the beverage market in China

The Chinese beverage market: health trends shape drink preferences

Reaching approximately 595 billion dollars in 2019, the Chinese food and beverage market represents today a tenth of the global industry. With its’ 1.4 billion people strong consumer base, the Chinese beverage market shows strong potential. In 2019, China’s beverage industry was worth 578.5 billion Yuan, a 113.3 billion Yuan increase from 2014 at a compound growth rate of 4.46%. For its part, the Chinese alcoholic beverage market was worth 739 billion Yuan in 2019, boasting a year-on-year increase rate of 8.1%. According to Shunfu Group, beverage production and consumption is larger in most densely populated provinces.

With its ever-growing middle class, China has seen a rise in consumption across all industries in its large urban centers. Such potential has attracted foreign brands such as Coca-Cola and Starbucks to continue to invest heavily into the Chinese market in 2019 and 2020 despite the COVID pandemic. In recent years, with the expansion of vending machine outlets and the rapid development of Internet sales platforms, China’s beverage industry has diversified its’ distribution channels. The proportion of vending machines and Internet sales of beverages has increased, but offline sales are still the main sales channel. According to Euromonitor, offline stores in China accounted for more than 90% of sales in 2019.

New trends on the Chinese beverage market

As living standards have improved in China, beverage consumption has changed. Consumers are searching for a greater diversity of products, and further, have become more and more discerning. Because of several scandals in China’s food and beverage industry, consumers’ top priority in this sector is confidence about the product’s safety and integrity. Moreover, the trend towards healthy living is gaining momentum and shaping many industries.

As a result, Chinese customers set value on high quality products that are pollution-free and safe, which has pushed preferences to imported goods. Other preferences include beverages that promote a better lifestyle, with nutritional value playing a crucial role in the choice of the product. Therefore, milk and protein beverages have enjoyed an increase in popularity. Convenience and freshness are also important to Chinese consumers; however, safety and quality outweigh all the other factors.  Because of these trends in consumption preferences, the popularity of traditional carbonated drinks is declining.

The Chinese beverage market value has steadily increased along the years.

Source: Euromonitor. The value of the beverage industry in China has steadily increased along the years.

The Chinese bottled water market is booming

With an increasingly health-aware consumer base and rising concerns about its water supply, China has seen a rise in demand for bottled water. China water bottles sales reached in 2019 208.4 billion yuan with a year-on-year increase of 9.5%. According to Statista, the industry is expected to have a compound annual growth rate of 4.93% in the coming five years. Foreign brands and premium bottled water brands are particularly sought after as Chinese consumers tend to prefer quality products when it comes the food and beverage industry. According to the Direct China Chamber of Commerce, China’s per capita water bottle consumption is still 19% below the world’s average, which leaves potential for investment.

Mineral water represents 91% of the Chinese bottled water market, followed by sparkling water at 7% and flavored water at 2%. The market is very competitive, although it is largely dominated by two industry giants: Nongfu Springs and C’est Bon. Zhong Shanshan, the CEO of Nongfu Springs, briefly overtook Jack Ma as the richest person in China as his company’s shares skyrocketed in September 2020.  As demand continues to rise, the Chinese bottled water market presents great investment prospects.

To learn more about the Chinese bottled water market, read our article on the Chinese bottled water industry.

Bottled water sales dominate the Chinese soft drinks industry.

Source: Chyxx. Bottled water sales dominate the Chinese soft drinks industry.

Tea sales and exports in China are going strong

As both the largest tea producer and consumer, China produced 2.6 million tons of tea in 2018, contributing to 44.7% of the world’s output. In 2018, China’s domestic tea sales reached 1.91 million tons, a year-on-year increase of 93,000 tons (5.1%). The market domestic sales reached 266.1 billion yuan with an average sales price of 139.3 yuan/kg, An increase of 5.2% year-on-year. Green tea is the preferred tea choice for Chinese consumers, with an output almost twice as important as the other kind of teas combined. In 2018, it also represented 83% of Chinese tea exports followed by black tea at 10%.

According to the China Tea Marketing association, ready to drink tea is the largest market segment with almost 50% market share. Healthier, lower-calory, tea-based drinks are on the rise as Chinese consumers are looking for healthier products. For distribution, retail stores and supermarket represent the bulk of tea sales in China, followed by tea and coffee shops. More opportunities also arise thanks to the Belt and Road Initiative as Chinese tea gains popularity in participating countries according to Obor Invest.

Another driver of the tea market in China is new style tea. Milk tea is the signature drink of new style tea, a sweet drink that is brewed in milk, or mixed with milk powder. Walking the streets of China, it is hard to avoid new style tea shops, which garner more and more attention. Brands such as Hey Tea produce lines of customers which spill out the front door and wrap around nearby shops. The main consumers of new style tea are female Gen Z consumers.

To learn more about the Chinese tea market, read our tea market in China report.

After soaring growth, the coffee market in China is plateauing

The Chinese coffee industry is relatively young compared to the tea industry. Nestlé entered the market in 1989, introducing instant coffee to Chinese consumers. In 1999, Starbucks opened its first store and popularized the coffee shop trend. According to Chyxx, the Chinese coffee market followed the same development pattern than the Japanese coffee market, although 20 years behind. In 2018, the consumption of green coffee beans in China reached 229,500 tons. With a compound annual growth rate of 21.74% over 7 years, it develops way faster than the global average of 2.53%. Thanks to their early entry in the market and weak domestic competition, foreign brands like Costa and Starbucks dominate the Chinese coffee industry. With 59% market share, Starbucks is the clear leader of the Chinese coffee market as Chinese consumers prefer to buy their coffee in franchise shops rather than retailers.

Although the market is showing potential, coffee consumption in China remains relatively low at 7 cups per capita a year. Tea remains the preferred drink for Chinese consumers as the demand for tea continues to soar while the demand for coffee has stalled over the last few years. Domestic internet coffee brand Luckin Coffee has showed great success, giving encouraging prospects for the industry. However, it was revealed in a 2020 report that their sales numbers were inflated, casting a doubt over the future potential of the Chinese coffee market.

To learn more about the Chinese coffee market, read our coffee industry in China article.

Growth in coffee consumption has plateaued in China since 2015

Source: International Coffee Organization. Growth in coffee consumption has plateaued in China since 2015.

The Chinese Soft drinks market is influenced by the “drink healthy” trend

The carbonated drinks industry must adapt to the healthier products demand

The demand for carbonated drinks in China, like many other consumer goods, has risen alongside the average national per capita disposable income in recent years. However, sales peaked in 2014 at 179.3 billion RMB before starting to slowly decline. Thanks to a particularly hot summer, 2017 have seen a rebound of carbonated drinks sales in China but sales fell back 1.6% the following year. According to iimedia, this decline is due to the rising health awareness of the Chinese consumer base. The rising healthy beverage industry is expected to take further market shares from the carbonated drinks industry in China in the coming years. To overcome this cultural shift, Chinese carbonated drinks companies have started to introduce healthier new products, such as sugar free sodas and sparkling water.  Thanks to these new products, carbonated drinks sales in China have risen to 184.5 billion RMB in 2019.

To learn more about the Chinese carbonated beverage market, read our ready-to-drink Chinese industry article.

The fruit and vegetable juice industry in China benefits from the healthy living trend

As a major agricultural power, China is the first fruit and vegetables producer in the world. According to iimedia, the juice market in China was worth 143.5 billion RMB in 2019, of which 75.3% are low concentrated juices or fruit based ready-to-drink beverages. Pure juice only represents 0.7% of the market at 9.9 billion RMB, but also has the fastest growth rate, the market having almost doubled in size between 2014 and 2019. According to Chyxx, the brands with the highest brand power index in the Chinese juice industry are Minute Maid, Taiwanese brands Master Kong and Uni-President and domestic brand Huiyuan and Nongfu Spring’s Farmer’s Orchard. In 2009, Coca Cola attempted to buy Huiyuan for $2.4 billion but the offer was ultimately rejected by the Chinese government over anti-trust concerns.  China’s fruit and vegetables juice market is expected to continue its’ upwards trend as Chinese consumers are taking more interest in healthy living.

To learn more about the Chinese fruit and vegetable juice market, read our article about the juice market in China.

Taiwanese brand Master Kong is popular in China thanks to its' innovative marketing and packaging.

Source: Chinglobalmall. Taiwanese brand Master Kong is popular in China thanks to its’ innovative marketing and packaging.

The Chinese drinkable dairy market is young, yet striving

The Chinese milk industry is showing steady growth

Drinking milk is not as prevalent in Chinese culture as it is in the West, and with a high occurrence of lactose intolerance, China was not considered a big milk consumer. However, this has changed as from 2013 to 2017, China’s milk sales increased from 8.9 million tons to 9.79 million tons. With a compound annual growth rate of 3%, China milk sales reached 117.2 billion RMB in 2017. The milk industry in China is dominated by two domestic giants, Yili and Mengniu. Together, they had 51% market shares of the industry in 2018. Mostly sold in boxes, milk in China has slowly become more and more affordable as domestic brands have slowly taken over the market, ousting the more expensive competition. In 2013, 69% of Chinese milk was sourced in China against just 50% in 2017. According to Chyxx, the Chinese milk industry is expected to continue to grow as it benefits from lower price and fresh product perception.

Yogurt sales in China are soaring

The Yogurt market in China overtook for the first time the Chinese milk market in 2017. According to Chinabaogao, China’s yogurt market was worth 84.1 billion RMB, with a year-on-year increase of 23.8%. This represents a tripling of the market size since 2014. The market is divided between room temperature yogurt and cold yogurt. If today both cold and room temperature yogurts share about equal market shares, back in 2014 room temperature yogurt only accounted for 28% of China’s yogurt market. Similarly to the Chinese milk industry, China’s yogurt industry is dominated by dairy giants Yili and Mengniu. Together they were holding in 2019 48% market shares, followed by Bright at 15%. Surfing on the healthy living trend, ready-to-drink yogurt Chinese brands such as Momchilovtsi and Ambrosia have been very popular. According to Waihuigu, China’s yogurt industry is still in its’ popularization phase and have considerable growth potential for the future.

To learn more about the dairy market in China, read our Chinese dairy market article.

Momchilovtsi is a popular Bulgarian yogurt brand manufactured by Bright.

Source: Momchilovtsi advertising. Momchilovtsi is a popular Bulgarian yogurt brand manufactured by Bright.

China’s plant-based beverage market is expected to continue to grow

The output of China’s plant protein beverages industry has been constantly increasing year by year. From 5.6 billion liters in 2014, China’s plant-based drinks production has jumped to 8.7 billion litters in 2019. The same year, China’s plant-based beverage industry reached a market size of 53.6 billion yuan. According to Chyxx, the plant-based beverage industry in China was born in the mid to late 90’s when major domestic producers started to dominate their respective market segments. Among these segments we find soy milk, walnut milk, Rice milk and Coconut milk among the most popular in China. While the market is mainly dominated by domestic players, foreign brands such as Oatly have managed to successfully find a niche as well. As a part of the larger health food industry, the plant-based beverages market in China is expected to grow in the coming years as Chinese consumers are getting more health conscious.

The Chinese energy drinks market grows despite health concerns

Energy drinks gaining popularity among the younger Chinese generations which lead to an increase in imports in recent years. Chinese sales of energy drinks in China increased from 9 billion yuan in 2009 to 87.5 billion yuan in 2019. This makes China the largest energy drink market in the world with the largest growth rate at year-on-year increase of 10% in 2019. Even though Energy drinks are not seen as healthy, their consumption is still on the rise thanks to the growing purchasing power of the Chinese middle class and the adoption to a fast-paced urban lifestyle. China’s energy drink is dominated by Red Bull sitting at 57% market shares in 2019 but leaves plenty of room for competition. Among the competitors, domestic brands Dongpeng and Hi-Tiger stand out as strongly established in the local market. Despite growing concerns over the potential harmfulness of energy drinks on health, the Chinese energy drinks market continues to show great growth potential.

To learn more about the Chinese energy drinks industry, read our article on energy drinks in China .

 Red Bull dominates the Chinese energy drinks industry.

Source: Chyxx. Red Bull dominates the Chinese energy drinks industry.

Alcohol consumption in China is trending toward more premium products

Craft beer is becoming more and more popular in China

Knowing a meteoritic rise until 2014, China’s beer market has ever since stalled, production and consumption slowly diminishing. In 2017, the annual beer consumption per capita in China reached 31.9 liters, higher than the global average of 25.9 liters but lower than Japan and South Korea. In 2018, revenues generated by the Chinese beer industry reached 57.49 billion USD, a 0.7% drop from the previous year. Thanks to economic and demographic shifts, there has been a change in Chinese consumers habits regarding beers. As the market matures, interest grows for craft beers, which are usually more bitter and stronger in alcohol. Because of this trend, imported beers are on the rise in China with a compound average growth rate of 42% between 2012 and 2016. While Corona is at the forefront of this soaring market, lighter beer brands Tsingtao and Budweiser were still dominating the market in 2018 with respectively 15% and 16% market shares.

To learn more about the beer market in China, read our Chinese beer market article

The Chinese wine industry is maturing toward premium wines

While wine consumption is not important in Chinese culture, the westernized lifestyle in major urban hubs have led Chinese consumers to pick an interest in wine. While Chinese young adults and women are growing more interested in wine, wine consumption in China still has stagnated over the years. However, thanks to the premium beverage image wine has in China and the maturing of the market, sales value of wine in China has been on an upward trend for years. Indeed, middle- and high-class Chinese consumers see wine as a luxury product and are not afraid to spend more for quality wine.

Sales value for wine in China has increased from 35.2 billion dollars in 2013 to 73.4 billion dollars in 2018. Among the most popular premium wines, those imported from France, Italy and Spain are the most sought after. In 2018, China’s wine imports reached 796.8 million liters, an 80% increase since 2013. While it is considered to be less prestigious than French wine, Australian wine is the second most imported wine in China. However, the souring Sino-Australian relations have had a negative impact on Australian wine imports in China.

To learn more about wine in China, read our Chinese wine market article

Baijiu still is by far the most popular strong alcohol in China

As Chinese middle-class income has grown over the years, so as alcohol consumption in China. According to Pinlue, the Chinese spirits industry was worth 596.4 billion Yuan with a consumption of 5.3 billion liters, accounting for 24% of the global spirits market. The market in dominated by Baijiu sales, a local clear liquor distilled from fermented sorghum coming between 35% to 60% alcohol by volume. While Baijiu is drunk straight, western spirits tend to be accommodated in cocktails in China. Although Chinese consumers have low brand awareness regarding foreign spirits, this trend is slowly changing as Whiskey and Brandy in particular are becoming trendier. Mid-to-high-end spirits gain popularity with a compound annual growth rate of 31.1% over the last 7 years. Therefore, the average price of spirits in China is expected to continue to rise, contributing to further market growth.  

To learn more about the spirits industry in China, read our Chinese spirits market article

Tmall & Baijiu sales dominate the spirit market in China.

Source: Tmall & Baijiu sales dominate the spirit market in China.

Key takeaways from the beverage industry in China

  • The healthy living trend taking China by storm has had major consequences for the Chinese beverage industry. Healthy drinks like plant milk or juices have greatly benefited from the trend while the soda industry has to innovate to keep growing.
  • Tea has proven to be the preferred drink for Chinese consumers over coffee. With encouraging beginnings, the future of the coffee market in China is more uncertain despite still showing potential.
  • As it is maturing, China’s alcoholic beverages industry is tending toward more premium products. This is a great opportunity for foreign spirits brands that are Benefiting from a more prestigious brand image to export to China.
  • Among concerns about China’s water supply, the Chinese bottled water industry is going strong with good prospects ahead.

Author: Camille Gaujacq

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