Is Sugar-Free Tea the Next "Ten-Billion-Yuan Product" for Yili? | Pay-to-Win · Mass Consumption
Author | Chen Sizhu
Editor | Xie Yunzi
Yili has reaped benefits in the tea beverage market.
In July 2023, Yili's brand "inikin Yike Huoque Spring" launched a ready-to-brew tea product with a twist-off cap. Through the original tea-water separation and freshness-lock cap, Yili made "freshly brewed sugar-free tea" a reality.
Financial report data shows that in the first three quarters of 2024, Yili achieved revenue of 88.733 billion yuan; the net profit attributable to the parent company was 10.868 billion yuan, with a year-on-year growth of 15.86%, breaking through the "10 billion" mark. The reasons include not only consolidating the domestic dairy industry foundation but also exploring non-dairy sectors such as water beverages and tea beverages.
Previously, relevant senior management of Yili Group also stated that the ready-to-brew tea of Yike Huoque Spring is one of the company's best-performing products in recent years. According to them, the ready-to-brew tea of Yike Huoque Spring has successively entered the convenience store systems nationwide. Currently, the product's sales rate is as high as 60%, and the e-commerce purchase conversion rate reaches 7%, which is three times the industry average conversion rate.
In fact, dairy enterprises entering the tea beverage market is not a new topic. What is reflected behind this is the urgent mentality of dairy enterprises actively seeking new growth points.
Publicly available data shows that from January to August 2024, the year-on-year sales of dairy products in the entire channel declined by 2.1%. During the same period, the year-on-year growth rate of the beverage market in the entire channel was 6.9%. Recently, 19 listed dairy enterprises released their third-quarter reports. From the perspective of net profit growth rate, only 6 dairy enterprises, including Yili and New Dairy, achieved year-on-year growth.
In order to counter the supply and demand impact caused by the cyclical fluctuations in raw milk prices, dairy enterprises, including dairy giants like Yili, are accelerating the expansion of diversified businesses, in the hope of gaining increments in the highly competitive tea beverage market and creating the next "10 billion single product".
01 Seeking Changes in a "Difficult Situation"
For Yili, ready-to-brew tea is not its first cross-border attempt.
As early as April 2018, Yili launched the plant protein beverage "Zhixuan Soy Milk", further expanding the plant-based track.
In December of the same year, Yili officially entered the packaged water field, announcing an investment of 744 million yuan to build a mineral water project in Changbai Mountain, Jilin Province. This is Yili's first expansion into the beverage track other than liquid milk. In March 2020, Yili officially launched "Yike Huoque Spring Volcanic Mineral Water".
In more occasions, Yili has stated that the water business and tea beverage business are still in the "initial stage". However, at the 2022 financial report meeting, Yili also clearly mentioned that its continuously cultivated high-growth businesses such as organic dairy products, plant-based nutritional products, and natural mineral water all had a growth rate of more than 20% compared to 2021.
When it comes to 2024, Yili's pace of diversification has significantly accelerated. In addition to strengthening the layout in cheese and to B businesses, in June this year, Yili also launched an alcohol-free milk beer beverage. Subsequently, Yili's ice cream brand "Zhenxi" also opened an ice cream cake physical store in Chengdu.
Financial report data shows that in the first three quarters of 2024, the retail sales of Yike Huoque Spring doubled. Behind Yili's frequent new actions, it is closely related to the rapid growth of the water beverage business.
Facing the general environment of continuously declining consumer demand, dairy giants have also experienced a "stress test" for more than two years. According to Nielsen data, from 2021 to 2023, the year-on-year growth rate of the total channel income of dairy products in China was 7.9%, -6.5%, and -2.4% respectively, and the overall income decline showed a narrowing trend.
Image Source: Monthly Analysis of Supply and Demand Situation of Agricultural Products (Fresh Agricultural Products) by the Ministry of Agriculture and Rural Affairs
It is worth noting that since the beginning of 2024, the imbalance between supply and demand in the dairy industry is also being alleviated.
Public data shows that in August this year, the output of dairy products increased by 1.1% year-on-year, achieving the first year-on-year positive growth within the year. In September this year, the year-on-year growth rate of dairy product output expanded to 2.1%, and the year-on-year decline in the income of the dairy product industry narrowed. In the past two months, the price of fresh raw milk in the main production areas in China has shown signs of stabilizing after a decline.
In order to get out of the trough, it seems that the industry has reached a consensus that it must find new increments through innovation and diversification. An effective method is to aim at the beverage track with a higher "repurchase" frequency, reducing the market education cost while also reaching more consumers.
Relevant personnel from Yili also told 36Kr that Yili's ready-to-brew tea business is doubling, and the water beverage business has also entered a stage of rapid growth. At the previous financial report meeting, Yili also stated that it will further expand the market layout of ready-to-brew tea and launch more flavors of tea beverage products.
02 Cross-Border Development Becomes Inevitable for Dairy Enterprises
The frequent cross-border actions of dairy enterprises are not uncommon in the fast-moving consumer goods industry.
International fast-moving consumer goods giants represented by Nestlé and Danone started with the dairy industry and developed multiple business lines, thus becoming century-old brands with a global layout. According to the experience of these several fast-moving consumer goods giants, in the view of Wang Yi, a partner in the consumer goods and retail industry at Deloitte Consulting, under the environment of pressure on liquid milk, it is very necessary for domestic leading dairy enterprises to use the channel advantages of room-temperature milk to explore and innovate across categories.
However, Yili, which has been continuously exerting efforts in the packaged water and beverage business, unfortunately caught up with the "Thousand Tea War".
After several years of silence, sugar-free tea beverages had an explosion in 2023. In addition to old brands such as Nongfu Spring and Suntory, new players such as Genki Forest and Guozishule that have joined in recent years are also closely watching this market.
According to incomplete statistics from 36Kr, since this year, more than 10 beverage brands have launched multiple new sugar-free tea products. Among them, Uni-President launched "Chunfu Green Tea", and Guozishule launched "Zhizhi Oolong" and "Bamboo Scented Oolong", which have a higher market voice.
With the rapid growth, the competitive landscape of sugar-free tea beverages has also quietly changed, and product price reduction and promotion have almost become the norm.
According to the "Southern Metropolis Daily", this summer, the average price of sugar-free tea, which was originally above 5 yuan, has dropped below 5 yuan under various promotional activities, and some have even dropped to 3 yuan. 36Kr's visits to several convenience stores in Beijing also found that some sugar-free tea brands still maintain the price of "1 yuan for the second bottle".
In contrast, for "Yike Huoque Spring Ready-to-Brew Tea", in terms of innovation in sugar-free tea beverages, Yili uses the "tea powder fusion technology", and its product selling point is "Twist it and turn it into freshly brewed tea". The retail price is 6 - 6.5 yuan per bottle, with a specification of 455 milliliters. In the highly competitive red ocean of sugar-free tea beverages, dairy enterprises that have crossed into the tea beverage industry may also be involved in this price war in the future.
Image Source: 36Kr Photography
Previously, 36Kr's visits to several convenience stores and supermarkets in Beijing found that on the tea beverage shelves, most of the products are from Uni-President, Nongfu Spring, Suntory, etc., and the tea beverage brands "cross-border" layout by various industry giants are not prominent.
In the opinion of dairy industry analyst Song Liang, although Yili has made frequent cross-border moves, it has always maintained a cautious pace in terms of layout. In his view, Yili's current water beverage business and sugar-free tea beverage business are still in the stage of testing the market.
However, as an established dairy enterprise, Yili's channel strength is still considerable. Previously, Yili also told 36Kr that its water beverage products will rely on the distributor system of liquid milk to gradually explore a compound distributor model suitable for the development of the water beverage business.
"Can dairy enterprises like Yili get a share of the tea beverage market? Definitely yes, it's just a matter of how big or small the share is."
In addition, Song Liang also added to 36Kr that in addition to the sugar-free tea beverage field, the current layout of diversified businesses of dairy giants should also focus on functional beverages and healthy foods, and rely on going global to obtain more market opportunities.
As of the press release on December 13, the quoted price of Yili shares is 29.25 yuan, with a total market value of 186.204 billion yuan. Since 2024, it has accumulated a growth of 14.13%.
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