It was reported on Saturday that China's leading beverage maker, Hangzhou Wahaha Group Co, will see its revenue fall again in 2015, following a more modest decline in 2014. Wahaha's poor performance has sparked concerns about China's broader beverage industry, which is struggling to keep up with rapidly changing consumer tastes amid a slowing economy. Experts said large beverage companies still have opportunities to upgrade their technology and seek more profitable products and businesses. However, small beverage makers with outdated capacity face a far direr situation.

Photo: CFP

Beverage behemoth Hangzhou Wahaha Group Co's sales revenue is likely to fall another 10 percent in 2015, as the company struggles to maintain growth amid a slowing economy and changing consumer tastes, the China Business Journal reported on Saturday.

If the newspaper's report turns out to be correct, it will be the second straight year that Wahaha's sales revenue has fallen. In 2014, the company's sales dropped 7 percent from the previous year to 72.8 billion yuan ($11.42 billion).

It wasn't that long ago that Zong Qinghou, Wahaha's chair and once the richest person in China, predicted that annual sales would top 100 billion yuan, the report said. However, annual sales topped out at 78.3 billion yuan in 2013, up 23 percent from the previous year, according to the data posted on Wahaha's website.

Although many domestic beverage giants have set goals of 100 billion yuan in revenue, it's not going to happen any time soon due to rising costs and a slowing economy, the report said.

Wahaha is currently the largest beverage company in China by revenue, with product lines covering dairy drinks, bottled water, carbonated drinks, bottled tea, juices, liquor, canned foods, snacks, infant formula, children's clothing and healthcare products, the company said.

A victim of rumors

Jin Jing, a 35-year-old woman working at a Shanghai-based company, used to be a Wahaha customer. On her regular weekend trips to the supermarket, she would buy Wahaha's brand of fruit yogurt drink called Nutri-Express. However, after she heard accusations in the media that Wahaha exaggerated the health benefits of Nutri-Express, she switched to another product in 2014.

That same year, rumors emerged online that Nutri-Express also had quality problems. Although Wahaha has repeatedly assured the public that its products are safe, customers still chose to abandon Nutri-Express.

Zong said in public that rumors and the spread of counterfeit products cost his company 5 billion yuan in 2014, according to a report by the news portal chinanews.com in March.

Wahaha is not the only beverage company that has been burned by food safety rumors. With so many cases related to food safety being reported in recent years, consumers have become more interested in choosing food and beverages that promise to be healthier and of higher quality, said Zhou Dewen, president of the Small and Medium Enterprises Development Association in Wenzhou, East China's Zhejiang Province.

An industry in decline

China's beverage industry has also faced headwinds from an economic slowdown, fierce competition at home and abroad, and changes in consumer tastes, said Liu Zhigang, an analyst with Beijing Orient Agribusiness Consultant Co.

For instance, Hong Kong-listed Tingyi Holding Corp, another beverage company, saw its 2015 first-half profits drop 14.77 percent year-on-year to $197.7 million, with sales revenue down 11.52 percent to $4.87 billion. Beverage giants Uni-President China Holdings and Want Want China Holdings reported falling profits in 2014.

The industry is also struggling outside of China. US-based beverage giant Coca-Cola Co said in January that it would eliminate 1,600 to 1,800 jobs globally to cut costs. In the third quarter, the company's profit declined 31 percent year-on-year to $1.45 billion.

The growth of China's beverage industry slowed to an annual rate of 13 percent in 2014, down from 20 percent in 2011, according to a report in August by the China Business Journal, which predicted growth will continue to slow in 2015.

A way forward

Facing such a difficult situation, domestic beverage companies have no choice but to upgrade their technology and develop new products to attract consumers, Zhou told the Global Times on Thursday.

As the largest beverage company in China, Wahaha has never stopped looking for new ways to profit, even though it has failed to develop new products to attract more consumers, the China Business Journal reported.

At an industry conference in Shanghai in September, Zong said China's beverage companies have had trouble coming up with products that can satisfy the changing needs of consumers, according to the report.

For example, more and more people are turning away from carbonated beverages for health reasons, Liu said. As sales of carbonated beverages have slowed, the segment has made up less and less of China's beverage market. Carbonated beverages accounted for 25 percent of total domestic beverage sales in 2013, down from 36 percent in 2000, according to a report by Shanghai-based Daxue Consulting Co in June.

As they become more health conscious, consumers have become more concerned about sugar and other additives, so they have been turning to lighter drinks with subtler flavors and simpler packaging, Liu told the Global Times on Wednesday.

Along with responding faster to changing consumer tastes, domestic beverage companies also need to focus on upgrading their technology.

Wahaha is among several companies participating in a trial program for intelligent manufacturing that the Ministry of Industry and Information Technology is pushing forward, the Hangzhou-based Qianjiang Evening News reported in November.

Wahaha has produced robots that can load, unload, package and stack goods onto pallets, the report said.

As of press time Sunday, the company had not responded to a Global Times request for more details about this business.

"Large companies have the advantage to develop new business due to their strong finances and talent pool," Zhou said, noting that Wahaha would benefit if the new business could boost its production efficiency.

However, Liu questioned whether beverage companies have managers with the right skills and experience to develop other businesses. These companies can also obtain technology through mergers and acquisitions.

"Small companies with outdated capacity have to seek opportunities to cooperate with larger companies to upgrade their technology," Zhou said. "At the same time, they will have to focus on developing new products to meet consumers' needs. Otherwise, they will be eliminated from the market in three or five years."