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Master Kong Edges Out Coca Cola in Soft Drinks Segment

2011/04/06 | By Philip Liu

After exceeding Coca Cola to become the largest soft drinks distributor in China, Master Kong is set to widen the lead over the iconic cola brand by deepening its penetration in various non-carbonated drinks segments.

In an exclusive interview with the Chinese-language Economic Daily News (EDN) recently, Wei Yingzhou, chairman of Master Kong, stressed that it was an uphill battle to overtake Coca Cola in sales in China last year for the American brand has been in the Chinese beverage market for over 30 years, compared with 13 for Master Kong, whose passing of Coca Cola is three years ahead of schedule.

Wei attributes exceeding Coca Cola to higher efficiency and the savvy strategy of avoiding head-on competition in the carbonated segment, where Coke commands a share of over 65% in the U.S. and European markets but only 15% in Asia. Carbonated drinks is not the decisive product in the Chinese beverage market, which also includes the three other major products as fruit juice, tea and bottled water, with the four segments making up 95% of market share.

Still Thirsty
Wei says the Chinese beverage market is still far from being quenched, which should top 500 bottles per-capita annually in 20 years, compared with 90 now, equaling that in Taiwan currently. Basically Wei says the massive potential is due to China's huge area and relatively lesser degree in personal mobility (likely due to low car ownership), hence resulting in lengthy long-distance travel times. In other words, Chinese simply demand more beverages as they develop thirst while traveling considerable distances.

Besides the promising beverage segment, Wei says the 12th five-year development plan in China will help to enhance personal consumption, with the massive population to consume more but demanding better food, predicting that per-capita consumption of instant noodles to double to 60 packs a year. “We are entering a golden era in the next 20 years.”

Master Kong edged out Coca Cola in beverage sale last year but Wei is confident of widening the lead to 2:1 in five years, which looks to be a formidable goal because Coca Cola and Pepsi Cola plan to invest US$2 billion and US$2.5 billion, respectively, to expand capacities in China in three years.

Adopting a street-smart strategy that states it is more important to expand the overall market than one's market share, which benefits all players, Master Kong, despite soaring material prices last year, held off raising prices until the fourth quarter. Such strategy has inevitably impacted gross margin, which was offset by management tactics and economy-of-scale, says Wei.