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Beverages are being upgraded to be healthier. Sugar-free tea has just replaced the popularity of sugar-free sparkling water, and sugar-free Chinese health water represented by Yuanqi Zizai Water has begun to squeeze out the shelf position of sugar-free tea.

The survey shows that young corporate employees are becoming big customers of Chinese health water, which is triggering a new round of health-oriented beverages. The latter may also grab 30% of the sugar-free beverage market share.

Health water targets urban workers

At a convenience store near Beijing's Zhongguancun, many white-collar workers who work nearby come to buy lunch during lunch time, and also buy a bottle of drink to go with their meal. The reporter noticed that among the many sugar-free teas and sugar-free sparkling waters, a minority of Chinese-style health-preserving water products have also become one of the main choices for white-collar workers. An interviewed white-collar worker said that although it is difficult to quantify the health value of this bottle of drink, he believes that its ingredients may be healthier, and he will buy related products every now and then.

The reporter found that the rise of Chinese health water has once again changed the beverage war in convenience stores. In the display of freezers, the lineup of Chinese health water is growing rapidly, including Yuanqi Forest, Ke Yang, Haowang Water and other brands have launched related new products, breaking the situation that sugar-free tea has been the only one in the convenience store freezer since last year.

The reporter learned that the first Chinese health water was launched by the Ke Yang brand, which launched red bean water in 2018, but the channel feedback has been lukewarm. Starting in May 2022, the launch of a whole ginseng water briefly triggered a wave of health drinks. It was not until the beginning of 2023 that Yuanqi Forest launched a number of Yuanqi Free Water that the Chinese health water track became hot as a whole.

The "2024 China Traditional Health Water Industry Development Trend Insight Report" (hereinafter referred to as the Health Water Development Report) recently released by the Forward-looking Industry Research Institute shows that by May 2024, more than 15 brands have entered the Chinese health water industry. The brand with the highest market share is Yuanqi Forest, which accounts for 58% of the market share.

At the same time, there are still more new brands entering the Chinese health water market, including some major beverage companies. Recently, Nestlé China also announced the launch of two sugar-free Chinese health waters. Wang Lei, senior vice president of Nestlé China's dairy business, said that he hopes that Nestlé China's beverage innovation will not only stay at the level of sugar-free and low-burden, but also further explore the health needs of users.

The reporter noticed that, different from traditional beverage flavors, the new round of Chinese health water mainly uses traditional foods such as red beans, coix seeds, wolfberries, red dates, mung beans, and yam. It is made through cooking and extraction processes. It is a ready-to-drink plant beverage that focuses on traditional health concepts.

However, it is the urban workers who made Chinese health water popular. The health water development report shows that Chinese health water has attracted the attention of the middle-aged and young "working people" consumer group. Among the consumers who buy health water, the main ones are corporate employees in first-tier cities aged 27 to 36, accounting for 66.2% of the total number of consumers.

Yuanqi Forest responded to the First Financial Daily and said that the development of Chinese health water products was mainly inspired by Cantonese herbal tea. There are related beverage formulas that are both medicinal and edible in various places. Therefore, the R&D team took "drink more water, drink healthy water" as the research and development direction, and launched related Chinese health water products after investigation. However, market feedback also exceeded the expectations of the R&D team. In February 2023, the first batch of Zizai Water was sold out in the Tmall flagship store within 5 days of its launch. It is the new product in the Yuanqi Forest product system that has the fastest sales of more than 100 million yuan, and it is currently one of the fastest growing new products within Yuanqi Forest.

The health water report shows that the domestic Chinese health water market size will be around 450 million yuan in 2023, an increase of more than 350%.

Zhu Danpeng, vice president of the Guangdong Food Safety Promotion Association, told China Business News that the continued popularity of Chinese health water is related to the stressful and fast-paced lifestyle of young people today. They stay up late but desire health, and Chinese health water just captures the health needs of some consumer groups.

Health drinks are in the spotlight

In the industry’s view, the rise in popularity of Chinese health water is a reflection of the internal trend of health-oriented beverages in recent years.

In recent years, with the change of consumption concepts, the growth hotspots of the beverage market have been constantly rotating. The popularity of traditional popular categories such as carbonated beverages has declined, but the market growth rate of healthy drinks, sugar-free drinks and other segmented health categories has been relatively fast.

Nielsen IQ data shows that in the first half of 2024, the domestic beverage industry maintained a growth rate of 6.5%, and the category structure continued to reshape. From the perspective of specific category growth, the carbonated beverage category declined by 6.7%, functional beverages grew by 10.6%, and ready-to-drink tea grew by 19.5%. This change is related to the fact that domestic consumers pay more attention to healthy eating. In the first half of 2024, 55% of respondents were willing to pay for healthier beverages.

The performance of Swire Group, the two major bottlers of Coca-Cola in mainland China, shows that in the first half of 2024, the revenue of beverage business in mainland China was HK$12.67 billion, a year-on-year decrease of 4%, and the net profit was HK$540 million. After excluding non-recurring gains in the same period of 2023, it fell by 12% year-on-year. Among them, the revenue of carbonated beverages, juice drinks and drinking water businesses fell by 3%, 2% and 6% respectively, the revenue of energy drinks increased by 37%, the revenue of high-end coffee increased by 19%, and the high-end tea decreased by 17%.

Recently, influenced by the self-pleasing economy and the trend of health, Nestlé also announced that it would adjust its product strategy for its high-end sparkling water, Perrier, for the Chinese market, launching a variety of Perrier waters, innovating in taste and packaging, and focusing on the healthy flavored sparkling beverage track. In the just-released 2024 semi-annual report, Nestlé management revealed that due to the rebound in sales of new Perrier water products in the global market, Nestlé's drinking water business sales achieved single-digit growth.

According to Qichacha data, in the first half of 2024, there were 24 financings related to wine and beverages in China. In addition to financing for new tea drinks, there were also investments in multiple healthy drinks such as olive juice, yam juice, and cold brewed tea.

At the same time, internal competition in the sugar-free beverage category has become more intense.

According to Nielsen IQ data, the domestic sugar-free beverage industry will have revenue of 24.1 billion yuan in 2023, a year-on-year increase of 26%, but the growth rate mainly comes from the contribution of sugar-free tea, which contributed 110% year-on-year growth, while the growth rate of sugar-free soda category decreased by 22% year-on-year. In the first half of 2024, sugar-free tea continued to maintain a high growth rate of 80% year-on-year. However, differentiation is also occurring within sugar-free tea, and demand for diversified products such as health preservation, internal conditioning, special diet, and nutritional addition is growing rapidly.

In the industry’s view, the rise of Chinese health water has also made it one of the new directions in the development of healthy drinks.

In Yuanqi Forest's view, although Chinese health water is still in the initial stage of the market, Chinese consumers are not unfamiliar with this category itself. China's traditional diet therapy culture has a history of nearly a thousand years. With the improvement of health awareness, consumers are paying more and more attention to healthy diet. The Chinese health water category has also been defined as one of Yuanqi Forest's three strategic products in 2024.

The health water report predicts that from 2024 to 2028, the scale of domestic Chinese health water will grow to about 10.8 billion yuan, and will account for 30% of the sugar-free beverage market share.

Zhang Chenkai, managing director of CIC, told China Business News that in recent years, China's ready-to-drink soft drink market has shown a trend of diversification, health and functionality. The concept of "medicine and food have the same origin" has a history of thousands of years in China, and plant-based ready-to-drink soft drink products are highly accepted by Chinese consumers, such as chrysanthemum tea, sour plum soup, and herbal tea. As the boundaries between packaged drinking water and other ready-to-drink soft drinks gradually blur, Chinese health water with no additives, 0 sugar, 0 fat, and 0 calories has the opportunity to become the next new hot spot with the trend of health.

However, Zhu Danpeng also reminded that in the long run, the Chinese health water market has broad prospects, but the industry is currently in a state of disorderly competition and needs to solve the problems of standardization and specialization.