China’s soft drinks industry has been developing at a relatively fast pace since the 1980s, with the reform and opening-up process accelerating, the wave of carbonated beverages in China was started by Coca-Cola and Pepsi from abroad, and Tianfu Cola and Jianlibao from China. Currently, the Chinese soft drinks industry has gradually entered a period of steady and moderate growth, with sales increasing from 465.216 billion yuan in 2014 to 578.560 billion yuan in 2019, with an average annual compound growth rate of 4.46%.
Bottled water has replaced carbonated beverages as the main product of the industry; the proportion of e-commerce channels continues to rise. In the future, China’s soft drinks industry will show trends such as diversified varieties, nutrition and health and high quality.
1. Analysis of the current development of China’s soft drinks industry
1) A wide variety of brands
Soft drinks are natural or artificially prepared beverages with an alcohol content of less than 0.5% (mass ratio). After more than 40 years of development, China’s soft drinks industry has formed a product system with a wide range of products and a large number of brands.
Different products have their unique attributes and meet the special needs of various groups of people, and men, women and children always have their own favorite products and brands. In the face of complex consumer demand, it is difficult to produce products with universal marketability in the soft drinks industry, therefore, the concentration of the soft drinks industry has been at a low level.
The Chinese soft drinks market started in 1978 when Coca-Cola entered China, and has become one of the largest soft drinks markets in the world through various stages, such as the start-up phase, growth phase and high-growth phase, with the market scale expanding and the categories constantly broadening.
During the development of the soft drinks industry, local soft drink companies, such as Wahaha, Nongfu Spring and C’est Bon, have been growing and gradually have the ability to compete with the big international brands and firmly occupy the core position in the Chinese soft drinks market.
2) Industry chain panorama analysis of the soft drinks industry
The upstream link of the soft drinks industry chain is the supply of raw materials and packaging. The supply of raw materials mainly provides agricultural and sideline products and food additives necessary for the manufacture of beverages, which include vegetables, fruits and dairy products; food additives include sweeteners, trace elements, acesulfame, edible flavors, food coloring, etc.
The midstream link of the soft drinks industry chain is soft drink manufacturing. According to the different types of soft drinks, soft drinks can be roughly divided into bottled (canned) drinking water, carbonated drinks, fruit juices, tea drinks and so on.
The main sales channels include traditional channels, modern channels, catering channels and e-commerce channels.
3) China’s soft drinks industry market size statistics: entering a period of moderate growth
With the continuous growth of China’s residents’ income and the gradual change of consumers’ concept, soft drinks have become a mainstream commodity in residents’ daily consumption, and the market scale of soft drinks in China is also expanding, but as the market tends to be saturated, the growth rate of the market scale also starts to slow down gradually, according to Euromonitor data, the market scale of soft drinks in 2019 was 578.6 billion RMB yuan, and the average annual compound growth rate from 2014 to 2019 was 4.46%.
2. China soft drinks industry market competition pattern analysis
1) Analysis of the competition pattern of segmented products: “one super and many strong” situation
According to Euromonitor data, soft drinks include 9 sub-categories, in order of market size: packaged drinking water (199.9 billion yuan), ready-to-drink tea (122.2 billion yuan), juice drinks (90.2 billion yuan), carbonated drinks (86.4 billion yuan), energy drinks (45.8 billion yuan), sports drinks (11.9 billion yuan), ready-to-drink coffee (10.7 billion yuan), Asian specialty beverages (10 billion yuan), concentrated beverages (1.4 billion yuan). Among them, ready-to-drink coffee, energy drinks, packaged drinking water growth rate leading, 2014-2019 CAGR were 14.6%, 14.3%, 10.1%, packaged drinking water industry both scale and growth.
Soft drinks market segments as a whole showed “a super-strong” category pattern. Among them, packaged drinking water is the largest segment, accounting for 34.55%. After the packaged drinking water, ready-to-drink tea, juice drinks, carbonated beverages accounted for 21.12%, 15.59% and 14.94% respectively. The top four categories in the soft drinks market together accounted for 86.2%.
2) Analysis of the competitive landscape of enterprises: the competitive landscape is relatively fragmented
In 2019, the CR3 and CR5 of the soft drinks industry were 24.3% and 34.2% respectively, and the top three companies in terms of market share were Coca-Cola (main business is carbonated beverages), Ting Hsin (main beverage business is tea beverages), and Yang Sheng Tang (main business is packaged drinking water), whose retail market share was 9.1% and 8.1% respectively. were 9.1%, 8.0%, and 7.2%, respectively.
In terms of branding, Coca-Cola, PepsiCo and Red Bull remain in the top three according to the “Top 25 Most Valuable Soft Drink Brands in the World 2020” list released by Brand Finance, a British brand valuation agency. PepsiCo, The Coca-Cola Company and Nestlé Group brands occupy more positions in the list.
3) Analysis of downstream distribution channel pattern: traditional channels dominate and e-commerce channels grow rapidly
According to Frost & Sullivan, the distribution channels of soft drinks in China mainly include: 1) traditional channels (small grocery stores and non-chain convenience stores), 2) modern channels (shopping malls, supermarkets and convenience store chains), 3) food and beverage channels, 4) e-commerce channels (online sales platforms), and 5) other channels (mainly including special channels, new retail channels represented by vending machines, etc.).
According to Frost & Sullivan, in 2019, the soft drinks industry’s traditional channel sales accounted for 44.05%, modern channel accounted for 22.33%, food and beverage channel accounted for 14.31%, and e-commerce channel accounted for 6.14%.
3. China’s soft drinks industry development trends and prospects analysis
1) Trend analysis: diversified development of the soft drinks industry
In a comprehensive view, the current soft drinks industry shows a diversified development trend, with products, marketing and channels gradually moving towards diversification, product life cycles becoming significantly shorter, and soft drink companies need comprehensive capabilities in all aspects.
2) Development prospect analysis: steady expansion of market scale
From a comprehensive point of view, the scale of China’s soft drinks industry is vast. After rapid growth in the early stage, the Chinese soft drinks industry has gradually entered a stable and moderate growth period. Among the various segments of the soft drinks industry, the packaged drinking water industry has both scale and growth rate, and the leader with comprehensive strength will enjoy the dividends of industry development and increase its market share; the carbonated beverage industry has a slow growth rate; the energy drinks and ready-to-drink coffee industries have limited scale but are in a rapid growth stage, and there are still opportunities in the segment market. Accordingly, it’s expected that the industry sales will rise at a growth rate of about 5%, and the market size will reach about 775.3 billion yuan by 2025.