COLA GOES COWLA

By Sun Zhe

A Coke billboard. Photo:IC

Following Coca Cola's failure in March to acquire Huiyuan, China's top pure juice maker, the world's largest soft drink company is serving up its first dairy offering in the country's still beverage market with Minute Maid Pulpy Super Milky drink.

Containing New Zealand milk, coconut flakes and fruit juice, Super Milky will be available in three flavors – peach, mango and pineapple – and be on store shelves in about 300 cities throughout the country by the end of the year.

Super Milky begins to pour as Coke also announced its single largest drinks investment in China with the opening of a 600 million yuan ($88 million) still beverage bottling plant in Wuhan, Hubei Province. It is Coke's 39th bottling plant in China and the third it has opened in the nation this year.

The expansion is part of a $2 billion investment package that Coke pledged to make in China in the next two years after the Ministry of Commerce rejected the Huiyuan bid.

The soft drinks giant said the still beverage market makes up 30 per cent of its business in China.

China is Coke's fourth largest market and a key battleground with rival Pepsi. According to Business Week, Coke has about 50 percent of the country's total market share, with Pepsi occupying about 30 percent.

The Atlanta, Georgia-based company said last week that its third-quarter profit rose about 1 percent as volume gains in Mexico and China offset a decline in North America. Consumer sentiment will recover slowly into 2010, CEO Muhtar Kent said in a statement.

Coke's total volume sales rose 2 percent in the quarter. Volume sales fell 4 percent in North America, while the volume climbed 15 percent in China, where Coca-Cola has enjoyed double-digit growth for five straight years, according to Reuters.

"Thanks to the outstanding economic growth of the country, the sales increase in China overran Coke's global average performance," said Douglas Jackson, CEO of Coca-Cola China.

China's soft drink sales will grow to roughly 224.94 billion yuan ($29.4 billion) by 2010, of which fruit and vegetable juices will claim 29.8 percent, according to Euromonitor.

Beyond the fizz

Coca-Cola, which returned to China in 1978, dove into the country's still drink market when it marketed its drinking water in 2001 and juice products in 2005. Minute Maid, Coke's concentrated juice brand, took the top spot from Uni-President, the Taiwan-based beverage and instant noodle giant in 2007.

If Coca-Cola had been successful in buying Huiyuan, it would have been the largest acquisition of a Chinese company by a foreign company and Coke would have held a combined 40 percent of China's fruit juice market.

Huiyuan controls more than a 10th of the Chinese fruit and vegetable juice market, which grew 15 percent last year to $2 billion. Coca-Cola has a market share of 9.7 percent and dominates in concentrated juices, according to Reuters.

China will be one of the fastest-growing markets for carbonated beverages by 2011, but the growth rate may decline 12 percentage points in five years, and healthier still drink will see a growth of 24 percent in the same period, according to an Eruomonitor report.

"Both sparkling and still beverages are making profits, but we can hardly say that still drinks will surpass the sparkling section. The $2 billion investment would be divided evenly into the two sections," said Jackson when asked whether the carbonated beverage market is saturated for Coke.

In June, the company said it would establish a still beverage production base in Sanshui, Guangdong Province. The facility is scheduled to start operating in 2010. With the completion of the Sanshui operation, Coca-Cola's total investment in China's still beverage market would reach 2.8 billion yuan ($41 million), according to the company.

Healthier alternative

Demand for carbonated beverages will stop growing in a few years, if not shrink, as Chinese consumers become increasingly aware that soft drinks are not healthy, said a Shanghai-based beverage analyst who declined to be named.

Hence the introduction of Pulpy Super Milky, because the dairy drink market is far from saturated, said Yang Qingshan, an independent brand management consultant.

The No.1 player in the market, Zhejiang-based beverage giant Wahaha had 70 percent of the milk drink market in 2008 and sold 9 billion yuan ($1.32 billion) of Nutri-express, its leading milk drink brand, according to a report by Nanfang Daily.

From 2006-08, the domestic annual sales growth of milk drink breached 30 percent, and the annual growth of Wahaha topped 50 percent, according to Wang Dingmian, a dairy analyst.

According to the data from Coca-Cola, the fruit-flavored milk drink market amounted to 6.2 billion liters in 2008, and the market is still soaring as evidenced by recent arrivals, both domestic and foreign.

China's dairy titans Yili, Mengniu and Bright Dairy moved earlier than Coca-Cola into the milk drink market within the past two years. Foreign dairy and chocolate giant Nestle also entered the milk drink market this year.

Huiyuan also made a move to the fruity milk market when it purchased Zibo Drink, a Shandong-based producer, for 131 million yuan ($19.2 million) earlier this year.

Consumers will go from fizzy sweet to dairy sweet as they become more health and calories conscious, said the Shanghai-based analyst. She expected Coke will take a significant sip of the market thanks to its iconic brand.

"The fruit milk drinks taste special and they contain less sugar than cola, which I think attracts a lot youngsters and even middle-aged drinkers," said Zhang Jing, a 26-year-old Beijing office lady and steady dairy drink consumer.

"I like it because it tastes good. And I believe it's better for my health, or, at least not too bad. But I don't buy it frequently because its price (4 yuan or 59 US cents) is high," said Zhang Xiang, another Beijing office lady.

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