1. Market Summary

The beverage (soft drinks) industry is a significant component of the food industry in China, accounting for 18.1% of all food manufacturing enterprises and 26.2% of total food industry revenue in 1999.

China's beverage (soft drinks) industry includes the production of soda, natural mineral water, fruit and vegetable juice.

Currently there are about 3,000 to 4,000 beverage (soft drinks) manufacturers in China, and 800 of them are large or medium-sized. However, only several dozens of them represent and influence the development of the whole industry.

The Chinese Government attaches great importance to the development of the beverage industry. Through various methods, it encourages the beverage industry to actively develop more types of beverage and increase the production.

In 1999, China's beverage (soft drinks) production was 11.86 million tons, keeping the rising momentum of the last few years and increasing by more than 20% than 1998. The production in Guangdong ranked the first, accounting for 20% of the national production. Zhejiang ranked second, accounting for 17%. The production was 2.5 million tons and 1.5 million tons, respectively.

Soda accounts for more than one-half of the total production. Bottled drinking water and mineral water account for about 20%. The remainder includes dairy beverage, juice and plant protein beverages and Chinese tea.

A. Entry Strategy

The Chinese Government stipulates that all food (including beverages) on sale must have a health certificate issued by the Food Health Administration. This is the primary condition for entering China's beverage market. After obtaining the health certificate, the beverage-manufacturing enterprises usually distribute their products through the following common methods of food distribution:

Distributing Directly.

The manufacturers sell their products through their own sales network. The advantage is that the manufacturers can meet the retailers face to face, learn the market condition and trends, and adjust their production accordingly. They can also receive a major portion of the profit. The drawback is the manufacturers' required diversion from product development to sales promotion and maintenance.

Distributing through Wholesalers.

The wholesalers buy their products from the manufacturers and resell them to the retailers. The manufacturers minimize their investment but they have no control over pricing or product promotion. The working relationship and the trust level between the manufacturers and the wholesalers will have a direct impact of the sale of the product.

Distributing through Agents.

The manufacturers contract with sales agents to distribute the products through the network of the manufacturers or the agents. A foreign soft drinks manufacturer might establish its business in China through joint venture with a Chinese partner who has an extant distribution and sales network. The partners need to have long-term and mutual commitment to equitable profit sharing. Direct contact and forthright negotiation between the potential partners are essential for establishing and developing a working business relationship.

B. Market Structure & Sector Trends

Various types and numerous brands of beverage are on sale in China. People of Northern China and Southern China have different preferences for soft drinks. As expected, some brands are more popular. For mineral water, Wahaha of the Zhejiang Wahaha Group, Robust of the Guangdong Jinri Group, Nongfu Shanquan of the Zhejiang Yangshengtang Co., and Kesai of the Beijing Kesai Mineral Water Co. have preeminent performance in the market. For Soda, Coca Cola and Sprite produced by a joint venture in Beijing, Jianlibao of the Guangdong Jianlibao Co. and Red Bull of the Red Bull Vitamin Co. take up most of the market share. For fruit and vegetable juice, Lulu of the Heibei Lulu Group, Big Lake of the Tianjin Big Lake Co., Rumeng of the Beijing Osis Co., Huiyuan of the Beijing Huiyuan Food Co. and Coconut Palm of the Hainan Coconut Palm Group are outstanding brands.

The "Strategic Campaign" of famous brands of beverage launched in 1998 had identified that the Guangdong Jianlibao Group, the Hainan Coconut Palm Group Co. Ltd. and the Hebei Lulu Group Co. Ltd. as enterprises ready for international competition. In addition, the Chinese Cable TV has been promoting nine brands of soft drinks to a national audience. The brands and their manufacturers are:

Foreign beverage brands perform well in China's market. In 1998, there were 21 Coca Cola filling factories and 12 Pepsi Cola filling factories, with a total production of 2.7 million tons of beverages. The total profit and total profit tax of the foreign enterprises had an increase of 20.4% and 13.3%, respectively.

China has a large population. Chinese beverage consumption pattern include
1. People of different ages like different kinds of beverage; young people like soda and children like fruit and vegetable juice.
2. 2. People of different areas have different preference. Zhengguanghe sells well in eastern China; Jianlibao is popular in the Guangdong Province; Kesai and Huoteman are more popular in Beijing and the eastern China, respectively.
3. Different types of soft drink have different consumer groups. Families are the major consumers of purified water and tea, hotels and restaurants for soda, and offices for mineral water.

The per capita annual consumption of urban families on beverage (including tea) is 1.9 kg. Thus, the total annual consumption of urban families on soft drinks is about 1 million tons. Add to this the consumption of as hotels and restaurants and the population, the total consumption may reach 10 million tons or more.


C.&D. Competition & Best Products Prospects

In 1999, China's major export trade partners are Germany, the Netherlands, the United States, Australia, and Hong Kong, and the major import trade partners are Germany, Brazil and the United States.

E. Summary and Post Contact

The information Center, China's Statistical Bureau, provided data for this report. We welcome inquiries from interested U.S. producers and exporters. Our telephone number is 011-8620-8667-7553. And our fax number is 011-8620-8666-0703.