China Consumer

Too good to be true

A sugar-free local brand challenges Pepsi and Coca-Cola – then apologises


Generation next: Wang Junkai

Xu Han, who is in his mid-20s, admits that he hasn’t had a soft drink in a long time. In the past, he told, his family often served Sprite and Coca-Cola at dinner gatherings. But more recently, their choice of beverage has been changed to fruit juices and milk-based drinks.

Xu explains that he chose to skip carbonated drinks because they are “unhealthy” and he is watching his weight. He avoids sugary drinks whenever possible – only occasionally indulging in a cup of milk tea with his girlfriend.

That’s bad news for soda companies like Pepsi and Coca-Cola, which were already struggling to find growth opportunities for carbonated drinks in China. To jumpstart sales this summer, the two US beverage giants recently unveiled their latest marketing splashes – just two days apart from one another – by hiring new brand ambassadors.

In early April, Pepsi announced that pop icon Cai Xukun would represent Pepsi Zero Sugar, its sugar-free cola. Coca-Cola appointed TF Boys member Wang Junkai to endorse Coke and Coke Zero.

“The serious homogeneity of soda means that the competition in the beverage industry is not only a competition about the product but also a competition of distribution, marketing and brand equity,” Tencent News observed. “So, Pepsi and Coca-Cola are hoping that by hiring the celebrities, they could convert the huge traffic behind them into traffic for the brand, turning their fans into receptive consumers.”

The big push behind diet soda comes at a time when local consumers like Xu are increasingly health conscious. A high-sugar diet is also a public health issue as China has the world’s largest population of diabetes patients (around 116 million). Sugar-free drinks have become such a lucrative segment that a domestic beverage company is now worth $6 billion. Genki Forest – which claims “zero sugar, zero fat and zero calories” as a major selling point – completed a new fundraising round in March that saw its valuation triple from $2 billion in July 2020.

“Young domestic consumers today crave diversity in taste and flavour and are more willing to try new things. At the same time, their demand for energy drinks, tea, sparkling water, juice, milk tea and other beverages is also greater than ever. Taking this opportunity, a number of new domestic brands that focus on zero-sugar drinks – such as Genki Forest – have risen rapidly, which undoubtedly puts a lot of pressure on Coca-Cola,” TMT Post reckons.

Genki Forest uses erythritol, an expensive artificial sweetener that mimics the effect of white sugar, with fewer health detriments. Pepsi and Coke both use aspartame in their diet sodas, which is a cheaper sweeteener.

But is sugar-free still too sweet? Last month Genki Forest was accused of misleading consumers with its claim that its beverages are free of sugar when its top-selling milk tea drink, which retails for around Rmb12 ($1.85) a bottle, was found to contain it.

The company, which has since apologised for a “sugar free” label on its milk tea packaging, explained that the drink is not entirely free of sugar as it is made of milk, which naturally contains lactose (a form of sugar that gives milk its slightly sweet taste). The company has since changed the wording from “sugar free, low fat” to “low sugar, low fat” on its milk tea drinks.

The PR debacle over sugar content has been damaging for Genki Forest, which charges a premium over domestic brands like Master Kong and Nongfu Spring (a 480ml bottle of its carbonated water costs Rmb5 on Tmall, compared with Nongfu Spring’s sugar-free sparkling water, at Rmb3.5 a bottle). The company, savvy at marketing, created a brand that sounds Japanese to evoke a more premium image (see WiC511 for our first profile of the beverage firm). In 2020, it generated annual sales of Rmb2.9 billion, reportedly up 270% from a year ago, according to NetEase.

Angry netizens have continued to call out Genki Forest on social media for deceiving consumers. Some were also worried that the sugar-free sodas they have been guzzling also harbour added sugar (health experts have clarified that they don’t). Still, the harm has been done. “I feel like I was being treated like a fool. I will stop buying Genki Forest,” one angry shopper wrote on Sina Weibo.

To combat the rise of Genki Forest and other Chinese rivals, Coca-Cola has launched a flavoured sparkling water label named AH-HA to attract local consumers. The initial response hasn’t been overwhelming. “Tastes just like club soda but at double the price,” one unimpressed netizen commented.

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