Drinks market competition in mainland hots up
By Liang Yu (China Business Weekly)
Updated: 2004-04-21 08:55

The growing fierce competition among drinks companies in the mainland market can easily be smelt in the air.

The latest news is Hey-Song has come all the way from Taiwan island to join the battle. The drinks company last week announced the start of production of its 400 million yuan (US$48 million) factory in Suzhou, East China's Jiangsu Province.

"It is not a question of whether we come here early or late...we just feel it is the right time," said Ellick Chang, president of Hey-Song Corp.

Chang made the remarks with an apparent overtone of ambition. But some reporters and market analysts suspect his company, as a latecomer in the Chinese mainland market, might find it is not easy to beat the rivals.

Fred Chang, managing director of Hey-Song (Suzhou) Co Ltd echoed the president's comment. Hey-Song (Suzhou) was set up as a wholly owned subsidiary by the Taiwan company in 2002.

"It might be early to say our entry will change the market shares in the mainland in the short term. We've got to be 10-times quicker to seize the market," he said.

"Our expectation is to quickly and solidly establish Hey-Song's brand among local consumers, and it looks as though our opportunities lie in our products' difference from what others have," Chang added.

As one of Taiwan's oldest drinks companies, Hey-Song seems to really have something to wield.

In Taiwan Province, the company has over the past 80 years or so since its establishment, fostered an annual sales volume of more than 1 billion yuan (US$120 million).

It now grabs about 40 per cent share of the island's carbonated drinks market, followed by a combined 37 per cent share held by global giants Coca Cola and Pepsi Cola, according to leading research house AC Nielsen's 2003 statistics.

At its 26,000-square-metre workshop, the Suzhou factory accommodates two production lines, each with an output capacity of 600 bottles per minute.

In its blueprint, the factory is designed to host a total of five production lines after its second-phase of construction, which may involve an estimated further investment of 300 million yuan (US$36 million).

Hey-Song's best card may be its primary product, Sarsaparilla, a kind of carbonated drink that other drink companies do not have. As one of Taiwan's most popular carbonated drinks, Sarsaparilla has a history of more than 50 years and is regarded as a successful example of a homemade drink beating foreign giants like Coca Cola and Pepsi Cola.

Fred Chang said the business will cash in on its parent company's operating experience in Taiwan to run the local operation well. In Taiwan Province, the company is reputed for using music as a key marketing tool. It always finds young potential singers to promote its brand.

While Hey-Song expects to gain a sales volume of 200 million yuan (US$24 million) in the mainland market this year, it is prepared to take three years to break even, a time span within which the company hopes to secure its position in the sophisticated East China market before further expanding the business nationwide.

Statistics indicate that the annual consumption of tea and fruit juice drinks per capita in China's big cities like Beijing and Shanghai is less than 10 litres, compared with about 55 litres in Japan. Total sales in China's non-carbonated drinks market reached some US$11.7 billion in 2002 alone.

However, the competition ahead is cut-throat.

In early April, Hangzhou Weichuan Foods Co Ltd, a subsidiary of Taiwan-based Ting Hsin International Group, launched in Beijing a pure fruit juice drink called "Daily C."

The product was unveiled in Shanghai in 2001, and has now grabbed about 60 per cent share of the pure fruit juice drink market in Shanghai.

Weichuan hopes its share of the North China market led by Beijing would, within one or two years, reach the same level as that which it now holds in East China, and it is also planning to invest at least 100 million yuan (US$12 million) to set up a factory near Beijing.

Similarly on the move are a big number of domestic and overseas rivals, including Master Kong and Uni-President from Taiwan island, Wahaha, Bright and Huiyuan in the mainland, as well as Coca Cola and Unilever from abroad.

"It will be a tough task for a latecomer (like Hey-Song) to elbow into the market as the competition is already very fierce," said Cui Yongxiang, a Guotai Jun'an Securities analyst.

However, there is still a chance if those latecomers can best take advantage of their mature operation model and marketing approaches, he said.

And, except for those leading domestic companies that could turn out to be good co-operation partners for overseas firms, other minor or less competitive companies will feel growing pressure from the inflow of overseas businesses all wanting to bite into the attractive market, Cui added.