The just-drinks interview - Howard Lam, Coca-Cola China
Coca-Cola has applied creative thinking to the launch of its Minute Maid brand in China, reducing the juice content to make the brand more affordable but adding fruity pulp to give consumers with the distinctive 'mouthfeel' of fresh juice. In this month's just-drinks interview, Dominique Patton spoke with Howard Lam, Coca-Cola's group marketing director in China, about the Minute Maid success story.
It's not often that multinationals dilute their products to launch in a new market. But that's exactly what Howard Lam, Coca-Cola's group marketing director in China, decided to do when he brought Minute Maid to the world's fastest growing beverage market.
Studying Chinese consumption trends in 2003, Lam realised that a 100% juice would be too expensive to reach but a small segment of the population. By reducing juice to just 10% of the beverage, the group could align its selling price to that of most widely consumed juice drinks, teas and other beverages.
But it required a special yet quite simple ingredient for the brand to stand out in the juice drink crowd and achieve profits in this low-margin market, says Lam.
"When we looked at the market in China during 2002 and 2003, the juice category was showing important growth but consumers were buying many different types of beverages. We saw the need for a mainstream juice brand. But although there is a market for pure juice in Beijing, Shanghai and Guangzhou, 10% juice drinks are the biggest segment in the whole category and we wanted to launch the brand nationwide."
Researchers at the group's innovation centre in Shanghai came up with a juice drink with added pieces of orange pulp, a unique proposition that has given the brand a real point of differentiation in the crowded Chinese juice market.
Lam says: "The growth of juice sales in China is more about the taste than concerns for health [as in Europe]. This product tastes really great and the pulp creates excellent mouthfeel."
After 12 months on the first four lead markets - Shanghai, Hangzhou, Nanjing and Xian - Minute Maid had become the number one or two brand in each market. By the end of 2006, it was available throughout China, with sales growing by 78% on the prior year. The brand is now number one in Shanghai, Beijing and Guangzhou and number two in the rest of China, according to AC Nielsen.
Minute Maid is also being rolled out in India this year, and Lam expects it to do well in other markets too.
The pulp, the product's magic ingredient, has been heavily promoted, with a proprietary bottle displaying the pulpy contents in its upper part. This has allowed the Minute Maid brand to charge a small premium: Chinese consumers can typically buy a 500ml bottle of juice or RTD tea in a kiosk for the same price (RMB3 or GBP0.20) as a 450ml bottle of Minute Maid.
Howard Lam, group marketing director for Coca-Cola in China
This has its disadvantages of course. Within a year of being on the market, the pulpy orange drink had been copied by local firms. "When we first launched Minute Maid, we told consumers that not all juice drinks are the same. Then in 2005 we were telling them that not all the juice drinks with pulp are the same."
But Lam says his rivals have not gained a significant market share. Replicating the Minute Maid texture is not straightforward. "Our way of producing took a long time to create the right mouthfeel," he says. "The mixing speed can't be too fast or you will destroy the pulp and yet it cannot be too slow either."
Meanwhile, a premium orange drink has allowed Coca-Cola to ride the soaring concentrate prices better than its local competitors. Last year's hurricanes in Florida and resulting high orange prices led to prices rises at juice makers in the West but, Lam says, passing on costs to consumers is not an option in China. "My expectation is that any price increase would affect the growth of juice beverages and favour teas or carbonated drinks."
Yet there are signs that some local competitors are struggling to absorb higher costs. Although Chinese farmers grow oranges, the quantity is still small and prices relatively high so most juice producers import concentrate from the big US and Brazilian producers.
"The competition is scaling down their investment in TV advertising which indicates that they don't have the margins to fund long-term investments," says Lam.
Coca-Cola, by contrast, stepped up its Minute Maid marketing last month, kicking off a TV and poster campaign for next year's Beijing Olympic Games. Building a brand is key to a sustained edge in this market.
Few international manufacturers want to sell at the low margins that domestic firms accept but with growth of 9.7% across the total juice category last year, new producers are entering China all the time. There is also increasing investment in local companies. Last year, Danone bought a stake in one of the few national juice makers, Huiyuan, and increased its share this year.
"The market in China is absolutely huge so it is the focus of many companies from local ones to the Taiwanese and multinationals too. This makes it really competitive," explains Lam.
Despite increasing overheads, Lam maintains that Minute Maid Pulp is making a profit "good enough to keep going".
The future will bring new products under the Minute Maid brand, which now includes two flavour variants, although it will be some time before Minute Maid pure juice reaches the Chinese market. "At this point in time, 10% juice drinks is still the biggest segment. And winning in China has to be a fine balance between being niche and reaching the mass market."
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