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Further Consolidations Expected in China’s Soft Drinks Market

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Further Consolidations Expected in China’s Soft Drinks Market

Further Consolidations Expected in China’s Soft Drinks Market
November 20
10:12 2012

There is likely to be a wave of consolidations in China’s beverages market in response to the $5 billion alliance of Tingyi and PepsiCo, according to a report from Rabobank. Smaller, ‘second tier’ beverages players will be affected most by the new alliance, as they struggle to compete with Tingyi-PepsiCo’s – as well as fellow beverages giants Coca Cola and Wahaha – established advantages in brand equity, distribution networks, supply chains and investment capital.

However, despite the dominance of Tingyi-PepsiCo, there are still solutions for smaller beverages businesses to earn profits. Rabobank expects smaller players to partner with each other to pool resources, as well as focus on specific sub-categories or specific roles in the value chain.

Opportunities exist for international second-tier players to partner with Chinese beverages companies with local know-how, particularly those based in smaller, fast growing cities. For example, Nestlé recently bought 60 percent of Xiamen Yinlu Food, the leading producer of canned food and vegetable protein drinks, and is leveraging the distribution network of Yinlu to reach lower tier cities and penetrate other beverage sub-categories such as bottled water and ready-to-drink (RTD) teas.

Several big or fast growing beverage sub-categories such as herbal drinks, RTD coffees and teas are excluded from the tie up between Tingyi-PepsiCo and as such, smaller players are accelerating their growth efforts in these areas. Over the past five years, herbal drinks have been the fastest growing beverage category in China, with a compound annual growth rate of over 35 percent. If this growth trend continues it presents a significant opportunity to beverages companies specialising in this drinks sector.

Moreover, with a large proportion of China’s beverages giants’ revenue coming from carbonated soft drinks (CSDs), competitors are developing advertising and marketing programmes designed to highlight the benefits of health drinks, as well as to disseminate negative messages about the health effect of CSDs.

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