Carbonated drinks, specifically Coca Cola and PepsiCo, were some of the first foreign brands to enter the China market shortly after the reform and opening up period began in the late 1970’s. By the end of the 20th century, carbonated beverages occupied the dominant position within the soft drinks market in China.
Steady and consistent growth has continued for carbonates throughout the last 20 years as the general market for FMCG and imported food & drink products has expanded massively. But growth for carbonated drinks has been more sedate in the last several years as consumers’ attention has shifted towards RTD teas and functional drinks, which have experienced rapid growth in the past 10 years.
In 2019 the market for carbonates was worth roughly the equivalent of $12.7 billion, showing a year on year increase of 3% in value terms and 2% in volume terms that indicates a slight tilt towards premiumisation (Euromonitor). The carbonates category reflects the wider soft drinks category in its trends, with low-calorie, healthy options and innovative flavours experiencing the highest growth.
Trend: Health Consciousness Consumers
The increased levels of health consciousness among Chinese consumers in recent years – heightened further by the pandemic – has seen greater demand for natural beverages and healthier options. According to Euromonitor, 56% of Chinese consumers monitor their dietary intake to control their weight, while 47% closely read nutrition labels – rising to 60% among the 20-39 age bracket.
Within the soft drinks category, this has meant that consumers are looking for products with all natural ingredients and low sugar content. This trend is further augmented by the government’s recent policies to reduce China’s rapidly increasing levels of childhood obesity by restricting sugary drink sales in school canteens and starting a public information campaign to warn citizens about the dangers of too much sugar.
Trend: Flavour Innovation
Products with new and interesting flavours have also experienced strong sales. These new flavours have tended to be fruit-based, such as coconut or raspberry, to give consumers the perception of consuming a healthy drink along with a fresh taste. These new flavours tend to be, of course, either low sugar or completely sugar free.
Unlike in various other markets, sustainable packaging and other environmental packaging is not yet a selling point in China. Taste and health benefits are the two overwhelming drivers for carbonated drinks in China and, indeed, for all other soft drinks as well.
Sales Channels
Compared to other soft drink sub-categories, on-trade channels are extremely popular for carbonates. 45% of carbonated drinks are sold through on-trade channels, compared to 19% for the soft drinks category overall (Euromonitor). Seeing as the off-trade channels are dominated by the global giants of Coca Cola and PepsiCo, this creates opportunities for new to market brands to target on-trade channels.
Ice Peak is a local Chinese brand that has employed this strategy. Ice Peak is one of the iconic brands of Xi’an, perhaps associated with the city to almost the same extent as the famous Terracotta Warriors in the eyes of many Chinese people. The brand has focused on restaurant channels, pitching itself as the de facto accompaniment to Xi’an-style food, which is popular throughout China. Ice Peak is just one of several older Chinese brands experiencing a rejuvenation in this segment by updating their strategy and marketing to target the new generation.
Of course, for a Western brand to pitch itself as being the perfect partner to food from a particular region of China would be a longshot to say the least. However, as Western-style restaurants and bars are spreading throughout China, there is an opportunity for savvy brands to put their beverage forward as an option for consumers who may be interested in trying a premium imported drink to accompany their meal, or as an alternative to alcohol in a bar.
Despite not being the fastest growing segment in China, the size of the China market makes it too big to ignore for all carbonated drink brands looking to grow. This is especially the case as China’s economy looks likely to see sustained growth in the wake of the pandemic when compared to other large markets around the world.