What's Happening...

• Next For China's Beverage King
• China bigger market than U.S. for crisis-hit Bordeaux
• Moutai moves to double output
• Chongqing Brewery sells 1-mln kL of beer in 2009
• China Resources Enterprises Strengthens Beer Business
• Starbucks discovers that Chinese people like tea
• Yayi International Inc. Opens Dedicated Online Store on Taobao.com of Alibaba Group
• Vitasoy to Double China Capacity on Gain in Soy Milk Demand
• Want Want Surges Most in Two Years as Profit Beats Estimates
• Carrefour's China Business
• Subway eyes matching McDonalds in China in 10 years

Next For China's Beverage King

Russell Flannery of Forbes Magazine interviewed Zong Qinghou about China's beverages and trends in the industry. The interview is as follows:

Increasingly well-off Chinese consumers are looking for healthier drinks and China's richest man, Zong Qinghou, wants to provide them.

The richest man in China, beverage baron Zong Qinghou of Wahaha Group is ranked No. 103 on the global list of billionaires compared with No. 376 previously. Zong is worth $7 billion, compared with $1.9 billion last year.

Only a few years ago, an ugly legal dispute between China’s beverage giant Wahaha and joint venture partner Danone over the right to use the Wahaha brand had brought a cloud over both in China. With the dispute resolved last year, Wahaha is well-positioned to turn its attention to new products. Forbes talked to Chairman Zong in his office in China’s eastern city of Hangzhou about this year’s business outlook, new products and succession. Excerpts follow.

Forbes: What’s the growth outlook for China’s beverage industry this year?

Zong Qinghou: The market will continue to grow more than 20%. The market has become concentrated--about five companies--Wahaha, Coke, Pepsi, Tingyi and President have more than half, and if you add in about 10 more firms, the total is 80%. The bigger companies will have a larger and larger market shares. Also, more and more companies will be looking to differentiate their product. China already has one of the largest number of drink varieties in the world, and this will continue.

What would you say is behind Wahaha’s success?

We have a segmented product strategy. Not long ago, most beverage companies in China had similar products and competed on price, which lowered profitability. A few years ago, we started looking more for products that others didn’t have. This is helping our sales and our profits. Also, once you have scale, as we do, you get better efficiency from advertising. If you have 20 billion RMB in sales and spend 1 billion RMB in advertising, that’s 5% of your revenue. But if you have 40 billion in sales, that percentage of your cost falls to 2.5%. In that situation, even if you’re pricing is the same as your competition, you’re going to be more profitable. We have another advantage: we produce a lot of our own packaging, which helps our profit margins.

We’re also successful because we’re in China. The U.S. and European markets have become mature, profit margins are lower and equipment isn’t so new. Because profits are relatively low, it limits the willingness of companies to invest in newer equipment. We’ve invested more, and that’s good for growth.

What is the sales outlook for Wahaha this year?

Last year sales were about 43 billion RMB ($6.3 billion). We want to increase that by 10 billion [RMB] this year. In the next three years, we want to reach 100 billion RMB. The market is vast--1.3 billion people--and there are good prospects in many segments.

What kind of new products is Wahaha bringing into the market this year?

This year, we’re introducing a lot of new juice products. In the past, we didn’t make an earnest push. We are working to understand the tastes of people born in the 1980s and 1990s--it is very different from my generation. We do our own research. Marketing research companies, I think, are relatively academic. I spend about half of my time outside of the office talking to people. It used to be two-thirds, but we’re a larger business now and I spend more time here.

What new products are you working on for the next few years?

Looking ahead, the living standard of ordinary people in China is rising. But many people find themselves with illness as they become successful: higher blood pressure, and diabetes. So today, people are paying attention more and more to their health. In the future, we should meet the wishes of consumers to have beverages that are good for their health. We are also broadly looking at IT-related investments.

What kind of health beverages are promising?

Our approach is to think about health needs and develop beverages that address those, such as those that lower blood pressure. We are working with different research institutes, including Zhejiang University.

Are there comparable products overseas?

Not yet. Overseas, these would be pharmaceutical products, and sales of those are restricted in China. But many come from raw materials that are actually food and can be used in beverages in ways that follow our restrictions here.

You won’t enter the drug business?

No.

And you’re thinking that these will become mainstream products for you?

That is the future direction.

When will these new products start come to market?

In one or two years.

Larger food and beverage companies in China are diversifying. Want Want, for instance, has been strong in snacks but is making a big push in juice, for instance. How will Wahaha address that?

We’re not afraid of competition. To meet competition, however, you have to continuously innovate.

The end of your disagreement with Danone ends a lot of legal uncertainties. Do you have any plan to take Wahaha public?

No. We have ample cash. We don’t need the money.

Wahaha is closely associated with you personally. Do you have a plan for a successor?

I haven’t clearly identified one. But I have been building up our management system. In China, you have to have a strong leader for a business to get anything done. I think eventually, the successor will be someone who can get things done.

China bigger market than U.S. for crisis-hit Bordeaux

(Reuters) - China has become the biggest export market for Bordeaux wines outside the European Union as overall exports have collapsed due to the economic crisis and a strong euro put some wines beyond U.S. and British buyers.

The sector has high hopes of the 2009 harvest with young wines being presented to the international trade and specialized journalists over the coming weeks.

"The situation is difficult for everybody," Alain Vironneau, chairman of the CIVB Bordeaux wine body, said Thursday.

"Several hundreds of vineyards are at peril due to insufficient cash...Our companies, especially the smallest, need financial support," he added during a news conference.

He called the 2009 sales year "catastrophic" with exports down 14 percent in volume and 23 percent in value.

However, he added that during the past three months there had been a slight revival that could indicate the depth of the crisis is behind and the 2009 'millisime' wines could help the sector recover again.

INDIAN HOPES

Bordeaux sold 661 million bottles of wine in 2009 for revenues of 3.37 billion euros ($4.57 billion) for wines ranging from low-price supermarket wines to top Chateaux.

Of that, the French themselves bought 68 percent and mainly via large supermarkets. Of the exports, 56 percent remained in the European Union.

China bought 13.7 million liters for 74 million euros, overtaking the United States that took 11.6 million liters for 139 million euros. Japan came third with the same volume as the United States.

Hong Kong is counted as a separate market where 4.2 million liters were sold for 109 million euros.

"The rise of China is undeniable and we expect that market to move up the value chain just as has happened in Japan," said Bertrand Carles, a wine trader for the Ginestet group.

"We have set up shop in Bombay because we expect India to follow the same route. And then, think about Brazil that makes no wine such as Argentina and Chile do, think about countries in Africa...soon we may be short of Bordeaux," he said.

Bordeaux makes some 2.5 percent of world wine production.

Moutai moves to double output

Xinhua News reports that China's leading liquor producer the Guizhou-based Kweichow Moutai reported an output of 23,000 tons of base liquor in 2009 thanks to its efforts to boost production, Lin Shusen, governor of Guizhou province, said Tuesday.

The Shanghai Stock Exchange-listed company has yet to report its annual results of 2009 to investors and the regulatory commission, which is expected this month.

The advance disclosure by the provincial governor came on the sidelines of the annual session of the National People's Congress (NPC), China's top legislature.

The share price of Kweichow Moutai was flat at 163.17 yuan ($23.9) on Tuesday.

The Guizhou-based Kweichou Moutai, crowned as "China's national liquor", has worked hard during the recent years to increase its output to meet increasing demands for high-end liquor within the country.

Kweichou Moutai's six-month net profit surged 24.59 percent year on year to 2.79 billion yuan in the first half of 2009, according to the company's half-year report to the Shanghai Stock Exchange last August.

The company recorded sales revenue of 10.3 billion yuan in 2008.

Kweichou Moutai, where a large number of taxes and revenues are from for Renhuai city and the province, previously announced plans to invest 20 billion yuan to nearly double annual output within five to 10 years.

Local government has invested more than 3 billion yuan to protect local environment and the Chishui River, the water source for Kweichow Moutai.

Environmental protection measures include relocation of 10,000 local residents, closures of 400 liquor workshops and restraints on development of high-polluting coal and cement industries.

About Kweichou Moutai

Kweichow Moutai Co., Ltd. is principally engaged in the manufacture and sale of distilled spirits, under the brand name of Moutai. The Company's products include millesimes liquor series, gift liquor series, common liquor series and other liquor series. The millesimes liquor series offers 15-year old Moutai, 30-year old Moutai, 50-year old Moutai and 80-year old Moutai. The gift liquor series offers Muzhen, Big Muzhen, Zhizhen, Four-in-one Package (Sculpture) Moutai Liquor, Two-in-one Package (Gold Placer) Moutai Liquor, Luxury Package Moutai Liquor (Crimson) and Luxury Package Moutai Liquor(Golden).

The Company distributes its products throughout PRC and exports to overseas markets. source

Chongqing Brewery sells 1-mln kL of beer in 2009

(China Knowledge) - Chongqing Brewery Co Ltd sold 1 million kiloliters of beer last year, 2.11% more than in 2008, according to a statement filed with the Shanghai Stock Exchange.

Net profit attributable to shareholders surged 10.91% year on year, hitting RMB 181 million, and operating revenue was RMB 2.26 billion, up 6.56% from a year earlier.

Earnings per share were RMB 0.37 and a dividend of RMB 0.3 per share will be paid.

In 2010, the brewery aims to sell 1.12 million kL to reap RMB 2.59 billion in operating revenue. Capital expenditure could reach RMB 1.49 billion.

In 1998, the brewery signed a cooperative agreement with nearby Third Military Medical University and is now engaged in the research and development of a Hepatitis B vaccine.

An analyst at BOC International (China) Ltd said that if the Hepatitis B vaccine project could push the brewery's annual sales revenue to RMB 2 billion in the next three years and RMB 10 billion in the next five years, sources reported.

About Chongqing Brewery

Chongqing Brewery Co. Ltd is a China-based company principally engaged in brewery and sale of beers. The Company provides Mc.ewan's series beer products, Chongqing Beer series products and Shancheng Beer series products, among others. The Company distributes its products primarily in Southwestern China, Central China and Eastern China. Source

China Resources Enterprises Strengthens Beer Business

China Resources Enterprises Ltd. has been strengthening its beer business when it expands the retail business gradually. On March 8, the Hong Kong-listed company announced that its 51% held subsidiary had reached an agreement, intending to spend a total of CNY 63 million or about HKD 71.82 million purchasing a 10% stake in China Resources Snow Breweries (Binzhou) Co. in cash. After the move, the Binzhou-based company will turn into a wholly-owned subsidiary under the buyer.

The Binzhou-based company, a Sino-foreign joint venture in which the buyer holds a 90% stake in March 2009, has registered capital of CNY 180 million. The joint venture was established for acquiring a beer brewery in Binzhou City, Shandong Province, east coastal Province and related beer business. After the assets acquisition, China Resources Snow Breweries (Binzhou) has conducted technical upgrade for production equipment it purchased, mainly engaging in the production and sale of China Resources Snow-branded beer in BInzhou and nearby.

Starbucks discovers that Chinese people like tea

This week it was reported that Starbucks will start to sell tea alongside its coffee in China.

China Retail News reports that Starbucks will launch nine new tea drinks in China including “three original-leaf Chinese-style tea drinks, four original-leaf foreign tea drinks, and two handmade special tea drinks.” Apart from these tea drinks, Starbucks has also launched related accessory products such as tea cups and teapots.

Chen Yang of Global Times wrote a more extensive piece, "Starbucks pours on Chinese tea, McDonald's goes coffee chic." The article is as follows:

With an increasing number of foreign and domestic coffee shops emerging in China's cities, coffee chain giant Starbucks is turning to traditional Chinese tea to boost business.

Since February 25 and through April 25, Starbucks will be selling White Mu Dan, Bi Luo Chun and Oriental Beauty Oolong teas for 20 yuan ($3) a cup with one free refill in about 700 of its China outlets.

Li Jing, spokeswoman for Starbucks Greater China, said other teas will be introduced in the future and Chinese tea will become a permanent offering on Starbucks' menu.

To tea or not to tea

Li said the teas are due to Chinese customers' demands. "Chinese people have a long history of drinking tea, and Starbucks has 40 years' experience in the foreign tea field, such as India's Chai tea," she said.

"Starbucks sees the opportunity in China's tea consumer market, which is made up of many small-scale teahouses," said Xie Fuliang, a tea industry expert at Achieve Brand based in Hangzhou.

China is the world's biggest tea market, with around 200 million regular tea drink-ers.

Figures from the China Tea Marketing Association show that there are more than 60,000 teahouses around the country, mostly based in Chengdu, Hangzhou and Beijing.

However, the large market hasn't resulted in a well-established national tea chain brand.

"Chinese teahouses lack strategic planning and a standard production process," Xie said. "I know some teahouse owners in Hangzhou. They run teahouses based on their personal interest and don't want to enlarge their businesses."

In Xie's eyes, Starbucks seems to offer a ready model for ambitious teahouse own-ers to follow. "As a mass consumer drink, tea can also spread by means of franchis-es," he said.

Li said Starbucks would bring its international experiences to the tea industry. "Releasing Chinese tea products is our first step. Currently the Chinese tea products are sourced from Taiwan, and we may release tea products cultivated from the mainland in the future."

"Starbucks will not grab business from traditional teahouses, as they face differ-ent consumer groups," said Zheng Xin'an, professor at the Chinese Brand Research Center, Capital University of Economics and Business. "Older people like to go to teahouses to relax, because preparing and drinking tea is a piece of slow art in their eyes, while Starbucks attracts young people and office workers in busy downtown areas."

Starbucks' regulars who were asked seemed apathetic about the company's move to be more Chinese.

Wang Sensen, a 27-year-old Starbucks fan, said she recently tried Oriental Beauty Oolong. "The price is ok, but the taste is just so-so."

However, Wang, who works at a French company near the Jianguomen area in Beijing, said she had no problem with Starbucks enlarging its drinks menu. "But me and some of my colleagues prefer coffee most of the time."

Wu Yanshuang, a 28-year-old office lady in Shanghai, agreed with Wang. "The Chinese teas didn't taste as good as I thought they would, and they won't be my first choice," said Wu.

"Coffee is always our core product, and we'll try something new in different regions in accordance with customers' tastes," said Li, Starbucks' spokeswoman.

Selling the environment

Zheng, at the Chinese Brand Research Center, was upbeat about Starbuck's move to Chinese tea. "People go to Starbucks not just for what they drink, but for the environment. So consumers actually do not care much about what Starbucks sells, but care how it is sold."

Chen Peng, a 34-year-old magazine writer in Beijing, said he enjoys Starbucks' environment. "I am not a huge coffee fan, but I like spending the whole afternoon in Starbucks, surfing the Internet or writing something."

Chen said he likes the taste of Starbuck's Bi Luo Chun. "I like to try new things and was getting bored with the regular menu. Starbucks' new drink is my cup of tea."

McCafé competition

Analysts said Starbucks' move is to strengthen the competition with other coffee chains, especially McDonald's coffee brand- McCafé.

Starbucks' global business was badly affected by the economic downturn. However, its China market is still hot, according to its quarterly report released November. "Starbucks will see China become the company's next major market after the US in the near future," said Wang Jinlong, head of Starbucks Greater China.

"Compared with a decade ago, Starbucks now has more followers in the industry, so it needs innovation to stay ahead," said Zheng.

UK's Costa, an Italian-style coffee chain, plans to open up 600 new outlets in China over the next five years. Tsit Wing International Holdings, which occupies 80 percent of Hong Kong's coffee shop market, plans to open two stores in Guangzhou this year. Nestlé, the world's largest instant coffee maker, has also opened several high-end coffee outlets in Beijing, Shanghai and Chengdu, and it may open more elsewhere in the country.

But McDonald's McCafé concept with small, comfortable coffee shops next to the hustling, bustling burger outlets is the biggest challenger to Starbucks.

Although there are only five McCafé's in China, McDonald's plans to open 65 new restaurants with the coffee shops in Beijing, Shanghai, Guangzhou and Shenzhen this year, as well as upgrade half of its 1,100 existing outlets with the coffee shops by the end of 2010. It also plans to increase the percentage of McCafé's to 80 percent by 2013, Zeng Qishan, CEO of McDonald China, said at a January press conference.

About 90 percent of McDonald's outlets in Beijing, Shanghai, Guangzhou and Shenzhen also offer free 30-minute wifi connections beginning in April, he said.

Zeng said McDonald can offer high-quality coffee at a moderate price, and is hopeful of creating a "McCafé Culture".

Zheng at the Chinese Brand Research Center said McDonald's advantages lie in its large number of outlets and low prices, but can't provide the same atmosphere as Starbucks.

Chen, the magazine writer, said he doesn't like the McCafé coffee taste. "Although the price is low, it doesn't taste as good as Starbucks," he said.

"I like McCafé's free refill but the environment is always too noisy," said Wu.