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Behind the disappearance of the “three yuan beverage” is an industry transformation caused by complex supply and demand dynamics

2024.02.02

In November of 2023, the news that Master Kong Ice Tea had increased in price soared to the top of hot search lists. Subsequently, the topic of the “gradual disappearance of three yuan beverages” repeatedly trended on popular Chinese news and social media sites. Consumers had suddenly noticed that in the convenience stores and small supermarkets that they often visited, the number of beverages priced below three yuan seemed to be dwindling. Instead, on the dazzling array of beverage displays, uniquely packaged, sugar-free, and additive-free tea drinks and sparkling water take center stage. Picking up just one bottle could cost five to ten yuan or even higher. This phenomenon has been compared to the once hotly debated “ice cream assassin”, a social media slang word used to describe high price point ice creams that shock consumers at the till when they realize how expensive they are. Today, even the iconic cola drink is slyly inching closer to four yuan a bottle. While not every pre-packaged beverage has experienced a price increase, the trend of rising prices has undoubtedly reached the FMCG beverage industry.

Image Source: Tuchong

Are rising costs to blame for these price hikes?


Food and Agriculture Organization: Global Sugar Prices Reach Near 13-Year High

Xinhua News Agency, Beijing, October 7th: According to data released by the Food and Agriculture Organization (FAO) of the United Nations on October 6th, global sugar prices reached a near 13-year high in September this year. The FAO pointed out that the main reason for this is the impact of the El Niño phenomenon which led to a decline in sugar production in major sugar-producing countries such as India and Thailand.

Who is to blame for this price hike? Following basic business logic, the most direct reason for a price increase is rising costs. Taking Master Kong Ice Tea as an example, the second-ranking ingredient in its product is white sugar. According to data released by the Food and Agriculture Organization of the United Nations, various factors have led to reduced sugar production in major sugar-producing countries like India and Thailand. As a result, the global sugar price index reached its highest level in nearly 13 years in September 2023. In October, the sugar price index was 46.6% higher than the same period last year. With the rising cost of sugar, it seems justifiable for beverage companies, as major consumers of sugar, to adjust prices to balance costs.

But how can we explain the high cost of sugar-free drinks?

Image source: Nongfu Spring official website

However, when we shift our focus back to the beverage shelves in supermarkets, it’s not hard to notice that sugar-free products placed in the “strike zone” seem to be priced even higher than traditional high-sugar drinks. This “zero sugar, zero fat” category has become a trend in recent years, serving as the flagship products that generate a great deal of revenue for many brands. Despite their higher prices, products in this category are highly sought after, from Chi Forest, which was popular a few years ago, to Oriental Leaf, which is gradually coming back into fashion. Oriental Leaf, once ranked in the “Top Five Least Tasty Beverages” a decade ago, is now estimated to have a retail scale exceeding 10 billion yuan in 2023. But what about this hike in sugar prices? Why are sugar-free drinks, more expensive and yet not rejected by the market compared to high-priced sugary beverages?

Supply and demand dynamics and industry transformation

It seems that rising costs cannot fully explain the increased cost of beverages and it would appear that higher price tags don’t entirely dictate consumer decisions. Research shows that a significant portion of beverage consumers are young people and that most young individuals are not particularly sensitive to beverage prices. There are plenty of choices even at prices exceeding four yuan or higher that are of sufficient quality and that align with their consumption needs. However, the key factor behind their consumption choices is not cost but perceived value.

Image Source: Tuchong

In striking contrast to the price increase of pre-packaged beverages, freshly made tea drinks and coffee have experienced a frenzy of self-improvement to stay ahead of the competition following price wars, from the ingredients used to the tea base, from the raw materials emphasizing health packaging to co-branding, and even to cross-industry collaborations. The goal is not only to offer a healthy and delicious drink but also to maximize emotional value. Ultimately, it is this area of competition that has shaped the high-end market represented by top-tier brands like HeyTea and Naixue, and the lower-tier market represented by cost-effective brands and dominated by Mixue.

On one side of the market, pre-packaged beverages have increased in price, while new beverages such as sugar-free, low-sugar, and health-focused options are gradually capturing the market dominated by high-sugar drinks like cola and iced tea. On the other side, freshly made tea drinks, after occupying a high position at a premium price, are now undergoing intense internal competition driven by health considerations. Ultimately, they will return to cost-effectiveness to reclaim the market.

The beverage market is undergoing a rapid transformation, marking a selection process favoring price-sensitive customers and those with demands for quality. Simultaneously, it is anchoring the current market's most crucial development direction in the beverage industry: health, uniqueness, and emotional value. This represents a high-end trend in beverages truly oriented towards customer demands, and customers are more willing to pay higher prices for healthier and more customized products. It can be said that this transformation is rooted in the interplay between supply and demand in the beverage industry, and characterized by a shared value trend silently acknowledged by both parties.

Taking an overview of the Chinese food and beverage market, the beverage industry has consistently demonstrated a trend of high-quality development. Reports project that by 2024, its scale will surpass 13 trillion yuan, making it one of the fastest-growing consumer industries in China, with a consumption growth rate four times that of the overall food and beverage industry. The inherent driving force behind industry development has always been consumer demand. With the improvement of national health requirements and changes in consumption scenarios, trends such as the healthification of categories, diversification of flavors, and the rejuvenation of brands are gradually becoming mainstream. The beverage industry is also continuously evolving. The trend of premiumization in beverages, characterized by high prices a few years ago, is only now making a comeback, aligning with genuine consumer needs. This trend is compelling both new and established brands to innovate and contribute diverse and segmented premium beverages to the market.

SIAL has been deeply rooted in the China market for 24 years now and has long foreseen this trend. As such, non-alcohol beverages is one of SIAL’s main exhibition categories and SIAL has established a dedicated hall. By encompassing the entire beverage industry chain, including pre-packaged beverages, catering beverages, beverage raw materials and ingredients, as well as relevant production equipment, the exhibition aims to comprehensively cover all key aspects of the beverage industry. SIAL brings together mainstream and emerging high-end beverage brands and products and leverages its extensive customer resources to create an exclusive one-on-one buyer matchmaking service, facilitating business opportunities for brands and enabling on-site orders for buyers. This one-stop approach aims to support the high-quality and efficient development of non-alcohol beverages brands.

SIAL in China 2023 Beverage Competition and Summit

SIAL in China 2023 Non-alcohol Beverage Booth

SIAL in China will also host events such as the SIAL Chic & Tea Contest, SIAL CUP Barista Challenge, SIAL Coffee&Tea Market, and more. These events will comprehensively drive industry innovation and encourage the exploration of future opportunities. The Non-alcohol Beverage Forum within the SIAL Global Food Industry Summit focuses on industry trends, inviting authoritative experts to analyze and interpret retail, tea beverages, and other multidimensional hot topics. The exhibition, contest, and forum work together to guide the development of the non-alcohol beverages industry.

SIAL Shanghai 2024 N4 Hall Location

SIAL Shanghai 2024 has been officially announced. The N4 Hall has confirmed the participation of brands including Oldenburger, MacGarden, IF Coconut Water, Sanlin, Boneau, JelleyBrown and more. It covers a wide range of categories such as dairy beverages, plant-based protein drinks, fruit juices, tea beverages, and alcoholic beverages. Premium booth spaces are in high demand and currently available for reservation. We look forward to welcoming you at SIAL alongside top-tier enterprises.

Please note: More details will be released once the participating brands for the N4 Hall have been confirmed. Stay tuned for more information.

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