Turning soft

Will new version cause a splash?

“A valuable Brain Tonic, and a cure for all nervous affections – sick headache, neuralgia, hysteria, melancholy” – that’s how the Atlanta pharmacist (or perhaps mixologist) John Stith Pemberton marketed his bubbly drink made of coca leaf, kola nut, sugar syrup and carbonated water in the late nineteenth century.

Known as “Coca-Cola” the concoction contained doses of cocaine (at least till 1903) along with caffeine but still it was touted as a healthy alternative to alcohol amid a rising tide of temperance. An “intellectual beverage” for those under extreme mental exertion, was another of Pemberton’s claims.

A continent away in China a herbal tea called Wanglaoji (or Wong Lo Gut in Cantonese) also took off in the nineteenth century. It emerged when a teahouse of the same name was opened in Guangzhou’s foreign quarter in 1853. Made from mint, honeysuckle and other herbs, the mildly sweet drink (also known as liang cha, which means ‘cooling tea’) was meant to relieve the heat and humidity in the human body.

Some said its popularity was gained during widespread epidemics in the 1850s. Others said it was thanks to an endorsement by Lin Zexu, the imperial commissioner who seized British opium imports and triggered the First Opium War.

Almost 165 years on and Coke’s infuence has finally resulted in change at Wanglaoji. Last month in Davos the state-owned maker of the beverage, Guangzhou Pharmaceutical Corp (GPC), announced it would launch a new product called Wang Lao Cola.

Imagine a caramel-coloured brew smelling medicinal but tasting fizzy. A close relative might be ginger ale, a carbonated soft drink flavoured with high-fructose corn syrup.

Wanglaoji has long been dubbed China’s Coca-Cola, less because of its traditional taste, but more because both use red as their distinctive brand colours and have a rivalling doppelgänger (see WiC103 for the feud between Jiaduobao and Wanglaoji that mirrors the intensity of that between Pepsi and Coke).

Yet many find its diversification from herbal tea to soft drink – a beverage often associated with obesity – strange.

Li Chuyuan, the chairman of GPC, explained at the World Economic Forum that the move was meant to modernise Wanglaoji and make it more fitting for the international market. Another goal is to lure young consumers.

But the carbonated drinks market in China is not more lucrative than those for tea or dairy beverages. Shenzhen-based research firm ASKCI Consulting calculated that the combined profits from tea drinks was twice that of carbonated beverages in 2016. The net profit of GPC’s Wanglaoji operation climbed 17.6% to nearly Rmb360 million in the first half of 2017.

The lower market share of fizzy soft drinks reflects a rising health consciousness among Chinese consumers, according to Steven Kwok, associate partner at OC&C Strategy Consultants.

“Bottled water and sports drinks both registered double digit value growth, whereas carbonated drinks have been essentially flat [in the past few years],” Kwok told WiC, noting that the non-alcoholic beverage segment as a whole has been logging high single-digit growth over the same period.

“Even within carbonated drinks, we see very different performance, whereby non-cola carbonates have been growing at 2.5% a year for the past few years but with cola carbonates declining at a similar rate,” observed Kwok. “The non-cola carbonates segment is certainly attractive.”

Coca-Cola, for instance, launched Schweppes+C in 2014 with the claim that the citrus drink could help to meet daily requirements for Vitamin C. In fact, close to 90% of the non-cola carbonated drinks today are based on citrus flavours, said Kwok.

GPC’s new cola variant is expected to hit supermarket shelves in the first quarter of this year. Meanwhile a month before Wang Lao Cola’s official launch at Davos, GPC was making bold health claims of its own. At the Fortune Global Forum it announced that drinking Wanglaoji could extend one’s life expentancy by 10%, citing government-backed scientific research.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.