---
title: "The Battle for Supremacy in a Bottle of Beverage"
description: "The beverage industry is a 'never outdated' sector with long product life cycles and high profits, attracting numerous companies to compete. As a fully competitive market worth hundreds of billions, China's beverage market has seen intense rivalry, with major brands dominating different categories while constantly expanding into new territories."
author: "金梅"
publisher: "New Distribution"
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published: "2020-01-29"
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citation: "金梅. “The Battle for Supremacy in a Bottle of Beverage.” New Distribution, 2020-01-29. https://xinjignxiao.com/en/articles/the-battle-for-supremacy-in-a-bottle-of-beverage-ca59aaa5/"
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# The Battle for Supremacy in a Bottle of Beverage

> The beverage industry is a 'never outdated' sector with long product life cycles and high profits, attracting numerous companies to compete. As a fully competitive market worth hundreds of billions, China's beverage market has seen intense rivalry, with major brands dominating different categories while constantly expanding into new territories.

The beverage industry is a 'never outdated' industry, with long product life cycles and high profits, attracting numerous companies to join the fray. Zong Qinghou, a leading figure in China's beverage industry, once said that the beverage industry is never outdated and will always be a sunrise industry. Unlike most industries that fluctuate with economic cycles, demand for consumer goods is almost inelastic. Therefore, the food and beverage industry is a long-distance champion in any market and a battleground for all.

As a fully competitive market with a scale of hundreds of billions, China's beverage market has long been as fiercely competitive as the internet industry. In the first eight months of 2019 alone, news such as Huiyuan Juice selling itself to Tiandi No.1, Robust restarting its bottled water business, and the China-Thailand Red Bull dispute dominated headlines.

In years of competition, major brands have established dominance in different categories. Carbonated drinks are dominated by two international brands, Coca-Cola and Pepsi; in the packaged water industry, four giants—Kangshifu, Nongfu Spring, C'estbon, and Wahaha—account for over 70% of the market; in the juice beverage industry, four companies—Kangshifu, Uni-President, Huiyuan, and Coca-Cola—account for over 60%; in the functional beverage market, Mizone and Red Bull hold major shares; in tea beverages, Kangshifu and Uni-President account for 60%.

Although these beverage giants each have their own territories, in reality, every giant is restless and ready to extend its reach into others' domains. Especially in recent years, as beverage companies expand production capacity and market consumption growth slows, competition has intensified, prompting giants to deepen existing categories while continuously launching new ones. The entire beverage industry has thus entered a new development stage, forming a new competitive landscape.

**-01- Carbonated Beverage Industry: New-Type Carbonated Drinks Save the Industry from Decline**

Carbonated beverages, as the earliest soft drinks in China's market, play an irreplaceable role in people's consumption. Coca-Cola is undoubtedly the giant, having entered China nearly a century ago, and it is no exaggeration to call it the pioneer of China's beverage market. Driven by Coca-Cola, a large number of local Chinese beverage brands began to emerge rapidly.

For example, Beijing's Arctic Ocean soda, Tianjin's Shanhaiguan soda, Shenyang's Bawangsi soda, Wuhan's Erchang soda, Sichuan's Tianfu Cola, and Guangzhou's Asian soda are all old brands from the Republic of China era, with bottle shapes and tastes mostly imitating Coca-Cola. However, these brands later lost out to foreign brands in competition and lost their former glory.

After the reform and opening up, the first local beverage giant to rise was Jianlibao, founded by Li Jingwei in 1984. Jianlibao, which once surpassed cola giants, was called the 'Oriental Magic Water' and not only sold well across the country but also opened up the huge treasure trove of functional drinks.

Unfortunately, Jianlibao's 'myth' came to an abrupt end with the departure of its founder Li Jingwei. Zhang Hai, who took over Jianlibao with 'special functions,' nearly sent it into an abyss of doom.

After Jianlibao, carbonated beverages were no longer dominated by Chinese brands. The dividends of China's rapid development in carbonated drinks were almost entirely enjoyed by Coca-Cola and Pepsi.

Coca-Cola is the undisputed giant in carbonated beverages, with four of the world's top five best-selling drinks under its umbrella. In 2018, Coca-Cola's global market share in soft drinks reached a staggering 40%.

Pepsi entered China relatively late but has done well in channel penetration, almost matching Coca-Cola in China's cola segment. Additionally, its sub-brands such as Tropicana, 7UP, and Mirinda have also performed well. With the two giants dominating, the space left for Chinese carbonated beverages remains narrow and cramped.

However, the 'two colas' are not without worries. In 2014, China's carbonated beverage production peaked at 18.1066 million tons, then began to lose favor on the C-end, with production declining for three consecutive years.

When the C-end market declined, Coca-Cola and Pepsi immediately engaged in fierce competition in the B-end market. However, the B-end market is a stock market; an improvement in one company's survival indicates difficulties for the other, naturally leading to more intense struggles. Therefore, exploring new beverage markets and seeking corporate transformation became the inevitable choice for the two cola giants.

Starting in 2016, Coca-Cola began transforming into an all-category beverage company, constantly exploring new categories. In 2018, Coca-Cola launched products in China such as Georgia Coffee, Chun Tea House, Schweppes Soda Water, and Sprite Fiber, and also acquired Costa Coffee to enter the hot coffee market.

In addition, Coca-Cola also entered the hot beverage market. In 2019, it launched four hot beverage products tailored to Chinese hot beverage culture and consumers in one go.

Pepsi also launched 'Vinegar Talk' fruit vinegar beverage in August 2018 and acquired Israeli home soda maker SodaStream for 3.2 billion yuan, laying out new-type carbonated beverage businesses such as soda water and sparkling water.

Despite the 'two colas' racing to de-carbonate and continuously developing more beverage categories, ironically, the carbonated beverage market is gradually recovering. Due to the emergence of new-type carbonated drinks like sparkling water and soda water with no sugar and no calories, China's carbonated beverage market share returned to 10% in 2018, with production reaching 17.4456 million tons. In the future, new-type carbonated drinks are becoming the decisive force in the industry's development.

**-02- Packaged Water Industry: Market Pattern Set, but Still a Rich Mine**

The first domestic mineral water producer was established in 1930 in Qingdao Laoshan, with small production scale and most products exported. In 1982, the state listed beverages as planned management products, and China's packaged water industry began its initial stage.

In 1989, C'estbon launched the first bottle of purified water in China, marking the market-oriented development of China's packaged water industry. In 1996, Wahaha purified water first opened up the market in the northeast, rapidly increasing its market share. In the same year, Nongfu Spring was established, and the following year, Robust purified water was launched, intensifying competition in the packaged water market.

A significant year in the development of the packaged water market was 2000. In that year's 'water war,' Nongfu Spring 'fought alone against many,' insisting that 'purified water is not beneficial,' targeting the purified water giants.

Although Nongfu attracted collective criticism from many purified water producers, it conveyed the concept that natural water is healthier to the consumer market. With this battle, Nongfu successfully squeezed into the top three in the packaged water market.

In 2001, Coca-Cola's Ice Dew joined the packaged water ranks, and in 2007, C'estbon rapidly rose nationwide relying on China Resources' channel advantages. Thus, the packaged water market formed an oligopoly pattern with companies like Nongfu, C'estbon, Wahaha, Kangshifu, Ganten, and Coca-Cola's Ice Dew.

By 2012, bottled water surpassed carbonated beverages to become the sub-industry with the highest market share in soft drinks. By 2018, its sales reached 190 billion yuan, with a compound annual growth rate of 11.1%. The huge market has further deepened competition among giants.

In 2018, while Nongfu Spring, C'estbon, Ganten, and Kunlun Mountain laid out the 2-3 yuan market, Kangshifu, which had insisted on the 1 yuan water market for 14 years, began to raise prices to 2 yuan and launched a 3 yuan product called Hanyangquan.

Wahaha, on the other hand, launched natural mineral water from Changbai Mountain in 2018, cutting into the 3 yuan price band. Giants are continuously deepening existing categories, improving product price layouts, and attacking competitors' positions.

Some raise prices, and naturally, some lower them. Uni-President, which has always taken a mid-to-high-end route in drinking water, lacked momentum in market share and launched a 2 yuan bottled water called Gequan in 2019, entering the low-price water market in an attempt to seek another pillar business beyond tea and juice.

Meanwhile, Robust, which had left the bottled water market for three years, confirmed the resumption of its bottled water business and will first sell in South China and Southwest China.

The vast packaged water market has attracted many companies to stop and try to 'catch a glimpse.' In 2018, Yili's Changbai Mountain natural mineral water project started, sounding the horn to enter the packaged water industry. Danone also laid out in the high-end water sector, waiting for the rise of bottled water consumption.

Today, China's bottled water market has no fewer than 3,000 brands, with the six major brands—Nongfu, C'estbon, Wahaha, Kangshifu, Ganten, and Ice Dew—accounting for 80% of market share.

Although the market pattern is set, the packaged water market remains an unfully mined rich mine. In the future, the domestic packaged water industry will inevitably grow further, and competition will inevitably intensify.

From a macro perspective, China's drinking water is mainly mid-to-low-end products, accounting for about 70%. However, with consumption upgrading, the growth space for high-end water is larger. In 2017 and 2018, low-end purified water grew by 11% and 5%, while higher-end mineral water grew by 17% and 10%, respectively.

Under the chase, industry leaders dare not slack off. Led by Nongfu Spring, bottled water business is increasingly segmented and differentiated. For example, launching functional products such as maternal water, sparkling water, and children's water to cater to different consumption needs and occupy different price ranges.

At the same time, to reflect differentiation, brands have begun to emphasize the differentiation of water sources. Additionally, in 2018, major water companies began launching limited editions, co-branded, and high-end customized bottled water. The entire market is showing a trend of deepening and upgrading.

**-03- Tea Beverage Market: How Long Can Kangshifu and Uni-President, the 'Big and Small Kings,' Dominate Tea Drinks?**

The market-oriented development of China's tea beverage industry started in the 1990s. In 1993, Hebei Xuri Group, which started with 30 million yuan in investment, saw its ice tea sales rise year by year, exceeding 500 million yuan in 1996 and creating a sales miracle of 3 billion yuan in 1998. The market cultivation of ice tea beverages was thus completed. However, in 1999, the complacent Xuri Group collapsed due to organizational problems.

In 1995 and 1996, Uni-President Ice Black Tea and Kangshifu Ice Black Tea were launched successively. After Xuri fell, the two gradually took control of the entire tea beverage industry, becoming the 'big and small kings' of the industry. Driven by the two major ice black teas, the tea beverage market entered an explosive period.

Since then, Wahaha, Daliyuan, and Jinmailang have frequently tried in this field. They adopted a strategy of closely following the 'big and small kings,' focusing on lower-tier markets, and achieved good results with channel and price advantages.

As the tea beverage market continued to heat up, Nongfu Spring, which was doing well in the mineral water field, also seized the opportunity to enter. In 2011, Nongfu Spring took the lead in launching 'Oriental Leaf,' which focused on 'zero calories.' Although it caused a sensation initially, it later remained lukewarm.

In 2015, Nongfu Spring's fruit tea 'Tea π' was launched, mixing tea with a small amount of fruit juice, and quickly achieved sales of 1 billion yuan.

With the continuous heating up of the tea beverage market and the advent of the personalization era, in 2015, Uni-President proposed the concept of cold-brewed tea. The funny image of Uni-President's 'Xiaoming Classmate' cold-brewed tea brought tea beverages into the personalization era, with sales exceeding 500 million yuan within half a year.

In 2017, street-side tea shops represented by Heytea and Naixue Tea made 'cup fresh tea' a new fashion. In response, in 2018, Uni-President laid out a new category of 'chilled tea.' Soon, Xiangpiaopiao launched 'MECO Honey Valley Fruit Tea,' with sales exceeding 200 million yuan within half a year. China's tea beverage market entered a transition from 'quantity' to 'quality,' with unhealthy flavored teas declining and 'healthy + delicious' teas being highly praised.

In 2018, China's ready-to-drink tea market sales exceeded 119.7 billion yuan, with Kangshifu's tea beverage sales close to 15.7 billion yuan and Uni-President's tea beverage close to 6 billion yuan. The two remain the 'big and small kings' in this field.

However, as the tea beverage market becomes more segmented, the era of niche markets arrives, and user tastes diversify, the impact on large single products will further increase. The 'big and small kings' must take 'anti-slip' measures to ensure their market positions.

There is also a 'jianghu' in tea beverages: the herbal tea field. In previous years, when JDB and Wong Lo Kat were entangled in lawsuits, the herbal tea industry was developing rapidly, with an average annual growth rate of up to 30%. At that time, Dali Group's Heqizheng also used imitation strategies to capture a 10% share, with sales around 2 billion yuan. Wong Lo Kat and JDB originally hoped to become China's Coca-Cola, but they 'cooled down' in the protracted lawsuits. Now, the herbal tea industry is not as hot as before.

In 2018, China's per capita tea beverage retail volume was 11.57 liters, more than three times the 3.4 liters per capita in 2003. Per capita tea beverage consumption roughly increased from 7 bottles a year to 23 bottles (based on 500ml per bottle).

However, this data still shows a large gap compared with Japan, Hong Kong, and the United States, indicating significant room for growth in the market. Big companies like Pepsi, Coca-Cola, Nestlé, and Starbucks have turned their attention to ready-to-drink tea products, and the future tea beverage market is bound to be a red ocean war.

**-04- Juice Beverage Field: Structural Upgrading, Chaos Among Heroes**

China's juice beverage industry began in the 1970s, but market-oriented development started in the 1990s. At that time, the strong domestic juice brand was 'Huiyuan,' whose 100% concentrated reduced juice and Tetra Pak packaging were welcomed by families, hotels, and other consumer groups.

In 2001, Uni-President's 'Fresh Orange Duo' pioneered the launch of PET-packaged 25% fresh orange juice beverage, targeting mass immediate consumption, and became famous overnight. Since then, many beverage companies quickly followed: Kangshifu launched Daily C, Coca-Cola launched Qoo, Wahaha launched Wahaha Juice, Nongfu launched Nongfu Orchard...

From 2001 to 2010, China's juice beverage market maintained double-digit growth, becoming one of the fastest-growing consumer industries. From 2013 to 2017, China's juice and juice beverage production remained around 24 million tons.

But in 2018, the juice beverage industry entered a structural adjustment period. China's juice and juice beverage production dropped significantly to 15.8922 million tons, a year-on-year decline of 35.36%. In 2018, domestic juice beverage retail sales reached 107.1 billion yuan, with low-concentration juice beverages accounting for 83.76%; followed by mixed juice beverages at 13.06%; and high-concentration juice retail sales accounting for 3.18%. With overall weak growth in the juice industry, structural upgrading has become a new growth point.

Currently, China's juice beverage companies mainly include Coca-Cola (China), Wei Chuan Foods, Uni-President, Kangshifu, Nongfu Spring, Huiyuan Juice, and Minute Maid. Among them, Coca-Cola (China) ranks first with a 14.6% market share, Wei Chuan Foods and Huiyuan Juice rank second and third with 11.6% and 11% market shares, respectively. These brands dominate different segments such as low-concentration, medium-concentration, and pure juice.

Low-concentration juice refers to juice with a concentration below 15%, represented by Coca-Cola's Minute Maid Pulpy Orange and Qoo, Uni-President's Fresh Orange Duo, and Kangshifu's Daily C. In 2005, Pulpy Orange entered China and became the number one brand in ready-to-drink juice beverages, occupying nearly one-third of offline sales in the subcategory. However, as the market environment changes, the once-dominant fruit-flavored beverages are gradually cooling down.

Medium-concentration juice has a concentration above 30%, winning over some consumers with mixed flavors. Represented by Watsons' Mr. Juice and Nongfu Orchard from Yangshengtang, the overall development is relatively stable.

100% pure juice can be divided into low-temperature pure juice (NFC) and room-temperature pure juice, with the market just starting and showing good development momentum. Especially NFC product development relies heavily on large amounts of capital; this juice has complex processes, strict transportation conditions, short shelf life, and high prices, making it difficult for many ordinary people to accept at first.

But as market conditions improve and consumption upgrades, NFC, which is at the top of the nutritional hierarchy, has huge development potential. Compared with consumption levels in countries like Japan, this segment will have unique advantages in both market share and profit margins in the future, and it will surely be a battleground after structural upgrading.

Overall, compared with other beverages, the entry barrier for juice beverages is not very high, so in various segments, different brands compete with national brands. For example, in the 100% juice field, Tianjin's Dahu has a market share similar to Nongfu Spring. Recently, Guanfang's Shanzhaxia has risen against the trend and gained some industry attention.

Additionally, foreign brands like Capri-Sun have also achieved certain results. As people's consumption becomes more diversified, competition in this field will inevitably become more intense.

**-05- Functional Beverages: Huge Potential Attracts Numerous Gold Diggers**

With increasing attention to health and the development of the sports and fitness industry, functional beverages have been driven forward.

Its market size surged from 23.2 billion yuan in 2013 to 45.6 billion yuan in 2018. However, compared with the developed countries' per capita consumption of 7 kilograms per year, China's 0.5 kilograms per capita indicates huge market growth potential.

Moreover, consumers of functional beverages first value function and taste, with price taking a secondary position. Unlike ordinary beverages priced at 2-3 yuan, functional beverages are priced at 5-8 yuan, implying greater profit margins. Therefore, the functional beverage field has attracted many gold diggers.

Red Bull entered China in 1995, pioneering China's functional beverage industry. As a blank area in China's beverage industry, Red Bull, with successful market positioning and advertising marketing, supported by a strong sales system, has been the leader in this field for 20 years. When beverage retail prices were 2 yuan, 250ml Red Bull was sold at 6 yuan, achieving a good market education effect.

Now the functional beverage field is developing rapidly, with many brands emerging like mushrooms after rain. Foreign brands include Mizone, Gatorade, and Pocari Sweat; domestic brands include Dongpeng Te Yin (Dongpeng), Huabin Zhanma, Dali Foods Lehu, Nongfu Spring Scream, Wahaha Qili, and COFCO BIGBang.

But in terms of popularity, one beverage even surpasses Red Bull: Mizone. Danone's Mizone and Nongfu Spring's Scream, as representative brands of sports drinks, are loved by consumers for their light, water-like taste. Pepsi's Gatorade entered the Chinese market in 2006, accounting for up to 70% of the international functional beverage market, and has achieved certain results domestically, but has not yet dominated the market.

Under the huge market temptation, Coca-Cola also launched Coca-Cola Energy and BODYARMOR, declaring war on Red Bull, attempting to overturn the previous failure of Monster Energy in China. Dairy giant Yili also joined the battle with 'Huanxingyuan,' hoping to get a share.

But currently, the functional beverage market has severe product homogeneity. In the future, as more brands enter, competition will certainly become more intense.

**-06- Plant Protein Beverage Market: Undercurrents Surging**

From 2007 to 2016, China's plant protein beverage market size grew from 16.9 billion yuan to 121.7 billion yuan, with a compound annual growth rate of 24.51%, surpassing all other beverage subcategories. During this period, per capita consumption of plant protein beverages increased more than threefold from $3.2 to $9.9, but per capita consumption is only one-tenth of that in the United States. Obviously, the plant protein beverage market has huge space. Therefore, in the past few years, major giants have increased their investments.

In the plant protein beverage industry, the top six manufacturers—Yangyuan ZhiPin, Sichuan Lanjian, Coconut Palm Group, Chengde Lulu, Huierkang, and Weiwei Group—account for 85% of total production, with categories involving walnut milk, soy milk, coconut juice, almond dew, and peanut milk.

Currently, there is no leading brand in plant protein beverages, but there are many super large single products in sub-segments, forming the unicorn product camp of the industry.

Six Walnuts, Chengde Lulu, and Hainan Coconut Palm each occupy over 80% of the market share in walnut milk, almond dew, and coconut juice beverages, respectively. These brands use the 'big single product' + 'channel intensive cultivation' model to capture market share, and as the market changes, brands are continuously making high-end, younger, and healthier brand layouts.

Unlike traditional industries where well-known enterprises divide the market, the plant protein beverage industry presents a situation of 'ants are big, elephants are small.' The industry is still in a transition from an immature market to a mature one. As the market gradually matures, major brands will inevitably begin market harvesting. In 2017, Dali's Doubendou entered the soy milk industry, and subsequently, giants like Coca-Cola, Yili, Mengniu, and Uni-President laid out plans.

According to data from Qianzhan.com, the plant protein beverage market is expected to further increase to 258.3 billion yuan by 2020, accounting for 24.2% of the total beverage manufacturing market, officially becoming a major subcategory of the beverage manufacturing industry. In the future, this track will surely attract more sword fights.

**-07- Conclusion**

The beverage industry has huge opportunities, and once successful, profit margins are high. It does not change as fast as fields like mobile phones; although new products constantly emerge, large single products have long life cycles. Brand is the biggest moat in the beverage industry. Maintaining brand advantages allows long-term profitability in the food and beverage industry.

So far, the soft drink industry has experienced five waves, corresponding to carbonated beverages, bottled drinking water, tea beverages, juice beverages, and functional beverages. After each wave, product categories and scale have rapidly increased: Coca-Cola has become a phenomenal 100-billion-level large single product; Wahaha and Nongfu Spring both have single products exceeding 10 billion. In the future, the plant protein field may bring new possibilities to the industry.

With the proliferation of street-side small shops, convenience stores, and the rise of tea shops, the beverage industry has entered a stage of fierce competition. While the number of competitors increases, the industry track has also opened up, further raising the ceiling of category space. However, the expansion of market space will not make this meal easier to eat. Today's consumers change very quickly, and product life cycles are constantly shortening. This is a huge challenge for all companies.

This is also why major giants are constantly increasing product categories and frequently reaching into others' markets. By entering more subcategories, companies can greatly enhance their ability to resist risks. However, in various sub-tracks, the era of relying on imitation to conquer the world is gone forever.

In the future, the battle for supremacy in the beverage industry will not stop. Companies must truly clarify their strategic positions and corporate moats, and continuously strengthen their hard skills in innovation, channels, and products, to have a chance to win in the battlefield.

Source: Lishi Business Review (ID: libusiness)

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## Citation metadata

- Publisher: New Distribution
- Author: 金梅
- Published: 2020-01-29
- Canonical: https://xinjignxiao.com/en/articles/the-battle-for-supremacy-in-a-bottle-of-beverage-ca59aaa5/
- Original source: https://mp.weixin.qq.com/s/S0MOgTVrq_UQ7mSsVayBGA

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