Recently, the price of iced black tea, which has remained unchanged at 3 yuan for many years, has increased, shocking many people. So why did Master Kong, which was once hailed as the "price-conscious domestic brand", increase its price? This article will take you to explore.

"3 yuan is for face, 4 yuan is for life. It's not that we can't afford the small bottle, but the big bottle is more cost-effective."

Previously, iced black tea was hailed as a "country drink" and became popular again. In the context of consumption downgrade, people appreciate its simplicity and affordability, just like the saying "Mi Xue Bing Cheng doesn't mind that I'm poor, and I don't mind that it's country-style" back then.

For many people, the price of iced black tea, which has remained unchanged at 3 yuan for many years, symbolizes their youth. When the news of the price increase of iced black tea came out, everyone couldn't help feeling "stabbed in the back".

Pictures circulating on the Internet show that the price of Master Kong's 500mL medium package has increased from 3 yuan to 3.5 yuan, and the 1L package has increased from 4 yuan to 5 yuan.

Although relevant staff stated that "there has been no price increase for the time being", different parties have different opinions. The 21st Century Business Herald learned from Master Kong's partners that Master Kong has indeed been planning to increase prices for a long time.

A few months ago, Master Kong was hailed as the "pride of affordable domestic products", but now it has raised its prices. From the perspective of beverage industry trends, is it really "floating"?

1. “Suggested Retail Price” reflects both sides of the channel

The beverage industry has always been about channels being king. In 1996, Master Kong Ice Tea was launched. With the mature dealer network built by the instant noodles business, Master Kong beverages directly used the original channels and sold them together with instant noodles, which was successfully and quickly introduced into the market. Its offline distribution advantage has been maintained to this day.

The sales model of this type of traditional beverage is distributed in layers. The breadth and depth of the channel determines the opportunity for the beverage brand to contact consumers, that is, the possibility of purchase. Its importance is self-evident. However, the layers of links will also limit the communication between enterprises and terminals . The two sides of the channel are the game between traditional enterprises and distributors.

The beverage industry is too fragmented, which means that the brand's "recommended retail price" has little practical significance at the end of the sales process. The price increase is transmitted to the store for a long time. Stores will choose to increase prices, sacrifice profits to maintain the original price, or reduce prices according to their own circumstances. Many media visited supermarkets and small stores of different sizes offline and found that this is the reason why iced black tea has different prices.

Image source: Jimu News

But raising the "recommended retail price" is not without effect for enterprises. The price increase of Master Kong is considered to be a response to rising costs. According to Nanduwan Finance, the price per ton of white sugar and PET used by Master Kong to produce beverages have shown an upward trend this year. In the past two years, Master Kong instant noodles have also increased prices to varying degrees. At that time, it was interpreted as a result of rising raw material prices, but the price increase actually led to an increase in the profits of Master Kong's instant noodle business.

According to estimates, the increase in the ex-factory price of Master Kong's products is at least 10%, which means that even if the number of beverage sales remains unchanged, Master Kong's performance can still grow significantly next year.

Data from Master Kong's 2023 semi-annual report shows that the beverage business accounts for more than 65% of its current revenue. Master Kong tea drinks are its core business, but tea drinks, which bear heavy responsibilities, appear weak in the overall market growth.

After iced black tea, the ready-to-drink tea market has been close to saturation in the past 30 years. Master Kong has long been hovering at a low price of 3 yuan, with limited profits, and has also been impacted by health trends such as sugar-free and reduced sugar. After reaching a peak of 55.4% in 2015, Master Kong's ready-to-drink tea market share began to decline continuously.

In the first half of this year, Master Kong's beverage business grew 9.5% year-on-year, and it is surrounded by fierce competitors. Suntory grew 10.3% year-on-year, its rival Uni-President's beverage business grew 12.26%, and Nongfu Spring's tea beverage business (Oriental Leaves, Tea Pi) grew 59.8% year-on-year.

Under heavy siege, raising prices is the most direct way for Master Kong to gain profits and ease the pressure of performance growth, but it may not last long.

2. Higher expectations after price increase

Since the beginning of this year, the retail prices of Pocari Sweat and Yakult have increased by 0.5 to 1 yuan. In the price increase incident of Master Kong, Coca-Cola, which was used to "pull down" the company, actually raised its suggested retail price from 3 yuan to 3.5 yuan in 2021. Netizens lamented that "it is no longer possible to find drinks under three yuan in the store now."

Image source: Jimu News

The “cheap” products mean that some innocuous flaws can be tolerated, such as the Mixue Ice City in milk tea. However, consumers have higher expectations for expensive beverages, such as “healthy” and “delicious”. Master Kong’s price increase is also to raise its products to the starting line to compete with beverages of the same price and accept consumer scrutiny.

For example, the mainstream price of sugar-free tea is between 4 and 7 yuan, and its taste, quality and brand concept are more attractive to consumers. The same requirement has become a "boomerang" aimed at Master Kong: if the price is to increase, then you have to take a close look at the ingredient list of iced black tea.

Even if the price increases, the position of iced black tea will remain unshakable in the short term due to factors such as substitutes and consumer habits. However, the "3 yuan" price increase, which has remained unchanged for many years, reflects Master Kong's consideration of the future growth space of ready-to-drink tea. Ready-to-drink tea can be roughly divided into "sugar tea" and "sugar-free tea". For a long time, sugar tea has occupied 90% of the ready-to-drink tea market.

Master Kong Beverages relied on iced black tea to gain a foothold, attracting other companies to follow suit. For a long time afterwards, there was almost no substantial innovation in ready-to-drink tea. The squeeze from competitors in other fields such as milk tea and coffee, and changes in consumers' health concepts and tastes, have made the disadvantage of the lack of innovation in ready-to-drink tea begin to emerge: from 2015 to 2021, the ready-to-drink tea market began to shrink slightly, and the growth rate ranked second to last among all beverage categories.

Image source: Master Kong Ice Tea

This fatigue is not because the ready-to-drink tea has hit its ceiling, but rather because the sugar-sweetened tea that used to be the mainstream has reached saturation. Nielsen IQ data shows that sugar-free tea, as a subcategory of ready-to-drink tea, has contributed 92% of the growth in the beverage market in the past two years, with sales increasing by 109.3% year-on-year.

Thanks to the popularity of sugar-free tea, the sales growth rate of ready-to-drink tea is not only higher than the same period last year, but also higher than the data before the epidemic. It has surpassed carbonated beverages to become the "No. 1" category.

3. Try to squeeze into the gradually established sugar-free market

After Uni-President's "Cha Li Wang" entered the mainland market in 2004, Coca-Cola and Nestle's "Yuan Ye" in 2010 and Master Kong's "Benwei Tea House" in 2012 have explored sugar-free products. Limited by the environment at the time, these products have withdrawn from the market. Therefore, when Master Kong launched two sugar-free tea drinks, cold brewed green tea and jasmine tea in 2020, it used words such as "eight years away" and "return". So far, it has launched a new sugar-free tea drink almost every year.

Cold brewed green tea and jasmine tea in 2020, sugar-free iced black tea in 2021, "purely extracted zero sugar" jasmine tea in 2022, sugar-free jasmine green tea in 2023... Master Kong's frequent launch of new sugar-free tea drinks has not made much of a splash. Currently, the most reviewed is the sugar-free iced black tea that "borrows" from iced black tea. In the 2022 evaluation of 15 sugar-free teas by Dinchmang Technology, Master Kong's sugar-free iced black tea ranked last due to issues such as taste and sugar substitutes.

Image source: Master Kong Ice Tea

Master Kong has been continuously trying to enter the sugar-free market because after experiencing several years of low growth in ready-to-drink tea, it saw the broad market prospects for sugar-free tea.

This year, the overall domestic sugar-free beverage market exceeded 20 billion, doubling compared to two years ago. And compared to the entire Asian ready-to-drink tea market, Japan's sugar-free tea accounts for nearly 90%, and even in Southeast Asia, a sweet-loving region, the proportion of sugar-free tea accounts for 30%-40%, while China only accounts for 13%.

Sugar-free tea is still a niche product in the domestic market, but it has already accumulated deep brand assets.

Suntory entered the Chinese market in the 1990s and launched the first sugar-free tea in China in 1997. Nowadays, when people mention sugar-free tea, they will think of the Suntory brand. Oriental Leaves, launched by Nongfu Spring in 2011, made a comeback after being rated as one of the "Top 5 Most Difficult Drinks" and sitting on the bench for ten years. It has maintained a growth rate of more than 50% in the past three years.

In addition to the two giants, there is also Yuanqi Forest, which was established not long ago but has become the representative of "0 sugar". Coca-Cola, Yibibao, Nayuki and others all want to get a piece of the pie. DT Finance's survey on sugar-free tea in May pointed out that among the 41 new tea beverages this year, more than 60% are innovations in sugar-free tea, and a total of 18 brands have launched 25 new sugar-free tea products with 36 flavors.

On the one hand, the activeness of sugar-free tea can expand its voice and cultivate consumer habits, but on the other hand, it means an inevitable trend of internal circulation.

In the chart of Nielsen IQ, the beverage industry's TDP increased by 10.5% year-on-year in the first half of 2023. TDP is the cumulative distribution rate, which represents the sum of the distribution rates of individual products in a certain sub-category/brand. In short, brands now need to spend more on distribution in order to be "seen" by consumers.

Image source: Nielsen IQ

With limited innovation in sugar-free tea drinks and unwilling to give up its position in iced black tea, Master Kong seems to be caught in a dilemma in terms of product innovation. The sugar-free iced black tea that uses erythritol as a sugar substitute has received the highest evaluation of "high degree of restoration to the original", but this only prolongs the life of the original category and does not bring new category breakthroughs to Master Kong. Compared with other mature sugar-free tea brands, there are not many loopholes left for Master Kong in the market.

Author: Top Jun WeChat public account: TopMarketing