Chongqing- Cola is just tap water with a secret formula that isn’t so secret. It’s truly a myth that two companies achieve global dominance by selling it worldwide. For decades, Coca-Cola and Pepsi have been the only brands that spring to people’s minds when speaking of cola, and we seldom doubt their universal presence.
However, that was not the case forty years ago in China.
After the founding of the People’s Republic of China in 1949, several Chinese cities built their own beverage plants, creating local soda brands that became childhood memory for generations. Tianfu Kele (“cola” in Chinese), founded in 1981, was the most prominent one among them.
Tianfu cola was initially a nutritional supplement with herbal ingredients. Later, it was given a cola flavor to capture a larger market share. The novel taste worked, and the brand quickly became popular.
In 1985, one of the then Chinese leaders drank Tianfu cola during a visit to Chongqing and gushed with praise for it. Not long after that, Tianfu cola was selected as the state banquet drink and rose to fame beyond China.
“In its heyday, Tianfu built 108 branches in 27 provinces and cities across the country, with a revenue of 300 million yuan, occupying more than 75% of the domestic market for eight consecutive years. In 1990, Tianfu cola was even sold to Moscow, Japan, and cola’s birthplace – the United States,” Qianhuang, the chairman of China Tianfu Kele Group, told Bridging news in an exclusive interview.
As reform and opening up deepened all over China, most people were convinced that the grass was always greener on the other side. That was when Coca-Cola and Pepsi pushed into the Chinese market. Tapping into Chinese people’s desire to learn modern management and technologies, they reached an agreement with China’s light industry association in 1994.
Under this agreement, Coca-Cola and Pepsi set up joint ventures with seven major Chinese soda brands respectively. In the case of Tianfu, Pepsi is the majority shareholder owning a 60% stake in the joint venture.
In retrospect, this was the beginning of a cautionary tale for all the underdogs who seek opportunities to learn from the giants by ushering them into their own territories.
According to Qian, Pepsi cut down the production of Tianfu cola to make way for the production of Pepsi cola year after year. By 2005, Tianfu cola had almost faded into oblivion in the beverage market. And other brands that formed joint ventures with Coca-Cola and Pepsi met the same fate. The two cola giants virtually took over major product lines of Chinese soda brands trouble-free. In the following 20 years, Coca-Cola and Pepsi held more than 80% of the Chinese carbonated beverage market.
However, the world had changed as China was widely recognized as a great power since the millennium. Chinese people reflected on the country’s role in globalization and regained their confidence, and domestic brands began to fight back.
Tianfu took Pepsi to court in 2010, accusing the US firm of unlawful possession of its formula and business secrets. The company won the lawsuit and recovered the abandoned trademark “Tianfu Cola.” In 2016, Tianfu cola finally returned to the market after being absent from shelves for nearly two decades.
But the comeback is bound to be tough. Tianfu Kele was state-owned and had no reserve cash. Enterprises like Tianfu couldn’t get capital support according to the policy in 2010. The Chinese authority “focuses state investment on important industries and key areas.” Tianfu Kele had to survive on its own, and the first challenge was fundraising.
In 2018, Tianfu implemented mixed-ownership reform seeking private capital for future development. After the reform, Tianfu Kele held 20% of the shares for its intellectual property and equipment investment, and the private owners who invested in cash held 80% of its shares.
The beverage industry is a new landscape today. Young consumers are increasingly embracing a low-calorie lifestyle, and the major players have made relentless efforts to expand their business moats.
As the biggest beneficiaries of China’s 40-year reform and opening-up, the old rival Coca-Cola has developed from a single brand to more than 20 brands in China. And its focus has shifted from product innovation to business model innovation. The company now uses AI systems to analyze local consumers’ purchase behaviors.
Yet there is Genki Forest, an intrepid Chinese contender who took on Coca-Cola and Pepsi. Since its founding in 2016, Genki Forest’s revenue has shot up to 7.5 billion yuan and is considered a real threat by the two cola giants. Influenced by the technology background of its founder Tang Binsen, the company’s philosophy centers around iteration informed by data and taking advantage of China’s massive e-commerce ecosystem.
Given the situation, how can Tianfu position itself in this hyper-competitive market besides being a cultural icon?
Qian Huang is very pragmatic about the current situation, “we are not keen on restoring Tianfu’s former glory as many people presumed. What matters most for the company now is survival. Genki Forest’s success might be inspiring, but what Tianfu Kele wants is long-term profitability.”
Tianfu is now working on building an intensive distribution network covering China’s southwest region, with its birthplace Chongqing in the center. The goal is to reconnect with every potential customer who has a history with this unique cola brand.
The question is: can a local brand like Tianfu learn new tricks amid the shifting trends in the beverage industry? With our sincere wishes, we can only wait and see.
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