Calcol Inc. Malibu-Cola Makes A Big Splash in China

06/06/06 Calcol Inc. Malibu Cola Beverage Co. Ltd., according to an article recently published in China Daily, " ADDING FLAVOUR", By Jiang Jingjing (China Daily) 2006-05-29 is making a big splash in China. China Daily states: "Move over, Coke and Pepsi. This summer, local consumers will have another carbonated drink to reach for when they want to quench their thirst. US cola brand Malibu-Cola is ready to conquer China's carbonated beverage market. The company is not as large as the other two soda giants, which account for 60 to 70 per cent of the country's soft drink market. And although Malibu-Cola can expect to lay claim to 3 to 5 per cent of the mainland market, it's now preparing to expand across the nation. The Malibu-Cola Company currently has one large factory in Beijing, with plans to expand to second and third plants in Shenzhen and Shanghai areas soon.

"That's still a big opportunity for Malibu-Cola, since the nation's total soft drink market stands at 7.5 to 8 million tons a year," says Xiao Jiangong, vice-president of Malibu-Cola Beverage Co Ltd. Malibu-Cola's capacity is now 150,000 tons per year, compared with its target of 300,000 tons annually. "We're only targeting markets in North China now, such as Beijing, Tianjin and Hebei Province. But we plan to expand to Shanghai, Guangzhou and Shenzhen this year," Xiao told China Daily. He adds that with the expansion of the company's distribution network, the firm will eventually set up another two factories in Shanghai and Shenzhen and then in one or two more in Northeast China and western parts of the country.

Xiao says Malibu-Cola's competitive edge is in providing diversified products (including a wide range of diet soft drink products endorsed by the American Beverage Association) that Coca-Cola and Pepsi generally do not focus on selling in China. Malibu-Cola's retail prices are also considerably lower than the other two cola kings. "Commenting on the China Daily article, Mr. Xiao said, "In addition to our traditional American Malibu- Cola, we offer five other flavours: Malibu Sunrise Orange, Malibu-Surf's Up Lemon-Lime, Malibu Verry Cherry Cola, Malibu-Lemon Squeeze carbonated lemonade, and Malibu Diet Cola. So far, they have been accepted by young and old consumers alike," Xiao says. "And Malibu Lemon Squeeze is a huge hit. Furthermore, we intend to focus on the Diet flavors which are a healthier choice for all our customers with seven Diet flavors coming out this summer; in addition to those mentioned above, we plan to have Diet versions of Kiwi Strawberry, White Grape, and Golden Apple on the supermarket shelves this summer from Dalian and Shenyang in the North to Shanghai and Nanjing in Jiangsu Province and Shenzhen and Guangdong/Canton and Kunming in the South in both PET bottles and aluminum cans. "He adds that Coke and Pepsi mainly focus on traditional products, and tend not to prioritize new flavours. But the market has been becoming more diversified, he says. "It is time to sell something different now."

The Chinese consumer is a lot more sophisticated, quality conscious and price conscious, and moving faster with the times than some market consultants in the States give us credit for. Anything which is popular in New York or LA is popular in the major cities of China now; from the I-Pod to Diet pop! " Malibu-Cola's President Ji Jun told us.

Malibu-Cola is planning a major marketing campaign to promote its diet cola, as well as many other diet flavors, because the company has seen increasing demand for it, he adds. And, according to Calcol Inc.'s Chairman and President Norman Kaplan, Calcol Inc.'s Malibu-Cola Beverage Company has become the first US food and beverage company licensed in China which has fully endorsed the recommendations of the American Beverage Association that soft drink companies not target carbonated soft drinks at elementary school children, and target only diet (sugar-free) soft drinks at teenagers, and recommended that all soft drink aficionados consume sugared soft drinks in moderation in conjunction with a balanced diet of fruits, vegetables, and protein, with the market focus of the Company on 7 new flavors of Malibu-Cola diet pop for the growing 300-500 million person middle class Chinese people. Malibu-Cola products are typically 15-25 per cent cheaper than Coca-Cola and Pepsi. A 500-mililitre bottle of Malibu Cola, for instance, sells for an introductory price of 1.6 yuan (US$0.20) at most supermarkets, compared with 2.3 yuan (US$0.29) for a bottle of Coke or Pepsi. Xiao adds that a 2 Liter bottle of Malibu-Cola products retails for between 4.0-4.5 yuan compared to 5- 5.5 yuan for Coke or Pepsi products. "We target the growing middle class in China," Xiao says, "which also is approaching middle age and enjoys the American cola taste. They also are developing a preference for our diet flavors from cola to lemonade, which we believe is also a healther alternative choice for them.

"A number of factors can influence purchasing decisions, but he says price also usually plays a significant role. "The Chinese market is extremely price sensitive", Calcol's Chairman Norman Kaplan adds, "One yuan (12.5 US cents) is enough for bus fare home from the supermarket...and that often represents the price difference between a 2 Liter bottle of Coca-Cola or Pepsi-Cola products versus our Malibu-Cola!"

Xiao admits brand loyalty may be a factor, but adds that although some consumers might be loyal to Coke and Pepsi products, which are also fairly new to China, they are unlikely to stick with these two brands when they look for different flavours. Malibu-Cola makes everything from Malibu-Cola to Malibu Diet Cola to Malibu Sunrise Orange to Malibu Surf's Up Lemon Lime to Malibu Lemon Squeeze to Malibu Verry Cherry Cola to Malibu White Grape and Malibu Kiwi Strawberry, and Diet versions with the most modern artificial sweeteners of sucralose (Splenda) and Ace-K of all of its flavors with plans to make another 7 new flavors available next year. "We are always thinking of new things because we know the Chinese customers like to try new things all the time, they like a lot of variety," Ji Jun states. He says Malibu-Cola products have sold extremely well since they hit the major markets in North China Beijing and Tianjin areas last September at Tesco and Carrefour and other major hypermarket chains and the company is signing on several new supermarket chains every week. "It is getting hard to keep up with the demand, "says Mr. Ji Jun, "but we are prepared to go flat-out to two shifts if necessary through the hot and dry summer months of June, July and August this year in Beijing. We just hired a new production manager with more than 13 years experience producing cola day and night."

"In Shijiazhuang, the capital of Hebei Province Malibu-Cola's first market the brand is now well-known in most middle-income households. In Beijing and Tianjin, the brand has been growing by over 30 per cent in the past several months," Xiao says. He believes Malibu-Cola will start performing well in other cities this summer. He says the company currently spends very little money on expensive television advertising, but is able to keep costs down and offer better value to consumers by focusing on in-store promotions, such as sample tastings, buy two get one free, and in-store vending machines. We believe this is the right strategy for Malibu-Cola at the moment. Last Saturday, Mr. Xiao told us, the store manager of a major hypermarket in Beijing called to complain that customers lining up to sample the Malibu Lemon Squeeze were blocking customer traffic to the check out aisle! Xiao says Malibu-Cola's expansion depends on supermarkets' sales networks. Malibu-Cola is now available in Wal-Mart, Carrefour and Tesco/Hymall more than 150 stores nationwide. The brand will expand its sales network to other supermarkets, such as Metro and Lotus, and some domestic supermarkets, including Lianhua and Hualian. "This year is going to be the big year for Malibu-Cola. We will complete our distribution network throughout the country. Our sales volume is starting to look like something significant," Xiao says.

Ji Jun adds the company plans to build additional factories in Shenzhen and Shanghai within two years, nearby the distribution centers of its major retail customers. "Many years ago, a lot of Chinese drank locally formulated 'bubble drinks' like Jianlibao and Wahaha, but now people in the major Chinese cities tend to drink American colas, Coke and Pepsi products. Malibu-Cola is offering them the third famous American cola and we are holding down as much as a third of the shelf space in the hypermarkets where our products have begun to pop up in large quantities," Xiao says.

Malilbu-Cola's factory in Sanhe, a city in Hebei Province, in the Beijing Econonimc & Technical Development Zone currently has one PET production line, but Xiao states that the canning line will open in June when demand for the company's products in cans, based on major sales and distribution contracts and a flood of orders from the major hypermarket chains, is expected to soar. Ji Jun adds: "Malibu-Cola is really making waves!"