China holds major promise for drinks brands

26 March 2010

BEIJING: The Chinese drinks market will experience substantial growth over the next few years, offering considerable opportunities for both domestic and multinational brand owners.

According to estimates from state news agency Xinhua, sales of non-alcoholic beverages are likely to improve by 20% annually in the country going forward.

Euromonitor, the research firm, has also predicted that the local demand for soft drinks could rise by 9.8%, to 60.4 billion litres, in 2010.

Factors behind this process include the continued expansion of the economy, rising incomes and greater protections for workers, all of which will encourage increased spending among consumers.

Coca-Cola, which saw the Chinese authorities block its attempt to buy the Huiyuan Juice Group last year, is one major operator that has firmly set its sights on the world's most populous nation.

The company recently awarded its Greater China operations the Woodruff Cup, which recognises the organisation's most successful unit across the more than 200 countries where it has a presence.

Purchase levels have improved by more than 10% in China in each of the last eight years, and Coke, Sprite and Minute Maid all lead their categories in terms of sales volumes, the US firm stated.

Moreover, the owner of Sprite and Fanta further extended its reach in the rapidly-developing market over the course of 2009, adding an extra 800 new outlets to its roster in all.

"Growth has proven possible even in the face of negative global GDP," Muhtar Kent, the chairman and ceo of Coca-Cola, argued.

Elsewhere, PepsiCo has received formal permission to build 14 new plants in China, where it already has 22 factories.

The firm is enjoying "double-digit growth" at present, according to Indra Nooyi, its ceo.

"It is an important region for us and I must say, especially recently, the Chinese government has been particularly good to us [and] has been supportive of our strategies both on the beverages and on the snack side," she added.

With regard to alcoholic drinks, Kweichow Moutai, the second-largest liquor manufacturer in the world by market value, saw its profits rise by 26% in the first 11 months of last year, Xinhua said.

The China Non-Staple Food Circulation Association expects this sector to see a surge in interest in the future, meaning competition is also due to intensify significantly.

In just one example of this, Diageo is currently weighing up the possible acquisition of Sichuan Shui Jing Fang, one of the top four spirits companies in China.

This takeover would cost Diageo more than £620 million (€691m; $922m), but could strengthen its position relative to Pernod Ricard, which currently boasts a more advanced status in China.

A recent study from Vinexpo also forecast that China would become the seventh largest consumer of wine globally by 2013, with sales due to jump by almost a third in the next three years.

In seeming confirmation of this trend, Sotheby's, the auction house, reported that Hong Kong has leapfrogged London to become the second-largest outlet for rare vintage wine, behind only New York. 

"Many Chinese buy to drink, entertain and impress. That's good, because it means they would have to replenish their stock and buy more often," said Kevin Ching, chief executive of Sotheby's Asia.

Data sourced from Business Week/Marketing Interactive; additional content by Warc staff