China Aggressively Expanding Beverage Production

Given the fast-growing domestic consumption of branded drinks, Chinese beverage manufacturers are racing to expand their production.

In April 2010, the Beijing-based Huiyuan Group, China’s leading fruit juice manufacturer (which The Coca-Cola Co failed to purchase last year), announced a massive investment of CNY5bn (US$731m) to develop a sparkling fruit juice line. In June 2009, Taiwan-based Uni-President, which is known for its bottled tea and instant noodles, established a joint venture with mainland China’s Yantai North Andre Juice, a juice maker in Shandong province, to expand its product line.

Such investment makes sense, given international drinks majors are becoming increasingly assertive in China. After Coca-Cola announced in early 2009 that it would invest US$2bn in China from 2009 to 2012 to develop non-carbonated drinks, its rival PepsiCo announced in May 2010 that it would inject US$2.5bn into the country by 2013. In fact, PepsiCo’s new factory in Chongqing, which cost CNY1bn (US$146m), started operations in June last year. With an annual capacity of 100m TEUs (20-foot equivalent unit), it is the largest beverage factory in Asia, and will make Pepsi Cola, Mountain Dew, Gatorade and Tropicana.

Huang Xiaodan, an analyst at TJKX.com, a Chengdu-based consultancy focused on the domestic food and beverage industry, said the Chinese population has been favouring tea, fruit and vegetable juices more than carbonate soft drinks (CSDs) in recent years as people are getting more health-conscious.

“The demand for CSDs has been shrinking for years, while for bottled tea and juices it has been increasing fast,” she told just-drinks. Low-concentrated fruit juices, especially those labelled with a Vitamin C supplement, are especially popular among Chinese consumers, attracting more players to the market, she said. For example, the Huiyuan Group, which used to offer pure fruit juices exclusively, launched a low concentrated lemon juice, ‘Lemon Me’, last year.

Within the alcoholic categories, Huang said Chinese consumers still prefer Chinese spirits and beer, but they are also showing a great interest in wine, which resulted in a surge in imported wine volumes in the first quarter of 2010.

According to China Customs, 58.4m litres of wine, mostly from Australia, Europe and Chile, were shipped to China in the fiscal year ending 31 March, up 83.6% year-on-year. Meanwhile, Chinese consumers spent CNY6.08bn (US$889m) in the first quarter of 2010 on wine, up 30.2% from the same period a year earlier, according to the National Bureau of Statistics (NBS).

To meet the growing demand and keep their market share, top Chinese wineries have been expanding capacity through teaming up with - or even purchasing - chateaux overseas.

Located in Beijing, Chateau Changyu Afip Global is a typical example. Owned by Yantai-based Changyu Pioneer Wine Company, the division is composed of seven chateaux in different countries, including France, Italy, the US and Portugal. Changyu said it will continue to seek partners in 2010.

In contrast with the enthusiastic Chinese consumers, China-made drinks are not as well received abroad, although sales of the China-made Tsingtao Beer are healthy internationally, especially in Chinese restaurants. TJKX.com’s Huan stressed that, compared with Chinese domestic consumption, these sales were small, and they are strongest in Southeast Asia, “where people are familiar with Chinese food. Chinese spirits are especially welcome there,” she said.

During the first quarter of 2010, buyers overseas spent CNY357m (US$52.2m) on Chinese spirits, up 71.1% year-on-year, compared with 8.1% for yellow wine, according to NBS. 

Beer sales in China, Q1 2010 (bn litres)

Sales in the first quarter of 2010 are outlined in billions of litres for the top three Chinese beer manufacturers, Snow, Tsingtao and Yanjing.

Brand

Company

Sales

Snow

China Resources Breweries

1.73

Tsingtao

Tsingtao Brewery

1.22

Yanjing

Beiijng Yanjing Brewery

0.94

Source: www.hicent.com under China National Food Industry Association

Wine imports to China, regional breakdowns, Q1 2009-2010 (m litres and %)

China’s wine imports in the first quarter of 2010 are broken down into large regions: the EU, Australia and Chile. The imports are outlined in millions of litres, and include an indication of growth from the year before.

Region

2009 Q1

2010 Q1

Growth

EU

13.0

26.1

100%

Australia

4.8

11.5

140%

Chile

8.1

15.0

86.20%

Source: China Custom

Market sizes of soft drinks in China, Q1 2007-2009 (m litres)

The market sizes of the most popular soft drink sectors in China, including carbonates, bottled water, juice and RTD tea, are outlined for 2007, 2008 and 2009 in millions of litres.

Category

2007

2008

2009

Fruit/vegetable juice

10,006.4

11,167.6

12,517.6

Carbonates

9,603.4

10,474.5

11,160.4

Bottled water

15,205.3

16,636.1

18,095.3

RTD Tea

7,567.5

8,703.1

10,310.7

Source: Euromonitor International

Sales of alcoholic drinks in China, Q1 2009-2010 (bn yuan RMB and %)

Sales of alcoholic drinks in China in the first quarter of 2010 are broken down into categories and expressed in billions of Chinese RMB. A comparison between same quarters in 2009 and 2010 show growth rates for each sector.

 

Q1 2009

Q1 2010

Growth

Chinese spirits

49.5

67.4

36.24%

Beer

23.1

26.2

13.65%

Wine

4.7

6.1

30.24%

Yellow wine

2.3

2.8

19.22%

Alcohol fermentation

10.5

12.5

18.90%

Source: National Bureau of Statistics of China

Exports of alcoholic drinks from China, Q1 2009-2010 (m RMB and %)

Exports of alcoholic drinks in China in the first quarter of 2010 are broken down into categories and expressed in millions of Chinese RMB. A comparison between same quarters in 2009 and 2010 show growth rates for each sector.

 

Q1 2009

Q1 2010

Growth

Chinese spirits

357

208

71.05%

Beer

277

320

-13.44%

Wine

22

18

18.42%

Yellow wine

59

32

8.57%

Alcohol fermentation

105

30

246.96%

Source: National Bureau of Statistics of China

This is part five of just-drinks' six-part management briefing for June. For part four, click here. Part six can be found here.