Innovation rules in China

11 May 2011

BEIJING: Food and beverage brand owners are focusing on innovation in China, as they seek to keep pace with the evolving preferences of consumers across the country.

Coca-Cola witnessed the advantages that can follow on from effective R&D in China via Minute Maid Pulpy, which was rolled out domestically during 2005 and enjoyed a 27% sales surge in the last quarter.

This product has since hit store shelves in a number of other emerging markets - like Algeria, Malaysia, Mexico and Vietnam - and now generates over $1bn in annual revenues.

Muhtar Kent, Coca-Cola's chief executive, stated the "unique path to success" of Minute Maid Pulpy demonstrates the organisation's core strengths.

"Minute Maid Pulpy is a great example of how we've developed a unique brand experience, tailored to meet local taste in China and then leveraged our scale," he said.

"We are introducing a wider variety of packages in China to promote affordability and enhance the consumer experience with our brands, all with the focus to drive increased transactions and to build brand equity."

Coca-Cola is estimated to hold the leading position in the Chinese soft drinks sector, valued at $49bn by insights provider Euromonitor, a total that should reach $86bn in 2015.

Euromonitor also reports per capita consumption in Asian nation could rise from 46 litres to 80 litres a year over the same period, although this still lags the 340 litres logged in the US.

Ted Hurley, associate director of FMCG at research group Nielsen, suggested many indigenous firms are actually performing better than their foreign rivals.

"The local guys are innovating more and the foreign guys are having to play catch-up," he told the Financial Times.

Hurley cited Cofco, active in categories like canned goods and chocolate, Uni-President, the Taiwanese noodles-to-beverage manufacturer, and dairy specialists Bright Foods, Mengniu, Yili as examples.

"All have top-five-selling brands," he said.

Roland Decorvet, Nestlé's chairman and chief executive for China, argued the distinctive characteristics of Chinese shoppers made R&D an interesting process.

"Milk drinks are big here, and the most popular flavour is peanut. Second is walnut. Try to launch that in any other country and you won't sell much," he said.

Wahaha, which makes Future Cola, Nutri-Express healthy beverages and vitamin-enriched smoothies, has outlined a target to boost revenues to 100bn yuan, from 55bn yuan, in the next five years.

The company believes the typical offering has a realistic lifespan of around 36 months, requiring an unceasing cycle of innovation.

"I am constantly having to launch new products," said Zong Qinghou, chief executive of Wahaha.

Euromonitor warned these challenges can prompt missteps, such as with Wahaha's Pi Er Cha Shuang, a carbonated tea tasting like beer, seeing substantial initial demand before a rapid drop in purchase rates.

The dramatic proliferation of brands also often hinders, rather than augmenting, sales, as new goods merely serve to draw customers away from existing lines.

"Offering more choice doesn't mean you can make more money," said Arto Hampartsoumian, chief executive of Bartle Bogle Hegarty in China. "There is a risk of self-cannibalisation."

Data sourced from Financial Times; additional content by Warc staff