Source: Finance World Weekly (ID: cjtxzk) | Author: Zhang Kexin | Editor: Yang Jie

The once-hot low-alcohol drinks track is starting to "cool down." Low-alcohol drinks are emerging in endless variety, and there aren't enough "tipsy" young people to go around.

Multiple financing advisors (FAs) and investors told Finance World Weekly bluntly: "We haven't been paying attention to low-alcohol drinks recently." In 2022, the once-booming low-alcohol drinks sector has begun to look somewhat quiet.

Beyond the traditional drinking tables with their clinking glasses, young post-90s consumers also want to drink something "tasty" and enjoy the hazy feeling of being slightly drunk. Thus, the "tipsy economy" has become the theme of the low-alcohol drinks investment boom in recent years. Most brands in this track primarily target female consumers among Generation Z.

There is currently no unified definition of low-alcohol drinks. Distinct from the three traditional alcoholic beverages—baijiu, beer, and wine—in a broad sense, it usually refers to new-style alcoholic drinks that include fruit wines, premixed cocktails, rice wines, sparkling wines, and many other categories, primarily sweet wines. These drinks have relatively low alcohol content, generally not exceeding 20 degrees.

In the past two years, low-alcohol drinks have stood at the forefront. In 2020, about 5,000 new low-alcohol drink brands emerged on Tmall.

According to public data, in 2021, there were nearly 80 financing events in the alcohol industry, with more than half occurring in the low-alcohol drinks sector, mainly concentrated in angel and Series A rounds. The amount of each financing was relatively high, basically in the tens of millions of yuan.

Media reports indicate that in just the first five months of 2021, there were 27 financing events in the low-alcohol drinks industry, with total financing exceeding 2.5 billion yuan.

But since this year, the low-alcohol drinks investment track has shown signs of "fading out." Even worse, there have been "casualties" in the sector.

Have Low-Alcohol Drinks Become "Outdated"?

Among the new low-alcohol drink brands that emerged in droves two years ago, many have quietly exited. "This is an era of survival of the fittest," recalled Tang Huimin, founder of low-alcohol drink brand MissBerry. "The MissBerry brand was officially launched in April 2020. At that time, there were already many brands on the market, but now many of them are no longer seen."

"Mali Duntun," a soda wine brand founded in Guangzhou in June 2020, had received tens of millions of yuan in investment from Zhonglu Kainiu and Ujia Fund, but suddenly "evaporated" from the market this year.

Finance World Weekly searched for "Mali Duntun" on various mainstream e-commerce platforms but could not find related products. The latest update on its official WeChat public account was May 22, 2021. Clicking on the "Store" link in the account and the "Mali Duntun" mini-program both showed "Mali Duntun 211214 has closed."

Media reports say that the phone numbers, emails, WeChat, and Weibo found through public channels are currently unable to contact the Mali Duntun brand.

(Image: Screenshot of Mali Duntun mini-program)

Mali Duntun was founded by Chen Yicheng, co-founder of e-cigarette brand Snow+, with its main product being soda wine. It used the marketing theme of "no pressure"—low alcohol content means no hangover pressure, and low unit price means no financial pressure—targeting young consumers aged 18-25 who are just starting to drink alcohol.

When the brand was first established, Chen Yicheng publicly stated that the domestic soda wine market could reach 15% of the beer market. At that time, the total scale of the domestic beer market was about 200 billion yuan.

In other words, the soda wine market share could reach 30 billion yuan, with leading brands' annual sales exceeding 10 billion yuan. Mali Duntun positioned itself as a "party drink" for young people, frequently partnering with Guangzhou's major livehouses, music festivals, and university towns in the first half of 2021 to hold offline party events. But after the hot summer of 2021, it "disappeared."

An interesting phenomenon is that the low-alcohol drinks entrepreneurship track once saw an influx of "e-cigarette players." Besides Chen Yicheng, including Liu Shuo, former national channel sales director of Snow+ e-cigarettes; Liu Zhe, former executive of Fulu e-cigarettes; and Zheng Bohan, former product partner of YOOZ e-cigarettes, all entered the field, founding low-alcohol drink brands such as Zouqi Qingniang, Shidian Yike, and Lanzhou, and successively obtained financing.

At the consumer level, the public perception is that "tobacco and alcohol" are always linked. After e-cigarettes, which also target young people, replace traditional products, and focus on innovative flavors, became popular, capital became keen to replicate the success of e-cigarettes in the low-alcohol drinks field.

Alcoholic products have been called "gold in water" since ancient times because of their high gross margins and high repurchase rates, making them a good business that can transcend time cycles. In recent years, baijiu production has declined year by year, and the beer industry has also seen overall overcapacity. Young people's alcohol consumption has become an incremental market waiting to be tapped.

Generation Z may not be fully adapted to traditional drinking culture, but they are not refusing to drink. "It's not that we don't like drinking; it's just that we don't like drinking the traditional way. My friends and I generally dislike the 'business dinner' culture represented by baijiu, but beer tends to make us bloated," said Liu Ling, a post-90s consumer.

The drinking culture promoted by low-alcohol drinks hits the heart of young people like her: "Facing work and life pressure every day, we need relaxation but not indulgence. 'Tipsy' is the most comfortable state."

In 2021, Everbright Securities analyzed that the domestic low-alcohol drinks market is expected to have a space of 30-50 billion yuan in the future and exceed 10 billion yuan within 5-8 years. From 2020 to 2021, new brands including MissBerry, Zui'e Niang, and Luoyin secured investments from top institutions such as Matrix Partners China, ZhenFund, Tiantu Capital, and Sequoia Capital.

(Image: MissBerry official flagship store)

But reality is harsh. Low-alcohol drinks, which capital has "gulped down," remain a niche market. According to data compiled by the Prospective Industry Research Institute, in 2020, the domestic beer market had a scale of 42.964 million kiloliters, but fruit wine was only 1,000 kiloliters in the same year. When billions of yuan were poured into this market, the sales of many low-alcohol drink brands could not match it.

In the 2021 Tmall "Double 11" alcohol sales ranking list, no low-alcohol trendy drink brand made the list.

In early March this year, Houxue Liquor, which owns the self-created soda wine brand "Kongka," received A+ round financing from Yuansheng Capital.

The latter was co-founded by Peng Zhijian, former Tencent vice president and general manager of Tencent Investment and M&A Department, and Xu Liang, former deputy general manager of Tencent Investment and M&A Department. Behind it, Alibaba and Tencent are also shareholders. Previously, ByteDance also strategically invested in Houxue Liquor through an affiliated company.

The awkward part is that consumers don't seem to buy it. Houxue Liquor, founded in 2020, has its Tmall Kongka flagship store, where the best-selling 350ml 6-bottle soda wine has monthly sales of only 800 units.

A business observer joked: "Low-alcohol drink brands are emerging in endless variety, and there aren't enough 'tipsy' young people to go around."

No 'Perfect Diary' for Low-Alcohol Drinks

Among the thousands of low-alcohol drink brands in China, none has yet become a "leader" that captures consumers' minds.

In sparkling water, there's Genki Forest; in new-style tea drinks, there's Heytea; in new baijiu, there's Jiangxiaobai. But in the low-alcohol drinks market, which has been sprinting for a year or two, there is no leader.

Unlike other beverage and alcohol industries, low-alcohol drink brands are trying to build leading brands by following the growth path of brands like "Perfect Diary."

"Make products the way you make beverages, market the way you market cosmetics, and distribute the way you distribute alcohol," Tang Huimin, founder of new low-alcohol drink brand MissBerry, once explained her core strategy for building the brand.

The low-alcohol drinks market exploded over the past year or so, closely tied to meeting the needs of young female consumers.

(Image: Social platform search results for "low-alcohol drinks")

New low-alcohol drink brands mostly target the fruit wine category, with better taste, richer colors, and higher "aesthetic appeal." These products usually come with carefully designed bottles and promotional copy filled with various "mood" texts.

For example, products are given cute names like "little sweet wine" and "goodnight wine"; in the copy, they are categorized by usage scenarios, from "drinking alone" and "gathering with girlfriends" to "romantic moments," and so on; they are also tagged with emotional labels such as "self-pleasing," "tipsy," "lazy," and "relaxed" to evoke emotional resonance with users.

A founder of a low-alcohol drink brand explained that all this is to "influence female consumers and make them think about drinking."

After all, women's spending power is a force that cannot be ignored, and they are more likely than male users to accept new products.

For entrepreneurs who have "crossed over" from the internet consumer sector to make alcohol, using social media to build brands is also a more familiar route—the "internet celebrity formula" that quickly made new domestic brands like Perfect Diary, which focus on female consumers, explode: "Xiaohongshu seeding + short video sales + e-commerce platform traffic."

Searching for "MissBerry" on Xiaohongshu yields over a thousand related seeding notes. Many well-known female bloggers such as "Sister Ximen" and "A Shu" have recommended the brand. On Taobao Live, MissBerry has also appeared in live streams of celebrities like Hu Ke and top streamer K Jie.

Co-branding has become one of the main marketing strategies for these new brands to "break out of their circle." From 2020 to now, MissBerry has collaborated with IPs such as Onmyoji, Mystery Creature WHIKO, and Northeast Big Board, launching co-branded fruit wine gift boxes and special flavors like spicy hot pot wine and Northeast Big Board ice cream wine.

The online marketing of low-alcohol drink brands has achieved some results. Data from the 2022 Tmall New Year Shopping Festival shows that female groups of different age levels, including new white-collar workers, refined mothers, and post-95s living in first-tier cities, have become the main consumers of low-alcohol drinks.

But as internet traffic peaks, some investors say that some "internet celebrity" brands have fallen into a "traffic trap"—many new consumer brands use the traffic dividend of social media to achieve a surge in sales data in the short term, but actual product repurchase rates are extremely low.

An industry insider said that in the low-alcohol drinks industry, which has been accelerated by the investment boom, the vast majority of brands still adopt ODM or OEM production models. But this model leads to insufficient R&D investment and easy product homogenization.

In the low-alcohol drinks market, although there are many brands and flavors, no differentiated products have been created. With insufficient market education, the uniform "artistic style" also confuses consumers' perception of brands.

"When there are girls at a gathering, we also buy low-alcohol drinks. But we often can't tell the difference between many brands; we just buy whatever we see," said a consumer from Wuhan.

The aforementioned insider said that in the eyes of capital, "it's already difficult to produce another 'Perfect Diary' in the alcohol beverage industry. Luck and time windows were the reasons some internet celebrity brands were able to quickly go public, but even after successfully going public, companies may not necessarily thrive."

Moreover, alcohol products are ultimately different from beauty brands like "Perfect Diary" because they naturally have social attributes. Therefore, most industry insiders still insist that offline channels are crucial for the alcohol beverage industry.

(Image: In the low-alcohol drinks display area at a Beijing offline Wumart supermarket, brands like RIO and Jinro dominate. Photo by Finance World Weekly)

Lin Yijia, O2O head of Zouqi Qingniang, once revealed, "E-commerce consumers' purchase motivation is to constantly try new brands, and online sales contribute less than 4%."

An insider from Jiangxiaobai's plum wine brand "Meijian" once told Finance World Weekly that e-commerce channels account for only a small part of Meijian's total sales channels, and Meijian's consumption scenarios focus on the lively atmosphere of young people's daily gatherings, as it tries to enter more dining channels.

Since its launch, Meijian has been sold both online and offline, with a focus on offline promotion in 2020-2021. Several consumers told Finance World Weekly that in shopping centers like Wanda Plaza in many cities, they have seen Meijian's advertising tents, with staff dressed in traditional Chinese clothing inviting consumers to taste Meijian wine.

RIO, the leading low-alcohol cocktail brand, also gets about 80% of its sales from offline channels. As of the first half of 2021, RIO had 1,755 distributors offline.

However, in comparison, the entry barrier for offline channels is higher. New low-alcohol drink brands in China still find it difficult to get a ticket to offline channels.

Traditional alcohol brands have long been staking out territory in traditional offline channels and have further deepened their terminal channel layout in lower-tier markets in recent years.

Finance World Weekly saw in several large supermarkets in Beijing, as well as convenience stores like Bianlifeng and 7-11, that most of the space in the alcohol display areas is occupied by various beer brands. In the low-alcohol drinks section, there are basically no new brands; common ones are RIO, Korean brand Jinro, and Coca-Cola China's "Lemon-Dou" sparkling wine.

Bars are common social drinking venues for young people, but new low-alcohol drink brands are still "absent." "The positioning of low-alcohol drinks is somewhat awkward," said a bartender. "Premixed cocktails, fruit wines, and the like are not taken seriously by bartenders. In nightclubs and bars, the most common alcohol consumption is freshly mixed drinks or whiskey, brandy, etc. These have high alcohol content and get you drunk quickly, and customers feel face when placed on the table."

In contrast, new retail formats like Hema and Yonghui Superstores' Super Species, and offline beauty retail collection stores, are more willing to accept new low-alcohol drink brands.

After a year of development, MissBerry has strived to expand into convenience stores like Lawson and FamilyMart, as well as Hema, totaling 30,000 retail terminals offline. The next step is to enter the dining market in more cities, such as restaurants with Sichuan and Hunan spicy flavors.

Currently, some low-alcohol drink brands, including Meijian, have also started to build their own product supply chains. The aforementioned insider said that under the overall industry environment, the low-alcohol drinks supply chain is already relatively mature.

But as an emerging category, low-alcohol drinks still lack industry standards. Many brands still have products that use flavoring mixed with water or alcohol to "fake" products, or use relatively inferior fruits for premixed fruit wines, greatly damaging consumers' perception of fruit wine.

"Low-alcohol drinks as a whole is still an industry that needs market education. Elimination and competition are good for the development of the category," said Tang Huimin. "What ultimately survives will be companies that insist on long-termism from the start and develop comprehensively in brand, product, channel, marketing, and other aspects."

How Big Is the Low-Alcohol Drinks Market?

Low-alcohol drinks are not a new business in China.

"When fruit juice meets fine wine, it brings an unprecedented taste experience." As early as 2013, a RIO low-alcohol cocktail advertisement endorsed by star Zhou Xun attracted the attention of many young consumers. This drink, with only 3.8% alcohol content and various flavors, also began to be widely distributed to offline channels such as major supermarkets, convenience stores, and restaurants across the country.

At the same time, from sponsoring the reality show "Running Man" to inserting ads in popular TV dramas like "My Sunshine" and "Boss & Me," RIO strongly occupied all marketing platforms that could reach young consumers.

No matter the era, trying new things is a young person's nature. After RIO spent heavily on marketing, the company's performance also saw significant growth. In 2014, Bacs Liquor, which owned the RIO brand, was acquired by listed company Baorun Co., Ltd. The next year, RIO's cocktail sales revenue surged from less than 100 million yuan to 2.2 billion yuan.

RIO almost single-handedly boosted the entire industry. During that period, various traditional famous liquor brands also entered the market.

In 2014, Wuliangye launched Dracula Chinese premixed wine with 3%-7% alcohol content; Moutai launched a blueberry-flavored low-alcohol premixed wine brand "UMEET"; Luzhou Laojiao also launched its own prepared wine "Taohuazui" in 2016; and Shujingfang also established a premixed cocktail subsidiary.

But soon, after a large number of homogeneous products flooded the market, low-alcohol drinks entered a "trough" in development.

In 2016, RIO's revenue experienced a "nosedive." That year, its revenue was only 800 million yuan, a year-on-year decline of 63%. The listed company stated in its financial report that due to "the company's product shipments being significantly lower than terminal product sales, the company's revenue experienced significant fluctuations."

To alleviate pressure on distributors, in the second quarter of 2016, Baorun Co., Ltd. had to spend nearly 100 million yuan to repurchase old products from distributors. Starting in 2018, RIO cut marketing expenses and launched the "Tipsy" series, and revenue gradually recovered. In 2020, RIO's revenue recovered to 1.7 billion yuan, but to this day, it has not returned to its peak.

(Image: Screenshot of RIO cocktail official website)

Now, low-alcohol drinks are once again at the "forefront." In recent years, a popular saying in the venture capital circle has been: all consumer goods are worth redoing. Thus, new-style tea drinks, national trend beauty products, trendy toys, Chinese fast food, and other investment "hot spots" have emerged.

Young people's "alcohol" consumption has inevitably attracted capital attention. Especially with the vigorous development of the "she economy" centered on female consumption, countless entrepreneurs have been given new hope.

With RIO as a "lesson from the past," many people also worry whether the scale of this market is really as large as imagined.

"The market is still in its infancy. The rise of new categories is often led by new brands, and China currently lacks a strong brand in low-alcohol drinks," an industry insider told Finance World Weekly.

However, when asked whether low-alcohol drinks will still be a "hot spot" for new consumption, he said it is still uncertain. "Consumer market education is currently insufficient, and habitual drinking and repurchase needs have not yet formed. Clearly, most low-alcohol drink brands that focus on playing 'marketing concepts' have been gradually eliminated."

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