The Master Kong brand has outperformed domestic and international competitors alike in the Chinese RTD tea category and is also diversifying into new beverage sectors, extending an already multi-faceted brand even further. Simon Maddrell of Euromonitor International takes a look at this successful brand story, and examines the challenges and opportunities Master Kong faces in China's developing beverage market.

Master Kong may be the most valuable ready-to-drink (RTD) tea brand in China but it is far more than that. Indeed, its success in RTD tea owes much to leveraging the consumer loyalty built up in the instant noodles category, where the brand began life, while it is now branching out into other foods and beverages in this fast-growing consumer economy.

Master Kong is the flagship brand of Tingyi, an integrated food and drinks manufacturer specialising in instant noodles, beverages and baked goods. The company, which is controlled jointly by Ting Hsin International Company and the Japanese company Sanyo Foods Co Ltd, each holding a 33.2% share, launched its instant noodles business in 1992, expanding into the bakery and beverages segments in 1996. It has established leading positions in instant noodles (25% retail value share in 2006), and RTD tea (27% in 2007), and is ranked fifth in the biscuits category (3% share in 2006).

In 2004, Tingyi formed a joint venture with Japan's Asahi Breweries and Itochu Corp, a major Japanese trading house. Tingyi-Asahi-Itochu Beverages Holding Co Ltd is now the holding company of the 22 production facilities and offices, with Asahi providing R&D expertise in soft drinks marketing. Tingyi is responsible for logistics, manufacturing, raw material procurement and business development. Given that Japan is the birthplace of RTD tea and instant noodles, the participation of Japanese players is certainly beneficial to the brand development of Master Kong, particularly in terms of NPD and marketing.

In 2007, Master Kong overtook Wahaha to claim leadership of the Chinese soft drinks market in retail value terms. Over the past seven years, Master Kong has capitalised on the growth of non-carbonated drinks and expanded sales and made share gains in all soft drinks and packaged food categories.

But Master Kong's prime strength is in RTD tea, with retail volume sales amounting to 2.2bn litres. Master Kong benefits from a wide range of RTD tea variants, including green tea and jasmine tea. The introduction of barley-flavoured tea has caught the imagination of consumers thanks to its healthy ingredients and natural and unconventional taste, and the release became an instant success. All new launches are supported by massive advertising and promotional campaigns, with the brand owner aiming to make its RTD tea brand relevant to the younger demographic.

In contrast, the two cola giants and Nestlé did not invest sufficiently in the RTD tea category during the rapid expansion of the sector. Danone, meanwhile, has been busy dealing with a legal dispute over the ownership of the Wahaha brand, and its growth in the RTD tea category appears to have stagnated since 2005.

Master Kong has also rapidly expanded its presence in fruit/vegetable juice and bottled water since 2003. It is now fully capable of taking on its archrival Uni-President in the juice category, highlighted by the successful launch of the Fresh Daily C and Master Kong juice brands. Additionally, to tackle the problem of low gross profit margins in the bottled water industry, Master Kong will almost certainly focus on premium quality mineral water over the coming couple of years. 

With the Chinese soft drinks market predicted to record a total volume CAGR of 9% between 2007 and 2012, the company is set to devote more resources to cultivating this market. The likely strategies next will not only focus on encouraging consumption, but also improving the brand portfolio and developing added-value products to cater for the growing middle class. Nevertheless, the high inflation witnessed in raw materials and energy supply could potentially lead to high production costs and this could be a threat to new product development and marketing in the medium term. For example, the current riots in Kenya are expected to lead to a price hike in tea in the global commodity market. The intensifying competition will not allow huge price increases, thus it will be a continuous challenge to maintain a decent profit margin.

Additionally, the company faces an increasing threat from rival companies such as Uni-President and Guangzhou Pharmaceutical Holding Ltd. The latter's flagship herbal drink Wong Lo Kat successfully achieved growth momentum during the Football World Cup in 2006 when it took advantage of nationwide broadcasting and advertising, and now leads the TCM (Traditional Chinese Medicine) RTD tea category. Meanwhile, French retail force Carrefour has launched private label TCM tea. On the multinational front, Coca-Cola has enhanced its research in non-carbonates and built a research unit dedicated to TCM drinks in China. The American giant is planning to launch its first TCM drink in 2008 to exploit the hype surrounding the Beijing Olympics.

Finally, Tingyi put most of its products under one single family brand name. While this could help build consumer loyalty, Master Kong needs to be managed carefully in this sense. If the brand name gets tarnished in any way in one category, it may run the risk of losing consumer trust and therefore potentially damaging other product categories. Therefore, it is fair to say that the brand management of Master Kong is crucial to Tingyi's Chinese business.