Geopolitics

Coca-Cola's Strategy In China? Be More Chinese

The American beverage giant has tried to pursue customers interested in healthier and more traditional beverages. But can they sell tea to the Chinese?

A Coca-Cola bottling plant in Shijiazhuang, northern China
A Coca-Cola bottling plant in Shijiazhuang, northern China
Wei Siyu

BEIJING — Two weeks ago, Coca-Cola announced the acquisition, for $400 million in cash, of the Xiamen Culiangwang Beverage Technology Co. This is a Chinese company primarily selling health-conscious, whole grain and plant-based protein drinks.

The American food and beverage giant's goal is very clear. In China, plant-based drinks are a new category of products with a surging annual growth rate of over 20%. They can help Coca-Cola enter this category of drinks and develop a product portfolio outside of carbonated beverages.

Objectively speaking, it would seem to be smart thinking for Coca-Cola to get into healthy drinks when the carbonated beverage market is on the slide in China. But the problem is that, even before Culiangwang, several firms — such as Deyufang, Yili and, Mengniu — had already made outstanding progress in China's natural drinks market, and that by 2013 the market scale had already reached 42 billion RMB ($6.8 billion).

Meanwhile, Culiangwang doesn't have the same visibility as those beverage giants, which is reflected in its national market share.

To enjoy a competitive advantage, a cardinal rule is to be among the first comers in any market. Just as Coca-Cola created carbonated beverages, there is no one to shake its dominant position, though its imitators are legion. Thus it is also particularly tough when the role is reversed and Coca-Cola is playing catch-up to break through into China's current grain-based drinks market.

Coca-Cola ad in Kunming, southwest China — Photo: azotesdivino

In the role of upstart, Coca-Cola has already experienced a number of setbacks in the Chinese market. In 1998, the American beverage giant launched the "Heaven and Earth" tea drink. At that time, China's instant tea market was already dominated by Uni-President and Master Kong, two Taiwanese food companies. While the timing wasn't favorable, the American giant also valued the concept rather than the content of the product, due to its patent lack of a bonafide Chinese tea culture. The product was withdrawn after a three-year tryout.

After that, Coca-Cola attempted several comebacks. In 2001, it launched the Lanfeng honey green tea drink. In 2002, it was the turn of Sunshine iced fruit tea. In 2004, it launched, along with Nestlé, Nestea, on the Chinese market. And again in 2005 it offered the "Tea Research Workshop" series, with two versions of tea addressed respectively to men and women.

Unfortunately, all these attempts were rejected while China's instant tea market was galloping along at a pace of 300% annual growth. It is self-evident that after long being a leader in the beverage world, Coca-Cola is not used to running after others from behind.

What's particularly cruel is that so many new drinks are joining a market where consumers’ choice is unprecedentedly large. The situation where Coke and Sprite were the dominant pair has become a thing of the past. Carbonated drink is becoming only one of the many categories of beverages. Not to mention that carbonated drinks are also seen as contradictory to today's growing health awareness.

This is why Coca-Cola has been actively developing its product line. Between 2001 and 2004 it introduced water, sports beverage and lemonade, and the Simply Orange brand of Minute Maid. In addition to the recent takeover of Culiangwang, last year, it acquired a 10% share of Green Mountain Coffee and a 16.7% share of the Monster energy drink, as well as launching a premium dairy product — Fairlife.

However, apart from Minute Maid orange juice, Coca-Cola’s other soft drinks have all failed to obtain important market share or brand recognition in China. The country's largest juice producer Huiyuan is highly reputed for its concentrated juice.

So what does the American beverage king need to launch a successful new brand in China? "First it's best to separate it from the original brand," said Zhu Danoeng, a branding expert at Chinese Institute of Food and Beverage. "A new team has to work with a set of specific mechanisms that match the new product."

"In China, Coca-Cola means "delicious happiness'" — Photo: sarah b.

Yet as the aircraft carrier of the beverage industry, Coca-Cola's over-centralized operational mode makes it difficult to achieve rapid response to the market. As some of Coca-Cola China's former executives have pointed out, the company has a bloated structure and responds slowly, and even a simple material procurement requires many levels of approval.

Moreover, the company's marketing and legal teams act independently making it difficult to coordinate their management. This also makes it impossible to determine who is entitled to make a decision.

On top of all this, the merged brands are generally managed from the American headquarters and are not given sufficient operational independence.

All that said, as a relatively stable fast-moving consumer goods enterprise, Coca-Cola is far from reaching the brink of despair. If company leaders mix its strong investment capability and distribution capacity with management autonomy for the Chinese branch, the beverage giant will be able to build on its famous brand in the search for viable new products..

Whether it's through acquisition or investment, Coca-Cola is no longer the creator of the products it sells. It has become a follower. The best way for the American brand to bounce back is to not only produce more drinks, but to invent a whole new category of drinks.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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