After More Than 20 Years of Fighting Each Other, Tingyi and Uni-President Are Turning Into Two Different Companies

Uni-President takes bigger risks on new products; Tingyi has the stronger distribution. The two rivals look less alike every year — but against the young consumers who will decide the next market, both are on the defensive.

After more than 20 years of fighting each other, will people still mention Tingyi and Uni-President in the same breath? On the evidence of today, the two are drifting apart.

The packaged-food market is growing slowly, and some categories are shrinking. The old rivals have chosen opposite answers. Uni-President is throwing expensive, high-margin new products at the new market. Tingyi, judging by how many products it launches and where it aims them, is leaning on what it already has: its existing products and a deep sales network.

Still, 2016 was hard on both. Uni-President's revenue came to 20.9 billion yuan, down 5.1% from the year before. Tingyi, the bigger of the two, took in US$8.3 billion (about 57.68 billion yuan), but fell further — 8%.

Neither made much money. Uni-President's net profit last year was 607 million yuan, down 27.2%. Tingyi's was US$213 million (about 1.47 billion yuan), down 24.3%.

Put that way, they look like two brothers sharing the same bad luck.

Uni-President's slide was the gentler one, because it moved early into mid- and high-priced instant noodles and caught the "consumption upgrade." But look at beverages, now 58% of revenue at both companies, and the two are stuck in the same corner. Beverages are also where they have come to look least alike.

New Products

Start with the drinks the two put on the market in 2016.

Uni-President launched seven of them (it launched 12 in 2015) — a lot of products, and some bold ideas. The clearest sign of its nerve: three functional drinks priced near 20 yuan — Relax and Awaken, from the Nature Lab line, and Qingchang Jiaozhu.

Nature Lab is unlike anything Uni-President had made before. At 19.9 yuan it is the most expensive drink the company sells; the only things on the shelf to compare it with are imports. The bottle is not cheap either: a bottle-can, the format imported drinks often use, which the company says is made in Japan.

Another change: the Uni-President logo is hard to find, tucked into a corner of the bottle. Like its other launches since 2012, the drink is not named "Uni-President plus category" — Uni-President Iced Black Tea, say. This is a deliberate retreat from the corporate name, the same move behind Classmate Xiaoming and Haizhiyan, and the group's identity fades with it. Chen Wei, a section chief in Uni-President's public relations department, once told QDaily the point was to turn each product into a brand of its own, while the parent company's name is played down further and further.

Besides Nature Lab, Uni-President's other new drinks — the Tianmi Guangnian mango-pomelo sago, Qingchang Jiaozhu, Shuiquduo — all retail above 5 yuan. So do the 2015 products: the fruit-and-vegetable juice Ruwei Shike, Classmate Xiaoming, Assam Milk Tea. All of them aim at young consumers in first-tier cities, who will try something new and can afford it.

Tingyi, by comparison, launched little. Nongnong, Mango Yogurt, Fragrant Lychee, Golden Orange Passion Fruit — teas and juices, the ground Tingyi knows best and its two largest sources of beverage revenue. It opened no new category and rethought nothing fundamental. Mango Yogurt tastes fuller than the old Daily C juices, following the blended-flavor route, but it sits in almost the same place: distinctly feminine, with a touch of the soft, wholesome "little fresh" look.

Tingyi's new drinks are cheaper, too. Only Nongnong sells for more than 5 yuan. Shuiyang, the lightly flavored water Tingyi launched in 2014, was aimed squarely at Haizhiyan and Suntory's Qinning lemon water, yet priced below both, at 3 yuan. It never matched their success, and it was pulled in 2016.

Next to Uni-President's willingness to drop its own name and sell drinks at double-digit prices, Tingyi has produced no breakthrough. "Tingyi is in an awkward spot: its old star products are aging, and its new ones cannot get a foothold in the market," Xiang Jianjun, a food-industry researcher at China Investment Consulting, said in an interview.

Fewer of Tingyi's launches make any mark than Uni-President's. Most of what it put out in 2014 and 2015 — Shuiyang, a vitamin water, or Yikeguan light milk tea — did not survive. (Haijing Lemon did, though it looks more like a copy of Haizhiyan.) What Tingyi stocks most widely in first-tier cities and newer channels, and what it can still show off, are the jasmine green tea and jasmine honey tea lines, plus Tingyi green tea and black tea. All of them are more than 10 years old.

Tingyi, in other words, still runs on the single-big-product model: aim at the broadest market, make one product at enormous scale to push costs down, and use its distribution to sell thin margins in great volume.

As late as 2016 Tingyi was still "pushing distribution deeper" and chasing "the opportunities of urbanization" — its own words, from its annual report. Uni-President had begun looking at the 250 to 300 million people in the top fifth of the mainland's spending pyramid, the "middle class," or something close to it, and at the upgrade market they represent. That is also why, for five years running, Uni-President's gross margin has been 2 to 5 percentage points above Tingyi's.

Then in September 2016 Tingyi was dropped from the Hang Seng Index, and banks including HSBC and BOCOM International cut their ratings on it. A key reason: Tingyi innovates too little on its products. At its 2014 peak the company was worth more than HK$110 billion; it is now worth HK$58.5 billion, down almost half. Uni-President has held steadier: it is worth half as much as Tingyi, but its share price has fallen only 28.5%.

Innovation and Failure

Before its Old Jar pickled-cabbage noodles became a hit in 2003, Uni-President was the weaker party in this fight. It came to the mainland late, and its distribution lagged behind Tingyi's, which had grown up there.

In Taiwan, Uni-President is bigger and older, and its real strength is product development. The push into the mid- and high-end showed as early as 2008, when a slightly pricier water, Alkaqua, turned the bottled-water business profitable. Uni-President left the low-end water market in 2014.

Around 2012, phrases like "getting out of low-price competition" and "a steady stream of differentiated drinks" began to recur in the way Uni-President talked about itself. Almost every new product was a drink above 4 yuan with a 40% gross margin, or an instant noodle above 5 yuan with a margin over 35%. Internally these are "2.0 products"; in the annual report they are "personalized, diversified, premium."

Premium showed up first in the packaging. Uni-President has won six Pentawards, the Oscars of package design — among Chinese consumer-goods companies, probably only Nongfu Spring stands beside it. Bama Spring, Mingming Is Tea (launched in Shanghai in 2013, since discontinued) and Classmate Xiaoming brought it one silver and two golds. In 2016, Assam Milk Tea and PLAN N, a plant-protein drink, won gold. Ge Mian is the award-winner among its instant noodles.

Development changed too. Alongside the ordinary research department, Uni-President has run a bottom-up system since 2004. Unlike the usual consumer-goods process, it leans less on ingredient suppliers and market research: any employee at Uni-President China can propose a product. The idea for Classmate Xiaoming is said to have come from a product manager who drank cold-brew tea on a trip to Taiwan.

Proposals go to a creation committee of senior staff seconded from across the company. Once the committee and the person who proposed it settle on the concept and the gross margin, two separate teams build the product in parallel, and the committee picks one of the two to launch. Uni-President even brings in college students: a "broadly post-90s consumer panel" helped develop Classmate Xiaoming and Haizhiyan.

These "2.0 products" now make up about 24% of Uni-President's revenue. Hou Ronglong, general manager of Uni-President Enterprises, wants high-margin products to reach 40% of sales within three years.

But the innovation is not going smoothly.

So far, launching aggressively has not brought Uni-President lasting success in beverages. The numbers are poor: beverage revenue barely moved in 2015 and fell 13% last year, far worse than the 6.49% decline at Tingyi's drinks business.

Last year produced nothing on the scale of Classmate Xiaoming, which sold more than 500 million yuan in six months. New drinks almost never work: only about 5% survive more than a year.

Of the 2016 launches, three are still on sale: Shuiquduo, the Tianmi Guangnian mango-pomelo sago and Qingchang Jiaozhu. "Only 1% keep selling well for more than three years," Niu Ka, brand manager for functional drinks in Uni-President's integrated beverage division, told QDaily in an earlier interview.

Nature Lab: Awaken is effectively gone. You can no longer find it in convenience stores or online.

Uni-President is still working by trial and error. It has been making functional drinks since Uni Sports in 2015. Tingyi has not entered the category (though after buying PepsiCo's China business it can sell Gatorade). Uni-President went in because China's functional-drink market is growing fast. Nature Lab was its second attempt, and its second failure.

When a product misses the market, everything spent on it is sunk. From development to production to marketing, a new drink costs 60 million to 80 million yuan to launch. Launch often enough and it drains the company's strength. A scattered development process can also starve the products that deserve support: Nature Lab had almost no budget for advertising or shelf space, which may be part of why it failed.

Luo Zhixian, chairman of Uni-President Enterprises Group, addressed exactly this at a recent analysts' meeting: "We need discipline in how we treat new products. We will keep developing them, but they won't necessarily reach the market... that will depend on conditions." So there will be new products in 2017 — probably not many.

Channels

Tingyi was among the first consumer-goods companies in China to push distribution downward. By about 2000 its sales network already reached prefecture-level cities and townships, which set up everything that came after. Tingyi can reportedly get a new product into shops nationwide, from big cities down to mom-and-pop shops in townships, within two weeks.

Uni-President's reach is neither as wide nor as dense; it does business mostly in prefecture-level cities and above. To fight Tingyi it bought into Jinmailang Beverages (47.83%) in 2006 and Jianlibao in 2007, largely for their distribution and shelf presence in small cities and the countryside.

According to a 2014 research report by Guotai Junan, Tingyi may be weak at product innovation, but it has a distribution system and a grip on its channels that Uni-President cannot match.

From 2012 to 2014 Tingyi ranked first in the China Brand Footprint report from the market-research firm Kantar (in 2015 Yili passed it and it slipped a place). That measures how often people buy a brand and how many households it reaches — that is, how good its distribution is. Uni-President has always trailed it, drifting between fourth and seventh.

Around 2012 — perhaps encouraged by sales of two high-margin products, Tangdaren noodles and Alkaqua — Uni-President began looking for a buyer for its Jinmailang Beverages stake, which amounted to deciding that small cities and rural markets mattered less. It sold that stake in May 2016 for 1.291 billion yuan. In September it sold its Jianlibao stake to Chunxin Capital, part of CITIC Assets, for 950 million yuan. One reported reason for the sale: Uni-President and the Jianlibao group disagreed about brand positioning, one aiming high and the other low.

Consumer habits have changed and new channels matter more, above all small-format retail — convenience stores, neighborhood supermarkets — and e-commerce. Nielsen counted chain convenience stores and chain personal-care stores as the source of 7% and 5% of the beverage category's growth in 2015, because they meet customers faster and closer to hand.

Both companies now take convenience stores seriously, and the fight for shelf space there, especially for new products, may be harsher than in supermarkets. Uni-President Enterprises Group's President Chain Store runs the 7-Eleven stores in Shanghai, and it holds 55% of Uni-President Yinzuo, a convenience chain in Shandong. Tingyi's parent, Ting Hsin International Group, holds 50.5% of FamilyMart's mainland business.

QDaily reporters looked, at random, into the drink coolers at FamilyMart, Lawson and 7-Eleven stores in Shanghai's Huangpu and Xuhui districts, and found the two brands roughly even on the shelves. Retail and food are run as separate businesses, but any brand has to pay to get into a convenience store or a small supermarket, and sharing a parent buys some ease and better terms than a competitor gets. FamilyMart leans slightly toward Tingyi's drinks, though it still varies from one FamilyMart to another.

In theory Tingyi should have the advantage, since Ting Hsin runs more convenience stores on the mainland. But making products that suit a convenience store may matter as much as winning the shelf, and Uni-President is better at mid- and high-priced drinks. Shoppers in first-tier cities will also pay more per bottle for convenience than they would in a hypermarket.

Then there is e-commerce. Uni-President opened a Tmall store in 2014; Tingyi arrived on Tmall in June 2016. An official store may not sell much, especially next to the online supermarkets, but it is a cheap, quick way to test a product. Several of Uni-President's recent launches did debut online.

Market

Beverage sales at both companies peaked in 2013 and have fallen since. The year 2016 only continued that trend. The causes: the channel dividend is gone, and consumer habits are changing fast.

Fast-moving consumer goods grew quickly for a decade mainly by widening distribution — stocking more shops, entering more regions — which was, in the end, the demographic dividend, mined layer by layer across China. Now that their distributors and channels are close to their limit, that dividend of people and territory is nearly used up.

Tingyi stopped adding distributors after 2014, and the line follows its revenue curve fairly closely: revenue peaked in 2013.

"Economies of scale and low-cost competitiveness matter less to a company's overall operations than they used to," Luo Zhixian said — the problem Tingyi and Uni-President now share. The single-big-product model no longer works, because consumption keeps splintering.

Coca-Cola is not having an easy time in China either. Its 2016 annual report named China as a drag on Asia-Pacific results. Mizone, which led China's functional-drink market for more than a decade, is shrinking too; its parent, Danone, has had to launch Suiyue and Lemon's Here to prop up sales.

The problem is global. As people grow more health-conscious, food companies grow slowly or shrink in the (relatively) mature markets. In the United States, Coca-Cola and PepsiCo have both put out smaller packages, invested in new food brands, and reformulated products to make them healthier.

They also face more and more competitors. Yu Limin of Euromonitor International told QDaily: "There are more and more chain fresh-juice shops now. Their juice tastes fresher and comes in more flavors, it isn't much more expensive than bottled juice, and delivery has become good enough that people can get a cup of fresh juice without going anywhere."

And it is not only juice. Made-to-order milk tea, coffee and tea are taking the same market. Kantar and CTR found that two-thirds of people bought a made-to-order drink at least once in 2016, and that consumers in China's first- and second-tier cities now buy them 14.3 times a year on average — sales that have probably come, to some degree, out of bottled drinks.

What consumers like, and how they decide, has grown more complicated, and drinks turn over faster than they did.

"A product used to take at least ten years to go from launch to peak to decline. Now the average cycle for many products is maybe three years," Niu Ka told QDaily in an interview six months ago. "Lately, in our own data and in Nielsen's, the whole replacement cycle keeps getting shorter."

Tingyi's iced black tea and Uni-President's green tea have lived 20 years; Assam Milk Tea and Tingyi's jasmine tea line about 10. Suntory's Qinning lemon water and Haizhiyan lasted about three. Some hits rise and fall faster still. In 2011 both companies launched a pear drink, each called Rock Sugar Pear; they sold well at first, but by 2014 the whole pear-juice market was in decline.

The most recent case is Uni-President's Haizhiyan. It opened brilliantly: within eight months of launch it was among the 10 best-selling juice products, and Uni-President pressed the advantage by adding flavors. The annual reports for 2014 and 2015 both singled it out as a success story. Then in 2016 it suddenly fell. Uni-President's official explanation was "a shift in consumption trends," plus adjustments to its sales pace and distribution. Leaving aside the company's own account, one plausible explanation is that lightly salted, lightly fruity drinks had simply gone out of favor.

Many new products, fierce competition, consumers with no loyalty — it looks like a vicious circle. "Because tastes change so quickly, the market cycle of a drink keeps shrinking, so manufacturers push out new products to attract consumers. More new products make the beverage industry even more competitive," Yu Limin said.

Nobody dares say they understand consumers anymore.

So in a youth market that has already changed, Uni-President's aggression and Tingyi's caution are, in fact, both defensive.

Neither Tingyi nor Uni-President won the beverage market in 2016. The one new product that sold more than 1 billion yuan came from Nongfu Spring: Tea π, which covered both bases, design (the bottle and the concept) and attention (BIGBANG as endorsers). Neither of them saw that story coming.

As it happens, beverages accounted for 58% of revenue at both companies this past year, and instant noodles 39%. Behind the identical numbers, the two are nothing alike.

No wonder Uni-President's executives say they don't pay much attention to Tingyi. "I'm watching Nongfu Spring," Luo Zhixian said.

Chart: Feng Xiuxia

Cover image from Pexels, Tmall, and the brands' Weibo accounts