its beverage business, Nestlé and Coca-Cola established a 50-50 joint venture for ready-to-drink tea, the Global Beverage Partners (BPW). As part of the cooperation, Nestlé contributed Nestea and ready-to-drink coffee, and they jointly developed Yuan Ye tea.
Huang Ying, a tea beverage researcher, believes that when Nestea was first launched, it already had nearly 10 years of consumption base in five other global markets. But in China, the tea beverage market had entered an era of market segmentation, with Master Kong, Uni-President, Wahaha, and others already having distinctive products. Nestea needed to find its own positioning to successfully enter this market.
Euromonitor data shows that Nestea initially had a certain market share, reaching 2.3% in 2008. However, under fierce market competition, Nestea's market share began to decline, falling to 1.9% by 2010. After Nestea, Nestlé and Coca-Cola also launched seven different tea beverage brands, including "Tea Research Workshop," "Health Workshop," and "Yuan Ye," but none managed to break through in the domestic tea beverage market.
The joint exploration by Nestlé and Coca-Cola was fraught with difficulties and eventually ended in 2012 when they announced a split. Nestlé took back Nestea, while Coca-Cola took Yuan Ye. Now, after nearly 13 years of painstaking efforts, Nestlé's tea beverage business has finally exited the Chinese market.
Tea beverage decline; 'composite' drinks become new trend Leaving the tea beverage market, Nestlé still maintains a high interest in other market segments in China. Since 2011, Nestlé has successively acquired Yinlu, Hsu Fu Chi, and Wyeth. This global food giant continues to explore new energy in China's dairy, drinking water, and seasoning markets. Nestlé told reporters that its ready-to-drink coffee business has been fully transferred to Yinlu, and in the future, Nestlé will support Yinlu in fully expanding composite protein drinks.
Industry analysts believe that with the increase in beverage types in the market, the growth of the entire Chinese tea beverage market has slowed in the past two years. Correspondingly, functional drinks and composite protein drinks are growing. The overall domestic tea beverage industry's sales revenue and volume continue to show negative growth. According to data from China Business Intelligence, in 2013, the sales revenue of China's milk-containing beverage and plant protein beverage manufacturing industry reached 89.522 billion yuan, a year-on-year increase of 23.46%.
The decline of tea beverages and the rise of milk-containing and composite protein drinks have become an industry trend. Many beverage giants, including Coca-Cola, PepsiCo, Wahaha, and Uni-President, have entered the milk-containing and composite protein beverage sector.
In this context, some companies are choosing to differentiate tea beverage categories and pursue high-end routes. In response to changes in consumer attention and drinking habits in recent years, Nongfu Spring launched a high-priced "Da Nai Cha" (milk tea) series, while Uni-President actively promoted the high-priced "Zhi Jue" to carve out new market opportunities, entering the plant beverage market with the innovative concept of "plant functional tea." In 2015, it launched a new innovative product, "Xiao Ming Tong Xue," a cold-brewed tea using cold extraction technology that is refreshing and not bitter, targeting young student groups.
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