Not many companies are relaxed, but many are anxious.
On September 24, the Coca-Cola and Mengniu joint venture, Coca-Cola Dairy Products Co. The company announced its entry into the domestic low-temperature milk market. According to Coca-Cola, this is an important step to accelerate Coca-Cola China’s transformation into a “full category beverage” company.
In 2017, Coca-Cola announced the implementation of a “full range of beverages” strategy in an attempt to get out of its “comfort zone. Since this year, Coca-Cola has launched alcoholic beverages and high-end dairy products in the Chinese market. In the industry’s view, these moves align with the norm of innovation in the beverage industry. Still, in the face of increasing competitive pressure from local beverage companies in China, Coca-Cola cannot escape anxiety.
The “Fresh Philly” analysis suggests that Coca-Cola’s cooperation with Mengniu has avoided the high investment risks of investing in China to build factories, lay sales networks, and find milk sources. Still, the product’s pricing is expensive. It overlaps with Mengniu’s low-temperature product line, so it is a question of whether people in Mengniu’s system are willing to actively promote Fresh Philly.
The product "can be cattle up" landing.
In the new product launch on September 24, “can cattle up” announced the launch of “fresh Philharmonic” (fairlife) full-fat white milk, low-fat white milk, chocolate milk 3 products, opening up a new track of “original high-frequency nutrition milk.”
According to its explanation, the so-called “original high nutrition milk” refers to using UF purification ultra-filtration technology to retain more native nutrients in milk, remove lactose and other components, with high protein, calcium, zero lactose relatively long shelf life and other advantages. In contrast to the “high nutrition,” “Fresh Phil” is priced at 11.9 yuan for 195 ml and 34.9 yuan for 710 ml, about 30% more expensive than ordinary high-end white milk, “is expected to be available after the National Day. It is expected to be available for purchase in the offline market after National Day.
From the anti-monopoly investigation in May 2020 to the company’s establishment in Anhui in October 2020 to the debut of the new product in September this year, “can be cattle up” can be described as orderly progress. Mengniu president Lu Minfang revealed in a media interview during last year’s Fair that the two sides initially talked about the “cattle up” project with an innovative mindset and that Coca-Cola’s ultra-filtered milk brand fairlife in the United States would be produced in the “cattle up” company.
The shareholding structure shows that the company was established in October 2020 and is 51% owned by Coca-Cola (China) Investment Company Limited and 49% owned by Inner Mongolia Mengniu Dairy (Group) Company Limited, whose business scope includes the production, sale and marketing of low-temperature milk products. The company’s legal representative and chairman are VENKATA VAMSI MOHAN THATI. Luo Yan, vice president of Mengniu Group, is its director and general manager. In addition to Lu Minfang, Edward Frederick Burger and TIMOTHY PETER DOELMAN are also on the list of directors.
Mengniu previously told Xinjing News that the joint venture company (Coca-Cola) will produce and sell low-temperature milk products in China under a new brand name.
At the launch event, VENKATA VAMSI MOHAN THATI, President of Coca-Cola Greater China and Mongolia, reiterated that the launch of “Freshfilm” in China is another crucial step for Coca-Cola China to accelerate its transformation into a “full category beverage” company to meet the diversified needs of Chinese consumers.
Coca-Cola's "full category transformation."
In May 2017, Coca-Cola CEO James Quincey announced the launch of a “full category strategy.” He said he would lead Coca-Cola in moving out of its comfort zone. In recent years, Coca-Cola has made new launches and acquisitions in the global market. Alcohol, coffee and dairy products have become its three main business segments to achieve a category-wide layout.
In 2017, Coca-Cola announced its entry into the Chu-Hi sparkling wine market in Japan. In August 2018, Coca-Cola acquired Cresta Coffee Co. In January 2020, Coca-Cola announced the remaining 57.5% of U.S. dairy brand fairlife from joint venture partner Select Milk Producers. Coca-Cola executives said at the time that the fair life acquisition was an essential step for Coca-Cola to become a full-service beverage company.
In China, Coca-Cola made a lead investment in the online yogurt brand “Le Pure” in 2018, with hundreds of millions of yuan. In 2019, Coca-Cola will be the first to sell “Sunshine Everywhere” original soy milk in Guangdong. In June 2021, Coca-Cola launched its first alcoholic beverage Topo-Chico in China, followed by Lemon-Dou, a Japanese-style lemon sparkling wine, in September. Together with the introduction of the “Fresh Fairlife” product, it is believed that the layout of Coca-Cola’s “all-category strategy” in the Chinese market is basically in place.
It is worth noting that fair life is a mature dairy brand in the United States; why did Coca-Cola not directly introduce the brand into China but chose to operate a joint venture with Mengniu? The company will bring new low-temperature milk products to Chinese consumers and promote upgrading Chinese dairy consumption.
According to dairy industry expert Song Liang, Coca-Cola’s investment in China to build plants, lay sales networks and find milk sources has high investment risks, and bundling with Mengniu can avoid heavy asset investment so that more money can be invested in brand and channel construction.
At present, Mengniu has established 41 production bases in China and has milk bases such as Modern Herding and China Shengmu in its hands. In December 2020, Lina Gao, former president of Modern Herding, revealed at the company’s 15th-anniversary celebration that Modern Herding’s Bengbu Farm will invest in a new professional production facility for high-end low-temperature milk production and sales. This will be an innovative type of milk, with highly high-quality requirements for the milk source”.
A speech made by Lu Midian, president of Mengniu Group, at the launch of “Fresh Philharmonic” may have revealed the individual needs of both parties behind the establishment of the “Cows Up” – in the next five years, Mengniu will be In the next five years, Mengniu will be the Mengniu that consumers love and the Mengniu that is international, and the path is local innovation + overseas import. In the case of Coca-Cola, “no international large dairy group has achieved complete success in the Chinese market, mainly because of the lack of grasp of local demand, the lack of control over the local supply chain and product quality.
Song Liang’s concern is that fair life is expensive in the Chinese market and overlaps with Mengniu’s low-temperature product line, so “it’s a question of whether people in Mengniu’s system are willing to actively participate promote fair life.
"Drinking milk and alcohol" can't hide the anxiety
The prospects of “fresh fairlife” are not yet known. Still, in the industry’s view, Coca-Cola’s frequent cross-border promotion of new to a certain extent reflects the anxiety of the traditional beverage market.
A few years ago, the carbonated beverage market was in the doldrums. In 2017, Coca-Cola’s net profit fell by more than 80% year on year, becoming an essential factor in its transformation into a “full-service beverage company.” In 2018, Coca-Cola’s revenue was $31.9 billion, down 10% year-on-year, and it plans to lay off a total of 1,200 employees over two years. 2020, August. Coca-Cola again announced a voluntary severance package to 4,000 employees in the U.S., Canada and Puerto Rico.
In the last two years of earnings reports, Coca-Cola executives have repeatedly praised the performance of its China business. 2020 saw growth in Coca-Cola’s China market share in value terms in dine-in and takeaway channels. In the first half of 2021, Swire Coca-Cola, the beverage segment of the Swire Group, reported revenue of HK$27.55 billion, up 28% year-on-year. Net profit attributable to shareholders of HK$1.47 billion, up 55% year-on-year. COFCO Coca-Cola’s revenue increased by 19.3% year on year to HK$11.22 billion during the same period.
While China’s business recovered from the epidemic’s impact, Coca-Cola’s local competitors are also on the rise. Nongfu Shanquan, which ranks first in domestic beverages, was listed on the Hong Kong Stock Exchange in September 2020. The old beverage company Ice Peak has submitted a prospectus to prepare for the “first stock of domestic soft drinks.” Beibingyang is preparing to land on the capital market with Dahao Technology. In the past two years, the “dark horse” yuan qi forest is to drive the bubble drink boom; 2020 revenue was conveyed 2.7 billion yuan, an increase of 309%. Tang Bunsen, the founder of Yuanqi Forest, has publicly stated that 2021 will become a “big year” for Yuanqi Forest’s products, with performance targets set at 7.5 billion yuan …… Emerging brands and classic national products, quite a trend to Coca-Cola to form a siege.
In April this year, Coca-Cola launched AH-HA sparkling water, involved in the battle for the sparkling water market opened by the Yuanqi forest. A former Pepsi executive told the media that in important meetings between Coca-Cola and Pepsi this year, Yuanqi Forest will be named, and the topic often revolves around “how Yuanqi Forest is successful.
Veteran consumer goods investor Wu Xiaopeng believes that domestic beverage brands have a lot of room for development, drinking is mainly sentiment, habit, mood and social needs, “as long as domestic beverages adhere to the right path, and superstition can be broken.”
Elimination of 1,300 SKUs in two years
Faced with competitive pressure, Coca-Cola began to cross borders frequently to find ways to beat the Genki Forests. In April, COSTA announced the launch of a new cold brew series of ready-to-drink coffee in China; in the second quarter, Coca-Cola launched alcoholic beverages for the first time in China; and in September, “Cow’s Up” dairy products were introduced to Chinese consumers.
In 2018, Coca-Cola cut 700 SKUs. In February 2020, Coca-Cola CEO James Zhan revealed at an analysis summit that Coca-Cola would again cut more than 600 products in 2019. This means that 1,300 of Coca-Cola’s total 2,000 SKUs have been cut since Kunjie Zhan took office.
In October 2020, a Coca-Cola spokesperson said that in response to the negative impact of the new crown epidemic, the company will cut its brands and keep those that can do large scale. It is understood that the adjustment includes Coca-Cola’s coconut water brand Zico, and Diet Coke, which is not popular in some regions, is also “considered for cancellation.”
For the potential benefits of new products, Zhan Kunjie has said publicly a few months after the acquisition of COSTA, the investment can help Coca-Cola to do an excellent job in the product portfolio, but the brand can not be an overnight success, the beverage industry will not change overnight, it takes time. Coca-Cola needs to determine the small brands with single-digit market share and which products to be launched to reach the core consumer group and gradually cultivate them to become one of the leading brands. “Statistically, this process can take seven to 10 years.”
Wu said that innovation and development in beverage companies are the norms. Most products have a life cycle, with new consumer groups and habits constantly iterating, so any company must keep pushing the envelope. On the other hand, a more challenging competitive landscape has emerged in China’s beverage market, with new entrepreneurs, communication methods, and capital’s catalytic power, making companies feel more pressure. “There are few relaxed companies and many anxious ones. Anxiety can only be relieved through the long-term improvement of the organization’s ability to adapt to a changing market.”
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