China Consumer

Browned off

Russian tipple triggers bitter beverage row

Ge Wasi w

The latest craze in China

What’s the most popular Russian drink in China? Most would probably say vodka but recent trends suggest it’s actually a bubbly brown beverage made from rye bread called kvass.

The drink was introduced in China around 1900 by a Russian merchant. Often likened to a very weak beer, kvass is usually flavoured with fruits like strawberries, raisins or mint. Soft-drink giant Coca-Cola even made a version of the drink when it attempted to crack the Russian market in 2009.

Some say kvass is an acquired taste (the New York Times calls it “brackish”) but it is popular in China’s northeast region, where Russian cultural influence is strongest, thanks to its proximity and the region’s history. But kvass is also becoming more mainstream in other parts of the country as more health conscious consumers choose it over sugar-packed soda or fruit juices.

That was good news for Qiulin Food, the oldest producer of the drink in China. As kvass’s popularity grew, Qiulin’s production quadrupled from 5,000 tonnes in 2009 to 20,000 tonnes two years later. The company commanded a market share of over 90% in Heilongjiang, Jilin and Liaoning provinces.

But Qiulin’s near monopoly of the market has been short-lived, especially when the surprise success of kvass caught the attention of drinks giant Wahaha, owned by China’s richest man Zong Qinghou (see WiC200). The Hangzhou-based beverage maker began producing it at the end of 2012 and it has been marketing its new product aggressively, including promoting it on Hunan Satellite TV’s hit show I’m A Singer.

All its investment in the brand seems to be paying off. Wahaha’s kvass surpassed Rmb1 billion ($160 million) in sales by the end of June and is expected to reach Rmb2 billion for the full year. Qiulin reports about Rmb300 million in sales annually, says Nanfang Daily.

To retaliate, Qiulin has been rude about Wahaha’s product, accusing it of merely repackaging an unpopular brand of beer and then passing it off as kvass. The company also posted an ad on its weibo showng adult bodies with the faces of babies, a play on the first character of Wahaha’s name (which means ‘children’).

“Please, ‘wa.’ Even though it’s a copycat, you should still put some effort into it,” read one of the advertisements, adding punchily “How dare you add a little malt and call it kvass? The real stuff is made with bread fermentation!”

Qiulin claims that its own kvass is authentically produced with rye bread using traditional Russian techniques and so is much healthier than Wahaha’s version, which is made from high-calorie malt.

But Wahaha’s boss Zong denies that he has copied Qiulin’s drink. In an interview with Sina Finance, the tycoon says he has been familiar with kvass for more than 30 years but that the drink was usually sold in large bottles that could easily go off in the summer.

“Since then we have had hundreds of researchers who worked on the kvass drink every day to come up with the best product… Kvass is a traditional drink from Russia, Wahaha merely adapted it for Chinese taste so whether or not it is authentic is up the consumers,” says Zong. “Enterprises should focus on the product itself, rather than spreading malicious rumours about other products to elevate itself.”

Industry observers say the reason Qiulin is waging such a public battle with Wahaha is because it knows it can’t compete against the giant on financial resources or via distribution networks. By accusing Wahaha of ripping off its product, Qiulin is actually trying to raise its profile nationally, Xiang Jianjun, an analyst from CIConsulting, told Qingdao Financial Daily.

Wahaha won’t want to back down, however. It has been scrambling to find new products to combat slowing growth in much of its core business. In fact, sales growth dropped to its slowest pace in 2012 and the company missed its sales targets in both of the last two years. As raw material and operating costs continue to climb, Wahaha badly needs a boost from drinks like kvass to stave off pressure on its margins, reckons Tencent Finance.

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