Wahaha, Master Kong, Coca-Cola and other traditional leaders are seeing their beverage market shares decline... Who will take over the market they vacate? The honest players are seizing the opportunity. China Resources C'estbon's new move illustrates the current situation in China's beverage market. In July 2017, C'estbon launched a functional drink called Magic at a press conference at the Shenzhen Happy Coast Water Show Theater, surprising many. As is well known, C'estbon had previously been steadily focusing on bottled water. From 2013 to 2016, Evergrande Spring triggered a battle in the mid-to-high-end bottled water market. As a result, brands like Nongfu Spring, Ganten, C'estbon, Master Kong, and Wahaha, regardless of brand tier, joined forces to besiege Evergrande Spring. After this battle, each brand suffered heavy losses, but C'estbon, which lacked a mid-to-high-end product line, emerged as the biggest winner, with its bottled water market share jumping to second place. Just when market observers thought C'estbon would push into mid-to-high-end bottled water to further challenge Nongfu Spring, C'estbon instead expanded into beverage categories, entering the strongholds of Red Bull and Danone. What is their intention? In fact, this is a classic case of "seizing the opportunity during a fire." Previously, in the functional drink sector, Red Bull was the absolute leader. However, since the beginning of this year, China Red Bull and its parent company Huabin Group have been embroiled in a brand licensing dispute with Thai Red Bull, the brand owner, and Austrian Red Bull, the major shareholder, leaving them with no time to focus on other matters. Second-tier players in the functional drink market, such as Danone, Dongsheng, Lehu, Heika, and Monster (under Coca-Cola), have taken advantage of the situation. For example, Danone launched a new Mizone "Blazing Energy" series, one of which contains a taurine formula, directly challenging Red Bull. Dongsheng also recently attracted 350 million yuan in investment from Jiahua Weiye and began to expand aggressively in the northern market. Therefore, with Nongfu Spring still strong in the bottled water market, C'estbon has turned to taking advantage of Red Bull's troubles. Moreover, C'estbon has made a clever calculation: Magic focuses on the concept of "supplementing amino acids," distinguishing it from competitors that emphasize "vitamins" or "taurine" (anti-fatigue). At the same time, Magic's initial sales channel is JD.com's supermarket, and it is bundled with C'estbon in sponsoring various marathon events. This allows Magic to avoid intense offline competition and traditional marketing in its early stages, providing a relatively safe growth environment. It is foreseeable that if Magic gains momentum, it will quickly expand distribution through C'estbon's channels, becoming another significant force in the functional drink market. However, among the major players in China's beverage market, C'estbon is just the last giant to expand its product categories. Nongfu Spring, Danone, and other "veterans," as well as countless small and medium brands, are on the path of continuously "expanding" their categories. Brand OUT, Category IN If we zoom out from the functional drink market to the entire beverage market, it is not difficult to see that the leaders are losing their positions and showing weakness is a common phenomenon. Wahaha, a comprehensive beverage manufacturer, saw its annual sales revenue drop by 30 billion yuan in three years, equivalent to the size of two Nongfu Springs. Therefore, in almost all beverage categories, there is a dividend for new entrants to seize the space vacated by the leaders; even if the leaders remain strong, new entrants can achieve category breakthroughs by catering to market trends. For example, Nestlé holds an absolute advantage in the ready-to-drink coffee market, but Master Kong, in partnership with Starbucks at the end of 2016, launched a "Chinese version of Frappuccino," capitalizing on the booming ready-to-drink coffee market and quickly establishing a dominant position in the mid-to-high-end market. In March 2016, Nongfu Spring launched tea π, using tea leaves from Oriental Leaf combined with fruit juice. Subsequently, it introduced four fruit-flavored waters: Shui Youzi, Shui Puta, Shui Ningmeng, and Shui Lizhi. At the same time, its first NFC drink, 17.5°, was launched exclusively on JD.com and then supplied to convenience stores nationwide. These series correspond to the new categories favored by today's young consumers: "light tea drinks," "light beverages," and "fresh juice," all aligned with the "sports and health concept." They challenge the hit products of the "previous era": Wahaha Nutri-Express, Master Kong Iced Tea, and Huiyuan Juice — although they are not exactly the same type of products, they compete in terms of product category and the marketing concepts they represent. In the industry, Wahaha, the leader, is known for its imitation tactics. For example, it imitated Taiyangshen to create a children's nutritional liquid, and imitated Robust to create AD calcium milk, both achieving great success. Hence, there is a saying that Wahaha is the Tencent of the beverage industry. In 2005, Wahaha targeted Xiaoyangren's Miaolian and created Nutri-Express. Through Wahaha's joint distribution dealer model, Nutri-Express quickly filled various terminals in second- and third-tier cities. At the same time, it catered to the demand of white-collar workers for a "breakfast substitute," being both "nutritious" and convenient, thus leveraging Wahaha's brand influence to grow rapidly and sell well for over a decade. Clearly, the key to Wahaha's successful imitation tactics lies in the channel power of its joint distribution dealer model and the value penetration that the brand gives to its products. After Nongfu Spring began expanding its categories, Wahaha revived its imitation tactics. For example, it launched light beverages Qingtou Xiaoju and Qingtou Xiaomeng; and at a grand event at the Beijing National Convention Center, it launched five health drinks at once: Activate π Vitamin Drink, Wahaha Crystal Diamond Water, Edison Cheese Yogurt, Maoyuan Coffee, and Qili 8-Hour Functional Drink... A rough count shows that from 2016 to 2017, Wahaha deployed over 30 new categories catering to consumer trends. However, except for Crystal Diamond Water, which gained some fame for its scratchable personalized signature area, most new products quickly disappeared from the market—why did the once-successful market strategy suddenly fail? What can smash the leader's stage is a combined force. 1. Category warfare replaces brand warfare Major competitors have all followed up with category innovation. In the light beverage sector alone, strong products have crowded in, including Coca-Cola's Yiquan+C and Aquarius, Suntory's Qin×Water, Uni-President's Sea Whisper, and Mizone's "Fiber Series" and Qingshu Fruit Water Drink Suiyue. Everyone has realized that in the past, brand competition > category competition and product competition, but now it is category competition and product competition > brand competition. Carbonated drinks have been labeled unhealthy, and regardless of brand, all carbonated drinks are seeing market decline, which confirms this shift. Therefore, the tactic of imitating and following categories has become mainstream. Wahaha, which does not have an advantage in first-mover category advantage or product reputation, quickly found itself in a sea of people's war, gradually becoming indistinguishable. 2. The "unhealthy" label Wahaha, as a brand, unfortunately has been labeled "unhealthy." Wahaha has always adopted a single-brand strategy, which saves marketing costs. However, after 2014, its biggest hit, Nutri-Express, became embroiled in rumors of "leukemia" and "industrial gelatin." Encouraged by competitors, these baseless rumors spread hundreds of millions of times online, causing Nutri-Express sales to plummet by 20 billion yuan, and due to the single-brand strategy, other product lines were also dragged down. Faced with this sudden disaster, Wahaha took righteous official measures, suing individual rumor mongers. Then... nothing more. Nongfu Spring also tried similar crisis PR tactics but quickly found that they did not achieve emotional communication with consumers, and the old product image was difficult to reverse in public opinion—therefore, Nongfu Spring later became "smarter." Among Nongfu Spring's earliest category expansion products was a vitamin water launched in 2011, which imitated Coca-Cola's related product concept. However, later, competitors united to criticize Nongfu Spring's vitamin water as harmful to health, causing its market sales to be indistinguishable from later similar products like Sea Whisper, Yiquan+C, Shuiyang (Master Kong), and Activate π. In April 2017, Nongfu Spring changed the packaging of its vitamin water. The new packaging reduced the large font of "vitamin water" and replaced it with a huge "V" occupying the main area of the bottle. The product concept was also adjusted from "fruit-flavored nutrient drink" to "supplement vitamins anytime, anywhere," aiming to communicate directly with consumer needs. The key is that the entire packaging looks like a capsule, with a strong "medical style" that gives a sense of "healthiness." On social media, it has been praised for its "high appearance value." Simply changing the packaging changed the way the product communicates with the market. The nearly outdated vitamin water entered mid-to-high-end convenience stores like 7-11, FamilyMart, and Lawson, and its sales miraculously recovered. 3. Channel burden Under the dual setbacks of category and brand competition, Wahaha's proud joint distribution dealer model has also become a burden. The joint distribution dealer model is essentially a channel intensive cultivation model, suitable for channel sinking, with comprehensive and detailed distribution. But its disadvantage is too many levels and huge labor costs. When Wahaha's new products fail to gain traction and sales decline, the profits generated are insufficient to support the multi-level channels, leading dealers to "not want to sell" or "sell but not make money." Eventually, when Wahaha launches new products, channel dealers see them as hot potatoes, preferring to continue selling old products like Nutri-Express, bottled water, and eight-treasure porridge. Clearly, the rules of China's beverage market have changed, and the leaders are bleeding. New Rules

  • To adapt to the new market situation of category expansion competition, starting from the end of 2016, Nongfu Spring made a big move: fully implementing the large dealer system. Nongfu Spring cut about 20% of underperforming dealers, especially small dealers operating as mom-and-pop shops, and raised the application threshold in terms of experience, team capability, vehicle configuration, capital, inventory, and network. At the same time, Nongfu Spring increased dealer authority, with the reduced number of regional dealers responsible for managing all business personnel, expense allocation, and other aspects—that is, Nongfu Spring handed over the entire region to the dealers. It should be noted that due to category expansion, competition among dealers of the same brand in the same region will double. The large dealer system undoubtedly reduces channel congestion and is conducive to the enthusiasm for promoting new products. But the drawback is that after reducing small dealers, some channels may have gaps, potentially losing some tail-end markets. Clearly, whether other brands follow the large dealer system depends on whether they decide to go all-in on the category battlefield.
  • At the beginning of 2017, Master Kong, which had been declining in the instant noodle and beverage markets, finally couldn't hold back and began to adopt a "three-in-one" approach, merging the original three regional markets into one. Especially in Master Kong's beverage segment, it will gradually abandon the past human-wave tactics and channel intensive cultivation, shifting focus to ensuring dealer profits. The direct purpose is to force dealers to move away from their dependence on "Iced Tea" and "Iced Green Tea" and instead promote new categories like fruit tea and coffee. When both Nongfu Spring and Master Kong are shifting to the large dealer system, at least in the beverage market, we may be witnessing the end of the "channel sinking era." For Wahaha, which is "burdened with family" in the channel, the large dealer system is an option it wants to adopt but dares not. However, the leader still has room to change tactics.
  • In March 2015, Wahaha reached a strategic cooperation with Uboss: Uboss helps Wahaha expand its influence in first- and second-tier cities through vending machines, while Wahaha helps Uboss sink its channels through its distribution network in second- and third-tier cities. Clearly, as a "super salesperson that never clocks off," vending machines eliminate second- and third-tier distribution channels, reducing labor costs, store costs, and transportation costs. They will be a powerful weapon for Wahaha to launch new products and may be the way to bypass the drawbacks of the joint distribution dealer model. However, Wahaha's trick was seen through by Nongfu Spring, which deployed 5,000 vending machines before Wahaha could make its move. It should be noted that for vending machines to maximize their effect, they also need prime locations, which are scarce resources, requiring competition in speed and scale of deployment. Considering that Nongfu Spring has become a new "all-category beverage giant," this battle is, to some extent, Wahaha's defense of its leadership and Nongfu Spring's coronation.
  • In June 2016, Zong Qinghou's second brother, Zong Zehou, representing "Zongsheng Technology," signed a procurement contract for an intelligent payment system with Shenlan Technology, which develops unmanned retail store technology. At the same time, it was announced that Wahaha would invest 2 billion yuan to deploy 100,000 vending machines over three years. After Wahaha made its move, Nongfu Spring immediately increased its vending machine deployment to 30,000 units in 2016—Wahaha's defensive counterattack finally stung the nerves of the attacker Nongfu Spring.
  • In June 2017, a set of photos of Zong Qinghou and Liu Qiangdong went viral across various media. Soon, news came that Wahaha would engage in strategic cooperation with JD's New Channel. The so-called New Channel is a platform that directly connects FMCG manufacturers with terminals through supply chain and ground service teams. Its downstream connects not only convenience stores and mom-and-pop shops but also large supermarkets like Walmart and Yonghui. In the traditional distribution system, it takes at least 3-7 days for products to move from the factory warehouse to terminals, and at least a month to cover all target terminals. But with JD's logistics and big data matching, 85% of orders can be delivered the same day or the next day. Previously, Danone's mixed fruit drink "Lemon's Here" was launched through JD's New Channel, completing the initial order and distribution in just one day—an impressive efficiency. Considering that Wahaha still has a sales volume of 50 billion yuan, far higher than Master Kong's beverage sales of 30 billion yuan and Nongfu Spring's 15 billion yuan, Wahaha is likely to have more say in JD's New Channel, although JD will take a large share of the profits. In response to this sudden change, Nongfu Spring's head, Zhong Shanshan, gave a speech at a university that was rarely exposed: "Don't scare us with big data... It is an unjust ecosystem to maintain e-commerce monopoly profits with the losses, thin profits, and meager profits of 10,000 traditional enterprises." Despite saying this, Nongfu Spring may well turn to Alibaba's Ling Shou Tong and engage in a head-on battle with Wahaha, which is attached to JD's New Channel. Farewell to the Arena Under multi-category competition, some conclusive changes are taking place.
  • In April 2017, Coca-Cola, whose business in China had been declining, authorized all production, bottling, sales, and distribution to two bottlers: COFCO and Swire.
  • On June 22, 2017, the Ministry of Commerce website showed that Zhangzhou Yilaifu Food Co., Ltd. was planning to acquire five companies under Master Kong—these are the companies involved in the production and sale of ready-to-drink tea, juice drinks, carbonated drinks, and bottled water. By divesting production operations and shifting to an asset-light model, Coca-Cola and Master Kong will focus on researching new beverage categories and marketing to the new generation of consumers—areas where they lag behind Nongfu Spring, C'estbon, Danone, and small but beautiful manufacturers like Zero Fruit Workshop. Or it could be said that among the traditional beverage market leaders, only Wahaha is still holding on, while China Red Bull's future is uncertain. The offensive and defensive battle in the beverage arena is reaching its climax. Source: "Business" Magazine -END-