China still can't get enough of soft drinks

Related tags Soft drinks Soft drink China

China's soft drink industry continues to boom, with market analysts
Canadean estimating that continued growth now means annual
production is in excess of 20 billion litres. And with retail
prices continuing to fall and expendable income growing, the rise
is expected to be maintained.

The SARS outbreak of late 2002 and early 2003 appears not to have distracted the rate of progress made in the China soft drinks market, with Canadean pointing out that demand last year soared in excess of 12 per cent. In 2003, growth was underpinned by three main factors: hot weather, falling prices and rising prosperity. Temperatures reached levels seen only five times since 1961 with much of the Eastern and Southern provinces actually suffering drought. Meanwhile, prices fell and disposable income in the key urban areas grew by 9 per cent.

Canadean​ has identified that the Chinese beverage market appears to be going through fast moving cycles of around twelve to eighteen months, with the innovation and focus of operators switching from one category to another. In 2001/2002 iced tea was in vogue while in 2002/2003 ready-to-drink still drinks enjoyed a surge in innovation and sales (most notably products with a juice content of between 5 and 10 per cent). One consequence of the SARS outbreak was the rise in interest and products in the sports & energy category towards the end of 2003 and early 2004. Currently we are seeing a revival in iced tea offerings with the launch of a more healthy green tea and a low sugar variant targeting the more health conscious Chinese drinkers.

In such a huge country, variances in trends and consumption patterns are inevitable and patterns differ from region to region. One example would be the popularity of drinks derived from herbal ingredients that are unique to Southern China (Guangdong province) where they are believed to have a beneficial cooling effect on the body if drunk on a regular basis. Availability of brands will also differ from region to region with some operators opting to cherry pick, targeting only affluent areas. Suntory and Kirin for example, choose to focus on the more prosperous city areas such as Beijing, Shanghai and Ghangzhou.

With changing fashions and varying availability taken into account, at a national level the star performer in terms of a percentage increase in 2003 was the juice & nectars category, which enjoyed growth of 29 per cent. SARS contributed to the success of juice with Chinese consumers recognising the importance of vitamin intake some stores even saw stocks sell out and shortages were reported in some areas. The juice category was also buoyed by a 7.5 per cent fall in import duty on juice concentrates. Despite the dramatic increase in demand, however, it must be remembered that juice and nectars remain expensive. Total consumption for this category in China is just 55 per cent that of the UK, for example.

In volume terms the market is being driven by the packaged water, carbonates, still drinks and iced tea categories which when combined equal a staggering 20 billion litres per annum. It is numbers like these that are getting the soft drinks manufacturers excited. With per capita levels below 17 litres, there is still room for consistent growth for many years to come.

It is not just the beverage manufacturers who are licking their lips at the tasty prospects for the soft drinks market in China; to reach the end user, soft drinks need to be packaged, and the opportunities for the glass, PET, plastic and carton producers are immense. Packaging companies are very conscious of the rewards that are on offer and competition has been the catalyst for a frenzy of packaging innovation with new technologies and packaging equipment being shipped in from abroad.

Gauging the level of this boom is undoubtedly a tricky task and although you can look to other markets in the region for some clues it would be very ambitious to expect China to reach the same per capita levels of Taiwan (113 litres) or Hong Kong. Demographically, 60 per cent of Chinas population is still to be found in rural areas and is unlikely to be adopting a more Western approach to drinks consumption. Urban per capita consumption of soft drinks is actually nearer 40 litres whilst demand in villages and rural areas is very limited.

Canadean believes that per capita beverage consumption may never reach levels seen in neighbouring markets but can be guaranteed in the current economic environment to undergo long-term growth in the decades ahead.

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