PepsiCo and Coca-Cola control the lion's share of China's carbonated soft drinks sales, worth $6.7 billion in 2003, the year China edged out France as the fifth-largest soft drink market globally, following the U.S., Japan, Germany, and the U.K. It is expanding quickly, with roughly 10% growth expected annually through 2008, according to Datamonitor.
In the absence of major local manufacturers of carbonated drinks, China is playing out a familiar two-horse race between Pepsi and Coke. So far, neither company is the clear winner.
"If you take the total portfolio they offer, I think Coke would be No. 1 in most markets, but in some locations Pepsi is eking out Coke," said Shanghai-based Darryl Andrew, managing director, China at Synovate, Aegis Group's market research division.
In Shanghai, where both companies have their Chinese headquarters, "it's still a tightly-fought battle," said Mr. Andrew, but in more rural locations, "I think Coke has the upper hand with stronger distribution and a wider bottler network. Their presence on the ground in smaller cities is an advantage."
Pepsi, however, has been very successful at building a strong relationship with young Chinese over the past five years. Pepsi has a "stronger cool definition [and] their approach has shown more avant-garde, outside-the-box thinking and guerrilla marketing tactics," he said.
The architect behind Pepsi's rapport with local youth is Richard Lee, Shanghai-based VP of marketing for PepsiCo's beverage business in China. To promote its "Dare for More" brand platform, the Hong Kong native has aligned Pepsi with two powerful teen passion points, music and sports, in non-traditional media like concerts, grass roots promotions and training camps, supported by a strong dose of celebrity sponsorship and some of the most cutting-edge TV advertising to air in China to date.
"The ëDare for More' message fits very well with self-expressive, optimistic sentiment of modern day teens in China, as well as the physical qualities of the Pepsi drink," said Mr. Lee, who has doubled Pepsi's market share in China since 1997 to roughly 22%, bringing it into sparring distance with its global rival. (See Player Profile, AdAgeChina, August 2005)
Industry observers in China partly attribute Pepsi's success among youth to the lackluster performance of its main rival in recent years. Then Coke shook up its local marketing team last year by bringing in a star performer, Ilan Sobel, as Shanghai-based general manager, strategic marketing and innovation, China.
A successful innovator in Hong Kong and Thailand, Mr. Sobel immediately set out to strengthen Coke's street cred by cultivating ties with some of the same "passion points" that Pepsi had long been associated with. For example, Coke now sponsors S.H.E., a popular all-girl band, and forged a marketing alliance with the creators of "World of Warcraft" in China, one of the world's largest online game markets.
Mr. Sobel also has valuable experience in developing new products. That's especially important in China, where both Coke and Pepsi need to convince local consumers raised on tea, water and juice to give sodas a try.
"In China, iced teas are bigger than carbonated soft drinks. They don't fall under the industry definition of soft drinks, but from the consumers' perspective they definitely are," said Stephen Drummond, general manager-head of planning at Nitro Group in Shanghai.
"The biggest challenge for the industry is to grow consumption and create more consumption occasions," agreed Harjot Singh, strategic planning director, BBDO, Shanghai, Pepsi's agency in China.
"We need to create a stronger preference for a cola variant, as well as create a preference for the Pepsi brand. The challenge gets harder as consumers grow older, but we can't be tied to teenagers."
The downside? "If we are successful, I'm sure there will soon be a larger repertoire of choices to compete with, as aggressive local companies start entering the market," sighed Mr. Singh.
China's carbonated soft drinks market value forecast (in US$)
2003: 4,100 million (+10.7%)
2004: 4,600 million (+10.8%)
2005: 5,100 million (+11.1%)
2006: 5,600 million (+10.4%)
2007: 6,100 million (+9.5%)
2008: 6,700 million (+8.8%)