Sparkling beverages soar in popularity among young Chinese

Rika Liu, a 27-year-old who works for a multinational company in Shanghai, opened a bottle of lime flavored Perrier－a kind of carbonated natural mineral water imported from France－after an hour of an exhausting dance class.

"Refreshing and cooling, sparkling water is the best way to quench thirst after exercising. Plus it is sugar free and has no calories," said Liu, who dances four times a week and runs occasionally.

"It is sports that has made me really get into carbonated water. I used to drink a lot of ready-to-drink tea beverages."

She usually buys carbonated water from a nearby convenience store or a vending machine at the building where she trains.

"Carbonated water is everywhere. It's so easy to get a bottle nowadays."

Liu is among a rising number of health-conscious younger Chinese consumers who have contributed to the rapid growth of the carbonated water sector in the past two years.

Mintel Group Ltd's research on sparkling drinks released in September said sparkling beverages proved their popularity through the surge in sales of sparkling water. Their wide range of applications will allow them to expand into other drink categories.

The shrinking population of key younger consumers and enduring concerns about sugar pose challenges to carbonated soda drinks going forward, the report said.

With low or no sugar and calories being the new standard, the industry's efforts in product innovation for the purpose of bringing "better for you" items will sustain the market's growth, said the report.

Sparkling drinks, led by flavored sparkling water, will see a small and positive impact from the COVID-19 outbreak over the medium and long term due to their positioning as a healthy alternative to traditional carbonated soft drinks, the report stated.

About 28 percent and 24 percent of respondents said that they drank more flavored sparkling water and carbonated soft drinks, respectively, in the last six months, suggesting the popularity of intriguing flavors and carbonation in the market.

"Carbonated water that blends good taste and the zero calorie concept has offered solutions for consumers who seek good taste but are scared of gaining weight," said Li Chen, food and beverage analyst with Mintel.

Though the category of carbonated water has existed for many years, it was not until recent years that consumers in China started paying more attention to bubble water products due to the massive marketing campaign by Genki Forest, a new Beijing-based beverage company, said Zhu Danpeng, a food and beverage analyst in Guangzhou, Guangdong province.

Launched in 2017, Genki Forest has grown to be popular among young consumers and "fueled up the expansion of this category", said Li.

"By adopting Japanese style packaging and branding, Genki Forest has caught the attention of the consumers of Generation Z in terms of aesthetics and communications."

Genki Forest, which has received several rounds of financing since 2017, has reached an estimated value of $6 billion.

Tang Binsen, the founder of the beverage unicorn, said it aims to reach sales of 7.5 billion yuan ($1.16 billion) this year. The figure was 3 billion yuan in 2020. One of the key investments of Genki Forest is to display more vending machines or products to quickly raise its availability at retail terminals.

Industry research firm Qianzhan Institute said the size of the carbonated water market in China is estimated at 15 billion yuan in 2019. It is expected to grow to 32 billion yuan by 2025. According to Kantar, consumption revenue from carbonated water in 2019 surged 43.9 percent, far higher than the 5 percent increase of mineral water.

Eyeing the strong growth of the bubble water sector, which grows at about 20 percent annually on average, according to Zhu, Hangzhou, Zhejiang province-based beverage giant Nongfu Spring invested in the sector in an effort to drive up its profits when its main businesses－bottled water, tea drinks and juice－have seen declines of various levels.

Nongfu Spring rolled out its peach-flavored soda water in April, advertising on ingredients including peaches in Fukushima, Japan.

But Nongfu's marketing campaign went sour on the internet as consumers worried over nuclear pollution. Though Nongfu denied the use of any ingredients imported from Fukushima in its soda products, shares of Nongfu, which are traded in the Hong Kong stock exchange, went from its 52-week intraday peak of HK$68.75 ($8.85) on Jan 8 to trade sharply lower just half a year later by ending at HK$38.9 on July 2, a fall of 43.4 percent.

Despite Nongfu's experience, the market for carbonated water is getting bigger. Brands like Nongfu have developed more flavors to attract new consumers by raising the bar for more differentiation and innovation, said Zhu.

Mintel's report found that palatable flavors and a fun texture are keys to the success of carbonated soft drinks and the increasingly popular flavored sparkling water category.

Coca-Cola this year introduced AH!-HA!, which is calorie-, sodium- and sweetener-free. It has a grapefruit and sea salt flavor along with a peach oolong flavor.

PepsiCo brought in its sparkling water category with Bubly, a line of calorie-free fizzy water developed in 2018. PepsiCo has designed three flavors for Chinese consumers－peach, grapefruit and passion fruit.

For many young Chinese consumers, they tend to stick to the sparkling taste and texture which they highly appreciate.