Focus - Chinese consumers broaden their soft drinks horizons
The Chinese soft drinks sector has been showing consistent growth for a number of years, fuelled by broadening consumer tastes. Ray Rowlands of beverage research company Canadean takes a look at a large and rapidly developing soft drinks market.
China's expanding economy and 1.3bn population make it a key beverage market. Chinese consumption of all commercial beverages in 2008 totalled well over 200bn litres, having increased by an average of more than 10% per year since the beginning of the decade.
Around half of this volume is accounted for by tea and coffee which combined are four times the size of the domestic dairy market and more than twice the volume of recorded alcohol consumption. However, in such a huge country, variances in trends and consumption patterns are inevitable and patterns differ from region to region.
At less than 5 litres per head China has one of the lowest levels of white milk intake in the world and volumes have been slipping backwards since 2007. Demand was not helped by the recent contamination crisis. However, cultured/fermented drinks are popular dairy beverages and soy milk is also widely consumed. The soy market grew rapidly during the 1990s, driven by a government campaign to raise public awareness of the product's health benefits. The soy milk market has continued to grow since 2000 and now stands at well over 4bn litres.
Soft drinks (including bulk/HOD water) represent the second largest beverage category after tea/coffee. Bulk/HOD water has been widely accepted by the average Chinese household, especially in developed areas and cities. The making of tea with bulk/HOD water rather than boiling tap water is a key driver in boosting demand, while there is a clear trend towards mineral water as consumers become more aware of health issues.
The bottled water category has also grown to a similar size to that of bulk/HOD, but there is growing demand for single serve as well as family packs. The 60cl PET bottle, for example, already accounts for a third of volume. PET is, in fact, the most popular packaging medium overall. Around half of all volume is accounted for by table waters, the remainder by mineral and mineralised offerings. Mineralised water is purified water with added minerals, which is marketed as natural mineral water.
On a volume basis, carbonated soft drinks rank behind both bottled and bulk water in China but consistently gained share between 2001 and 2007. As in many other countries, the category has a heavyweight international presence and a strong reliance on cola flavour.
However, other flavours have been eating into cola's dominance. Second-placed lemon-lime increased its share by 5% points between 2004 and 2007. Meanwhile, mixers volumes almost tripled between 2006 and 2007 thanks to the spread of salted carbonates which are traditional to east China.
Per capita consumption of pure juice is just 0.2 to 0.3 litres. Nectars (25-99% juice) are far more accepted but even this category is dwarfed by still drinks (up to 25% juice). On average, still drinks are less than half the price of pure juice and also carry a cost advantage over nectars. However, product education has started to bear fruit. Consumers residing in urban areas, especially young people, are now seeing juice as an important source of vitamins.
The still drinks category is made up of various distinct segments, many of which are traditional. Fruit drinks hold the largest volume and, as with pure juice, orange is the flavour of choice. But fruit drink growth is proving slower than the category average as it faces competition from iced/RTD tea.
Dilutables play a very small role in China today as more convenient ready-to-drink options have constantly chipped away at their share. Today, squashes and syrups are the smallest soft drinks category in China after iced/RTD coffee. Western lifestyle influences, the increasing affluence of some consumers, and product education have helped iced/RTD coffee register significant incremental volume over the past few years, but volumes are a mere fraction of iced/RTD tea.
The iced/RTD tea category has grown tenfold over the past ten years assisted by its healthy image. This rapid development has attracted heavy investment in product development and innovation, and the category is seeing an ever-expanding variety of offerings, including green tea with honey and sugar-free variants. Product diversification from traditional black tea to green tea and oolong tea has also helped to attract new consumers.
From small beginnings, energy drinks grew rapidly in China with a major boost occurring in 2004 when the vitamin energy drinks segment took off. Since then the rate of category growth has subsided with an actual market decline occurring in 2006/7.
Vitamin energy drinks are no longer seen as the 'in' beverage with consumers moving to iced/RTD tea drinks and herbal still drinks. More traditional style energy drinks have remained secure. Whilst all energy drinks are still, two thirds of sports drink volumes are carbonated.
The international financial crisis has brought about some negative influence on Chinese beverage consumption, but important opportunities for development still remain. However, it has become a necessary step for beverage companies to explore new consumption opportunities, develop new products and enhance brand value in order to meet increasingly demanding consumer needs and maximise market prospects in the face of fierce competition.
This article originally appeared in Soft Drinks Imternational magazine. For more information, click here.
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