Sugar-free brings a new wave of growth opportunities for beverage industry

At present, the overall sugar-free soft drinks in China is in the emerging stage, the sugar-free ratio is still low (excluding bottled water), and there is still a large gap compared with developed countries. According to the product attributes and drawing on the experience of Australia in the development of sugar-free soft drinks, we believe that carbonation and tea are the two main categories for the development of sugar-free beverages. Compared with other categories, the sugar-free development of carbonic acid and tea can bring new development opportunities.

China's domestic sugar-free trend is on the rise. Considering the international trend of sugar-free, major beverage companies have made early deployment in this field, but early products were not popular in the market because they were launched too early and tasted bitter. Until recent years, with the continuous education of consumers and consumer awareness of health and weight loss, the domestic beverage sugar-free trend is gradually emerging, and beverage companies have increased the layout of sugar-free tea and sugar-free carbonated track.

Sugar-free has become the main growth driver for carbonated beverage enterprises. Take Coca-Cola/PepsiCo retail sales as an example, they both achieved positive growth in the past few years. Pepsi's revenue growth is more clearly reflected on the statement side, with double-digit growth in both 2018/2019, and high single-digit growth (8%) despite the impact of the 1H20 epidemic, and we believe that sugar-free products are one of the main growth drivers. According to China Foods, its sugar-free products have achieved double-digit growth in the past few years, and have accelerated growth against the trend under the impact of the 1H20 epidemic, with a year-on-year growth rate of 40-50%. Considering that the per capita consumption of carbonated beverages in China is still far smaller than that of other developed countries, we believe that benefiting from the smooth progress of sugar-free products, carbonated beverages are expected to usher in a new growth point.

Sugar-free tea beverages are booming. Driven by the continued rise in consumer preference for sugar-free products, sales of sugar-free tea beverages have seen strong growth since 2017.Sugar-free tea beverages accounted for 5.2% of the overall tea beverage market in 2019, compared with only 1.5% in 2014.The average compound annual growth rate of retail sales of sugar-free tea beverages from 2014 to 2019 reached 32.6%, significantly higher than that of sugar-containing Growth rate of tea and beverages (3 per cent).