Nestle wraps up unsuccessful tea venture in China

Nestle wraps up unsuccessful tea venture in China

Staff Reporter

2014-06-03

Nestle’s recent pullout from the tea market in China showed that even the world’s largest food company has difficulty operating in the country, reports the Chinese-language Innovative Finance Observation.

The Swiss company confirmed its decision to withdraw from China’s tea market in early May, pulling its Nestea brand which was first introduced in the country in 2002.

This was another failed attempt by Nestle and Coca-Cola — its partner in the Nestea venture — according to market consultant Cui Tao, who said the two companies had failed to position the ready-to-drink tea brand correctly.

Nestle and Coca-Cola are equal partners in Beverage Partners Worldwide, which operates the Nestea brand globally and had decided to tap into the rapidly growing tea market in China during the early 2000s.

In 2000, market data reflected that its tea production had touched 1.85 million tonnes, making it the rising star and the third-largest player in China’s beverage market at the time, the paper said.

Before Nestea’s launch in China, Coca-Cola had unsuccessfully launched two tea-based drinks in the country, including the American company’s first non-carbonated brand in China called Tianyudi and its honey tea brand called Lanfeng, according to marketing expert Sun Zhaoling.

Tianyudi, which was launched in 1998, was removed from the market after a two-year run because Coca-Cola did not set a target market for the brand, while Lanfeng failed because of its high pricing, Sun said.

Despite the resources of both Nestle and Coca-Cola and comprehensive market research, Nestea was launched with heavy marketing campaigns, which failed to captivate local consumers, the paper said.

Euromonitor International figures indicated that Nestea’s market share peaked at 2.3% in 2008 and dropped to 1.9% in 2010 given the highly competitive environment. This led to Nestle and Coca-Cola’s decision to go their separate ways in China in 2012, with the Swiss company taking over the operations of Nestea in the country, while Coca-Cola focused on its Yuan Ye tea brand.

Cui said Nestea had been unable to distinguish itself from leading brands operated by Master Kong and Taiwan’s Uni-President, even though the brand had tried to highlight its Western characteristics.

According to the latest report on China’s tea drink market published by Askci Corp, Master Kong and Uni-President now hold a combined market share of over 40%.

Meanwhile, analysts told the paper that growth in China’s tea market has slowed after two decades, and energy drinks and drinks containing mixed proteins are two categories that are experiencing a surge in market share.

Although Nestle has exited the tea market, the company remains highly interested in other segments in the Chinese market, such as milk and bottled water, which was reflected in its acquisition of related Chinese companies since 2011.

 

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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