Chinese consumers are turning away from previously popular ready-to-drink teas and carbonated soft drinks in favour of ‘functional beverages’—drinks that offer an additional benefit, including energy, nutrition or hydration.
The sales of beverages offering a functional benefit grew 6.9 percent in 2015, outstripping the growth of juice, the other fast-growing category in China’s beverage market, which grew 4.4 percent in the same time period, according to Nielsen data. Much of the growth in the functional beverage category is attributed to new product launches.
According to Euromonitor, functional or ‘refreshing beverages’ are attracting consumers with “lighter taste profiles and water-like appearance”, making them seem like healthier drink options.
“The rise of health-focused concepts is one of the most prevalent trends in China today,” explains Yan Xuan, president of Nielsen Greater China. “A big driving force of this trend is the emerging middle-class. These consumers are working white collar jobs, putting in long hours for rising incomes, but they are also hoping to maintain a healthy and fit lifestyle.”
Brands such as Mizone and Aquarius have benefited from the trend. Aquarius was launched by carbonates giant Coca-Cola China in April 2014 to capture share in what Euromonitor termed as “refreshing drinks”. But the forerunner in this category is Mizone.
When Mizone first launched in the China market in 2009, the brand launched a new category at that time—vitamin water. Part of its strategy has been to continually launch new flavours such as Cucumber & Lime, Rose & Grape, Honey Pomelo and Blueberry. The launches were supported by a strong TV advertising campaign and the sponsorship of Tencent’s ‘Are you normal’.
According to Mizone’s China marketing director Alexandra Huang, the brand has catapulted from just over Rmb 1 billion in sales (US$150 million) in 2011 to US$1.2 billion last year.
Mizone’s success, says Huang, is partly to do with the product’s ‘hybrid’ nature. “Compared with very functional drinks like Red Bull, Mizone is providing vitamins. Compared with water which gives you only hydration, Mizone offers both good taste and an awakening, uplifting feeling,” she says.
Aquarius’ efforts to catch up with Mizone has included many celebrity endorsements, including hiring China’s first Olympic badminton winner Dan Lin in 2014, as well as the Hong Kong model Angelababy and Korean singer Jong Kook Kim in 2015.
In 2016, Nielsen predicts that increasingly sophisticated Chinese consumers will continue to reach for drinks that offer a specific functional benefit like increased energy for work or sports, as well as additional assurance that the product is healthy and safe.
The category’s success has led to local drink makers, including Hangzhou Wahaha Group and Ting Hsin International Group, launching products (Wahaha Get C and Hai Jing Lemon respectively) to counter deteriorating sales on carbonated sodas.
Brands looking to compete in this sector, however, should be aware of a shortened product lifecycle of only one to two years (compared with the average of three to four), says senior associate at Euromonitor International, Clover Wei.
Diversification driven by new launches will inevitably contribute to intensified competition, Wei predicts, but innovation will prevail.
Healthy drinks keep growing even amid sluggish FMCG growth
Doreen Wang, global head, BrandZ, Millward Brown
The trend of people pursuing a healthier lifestyle is unmistakable in China. Functional drinks have become more meaningful to consumers in China, based on how well they satisfy physical needs and establish emotional affinity. This could be further strengthened by the fact that carbonated soft drinks are becoming less and less meaningful and their ability to charge a premium has declined.
The success of Danone’s flavoured energy water brand, Mizone, highlights these trends, including the rising interest in personal health and the willingness to pay more for a perceived quality difference.
Mizone grew in brand value at a time of slower sales growth across most FMCG categories, with the rate of overall FMCG spending growth declining from almost 12 percent in 2012 to 5.4 percent in 2015, according to a report from Kantar Worldpanel.
Along with beer, skin cream and yoghurt, bottled functional water is one of the items for which Chinese consumers are willing to pay a premium. The average selling price of bottled water increased 6.4 percent between 2012 and 2014, according to Kantar Worldpanel. That rate of increase places bottled water toward the upper end of products, across 26 categories that have changed their price tags.
Mizone also benefits from the corporate reputation of Danone as a leader in food production safety. Trust remains relatively weak in China, particularly in the food and dairy categories. And trust is especially important as a brand differentiator in China.