Chen Xiaojing

In recent years, domestic soda brands have made a comeback, but they still struggle with a practical issue—capitalization. Bingfeng and Beibingyang have already tried this path, but the process was not smooth, and both companies failed. Domestic soda brands disappeared under the pressure of foreign brands at the end of the last century and only returned with the rise of national trends. Now, they face equally difficult problems. Product iteration, channel expansion, and brand marketing constitute a vast systematic project, becoming a mountain in front of domestic soda brands. The reason domestic soda brands are excluded from the capital market lies in their limited growth and innovation, and this inherent disadvantage is precisely what regulators are wary of under the registration system. So, don't blame the door for not opening; it depends on whether you are strong enough.

The Rise of Domestic Soda

China's eight major soda brands were popular in the 1980s and 1990s and have reappeared in the market in recent years, driven by new consumption and the rise of the national trend economy. However, their survival and development are equally severe. In the domestic carbonated beverage market, Pepsi and Coca-Cola hold over 85% of the market share, leaving domestic sodas to compete within less than 15%. China's huge consumer base is indeed a rich mine for consumer goods companies, but domestic sodas have a tendency for regional development, and their scale has never been very large. Bingfeng's revenue was only around 300 million yuan in 2020, Beibingyang was three times that, Dayao Soda's revenue exceeded 3 billion yuan for the first time in 2021, and Jianlibao's revenue has not recovered to its peak of over 5 billion yuan. These companies have unstable profitability. For example, from 2018 to the first half of 2021, Bingfeng's net profit attributable to shareholders was 70 million, 78 million, 65 million, and 62 million yuan, and even in 2020, it saw increased revenue but not increased profit. Similarly, these soda companies are cautious about heavy marketing spending, fearing it becomes a burden. In the first half of 2021, Bingfeng's sales expenses were 19.245 million yuan, a world of difference compared to Yangyuan Beverage and Dongpeng Beverage. Under the conservative strategy of stable development and profit protection, domestic sodas basically stick to their own regions.

After more than 20 years of suppression by the two cola giants, domestic sodas have had to start from scratch after their comeback, and the systematic construction of brand, marketing, and channels will require heavy investment. Therefore, in Bingfeng's prospectus, over 60% of the raised funds are used for marketing channel construction. It is urgent for this soda to expand from Xi'an to the national market. Bingfeng's listing immediately faced 54 stern questions from the CSRC, exposing many issues in its internal governance. Beibingyang's development status has been hidden under the iceberg after Da Hao Technology terminated its restructuring in March this year.

Inherent Shortcomings Hard to Hide

Bingfeng mysteriously withdrew its listing application on the eve of the listing review, despite the company citing changes in financing plans. Perhaps it was more about the CSRC's questions revealing the company's "hard injuries," making it better to retreat gracefully early. This is a microcosm of FMCG companies rushing to list in recent years, with few succeeding, especially single-category companies facing more difficulties. Bingfeng and Beibingyang's attempts to enter the capital market coincided with the registration system, where regulators strengthen the positioning of relevant sectors, especially companies with weak or unclear attributes such as "three innovations, four newness" and hard technology. Traditional consumer companies with low industry barriers have been included in the restricted listing category. The difficulty of liquor and tea companies in listing on the A-share market in recent years also illustrates this point. When it comes to soda, it faces a similar fate, and their social financing will naturally be affected. Like Bingfeng, Lao Xiang Ji and Tiandi No.1 have suspended their listings, Hankou No.2 Factory's last financing round was three years ago, and cases of financing exceeding 100 million yuan are rare. Only emerging brands like Genki Forest are increasing investment in the industry chain.

The miraculous rise of No.2 Factory soda should be an exception. This suddenly popular soda brand might actually be the first to go public. It is packaged in Lan Shili's and Wuhan Xiuhu's retail business, with some connection to Hong Kong-listed Tiancai Holdings. Jianlibao is an earlier market-oriented soda brand. Under the leadership of founder Li Jingwei, it grew from a small brewery in Guangdong to a hot fast-moving consumer brand. In its early days, it became a top domestic soda through sponsoring sports events, pull-tab prize strategies, and Li Ning's endorsement. With Li Jingwei's push, Jianlibao planned to list in Hong Kong as early as 1997. After internal strife, blind diversification, and multiple changes of ownership, it still hasn't given up on the capital market. With the help of CITIC Group, Jianlibao prepared for listing around 2017, expecting to complete share reform by 2019, but there has been no new progress so far.

Amid the noise of domestic sodas, an inherent defect is hard to hide: regionality, growth, and product strength. Bingfeng's main market is Xi'an, Beibingyang's core market is Beijing, and brands like Bawangsi, Zhengguanghe, and Hongbaolai are almost "city brands." This is similar to the domestic beer industry years ago, where China Resources integrated horizontally and vertically to become a beer giant. Will there be a China Resources in the soda industry?

Product is King

Bingfeng and Beibingyang's rush to the capital market is not only about their anxious national expansion but also reveals their inherent product shortcomings and brand innovation weaknesses. The ingredient lists of these domestic sodas are surprisingly consistent: water, white sugar, coloring, and various additives. Feng Lei, the actor who played Zhao Ruilong in "In the Name of the People," once revealed his experience of buying a certain beverage in a video. A bottle of sparkling water he bought had more than 200 ingredients, which shocked the public. It wasn't until competition intensified in recent years that juice sodas appeared. Real juice soda made Lan Shili smell a market opportunity for a second venture. No.2 Factory soda, with over 15% juice content, became his weapon against competitors. Under the sugar-reduction storm, domestic sodas have shown little innovation in products, even failing. Domestic sodas are trying to cater to the post-95s and Gen Z, but their products cannot yet meet these groups' desire for low-sugar or sugar-free options. Harvesting one-time sales is easy, but what about repurchase rates? Moreover, the revived domestic sodas are not cheap: Bingfeng's 330ml aluminum can costs 6 yuan at retail, Dayao 6-8 yuan, Hankou No.2 Factory 6-8 yuan, etc., so they are not cost-effective. Besides high unit prices, domestic sodas also face difficulties in channel expansion, a common industry problem. As a result, Bingfeng struggles to expand beyond Xi'an, and Beibingyang has weak influence outside Beijing. Bawangsi, Tianfu Cola, Zhengguanghe, Shanhaiguan, and Hongbaolai basically stick to their home bases. Dayao is relatively aggressive in national expansion, having penetrated from a small city in Inner Mongolia to the national market in recent years, using high channel profits as its killer move. However, with rising raw material and cost pressures in recent years, dealers' profit margins will inevitably be squeezed. For these domestic sodas, whether they can go public in the future is not the most important thing; keeping up with consumption trends, marketing innovation, and strong channels are the foundation for sustainable operation. Otherwise, even if they go public, what will they tell their shareholders?