Coke stresses product innovation in diverse Chinese beverage sector

Coca-Cola is stepping up innovation of soft drinks in China, where market forces and increasingly sophisticated consumers are charting the future course of the beverage industry, the company's China chief said on Wednesday.

Atlanta-based Coca-Cola has been working to make its China operations adapt to the demands of Chinese consumers as it seeks to retain its dominance in China's growing beverage sector.

Though the company takes pride in having introduced soda to China 35 years ago, it has felt pressure to attend to the preferences of Chinese consumers.

"We understand Chinese people want Chinese flavors and Chinese concepts, and we are using our R&D facilities for more products in China," said David G. Brooks, Chairman of Coca-Cola Greater China and Korea, on Wednesday during an event marking the company's 35th anniversary in China.

Back in the late 1970s, shortly after the People's Republic of China and the United States forged formal diplomatic ties, Coca-Cola entered the Chinese market under a deal with the state-owned China National Cereals, Oils and Foodstuffs Corporation (COFCO).

Under the deal, the U.S. beverage producer was allowed to sell Coke at scenic spots and in major Chinese cities and build bottling plants in the country.

People involved in establishing Coca-Cola's Chinese presence 35 years ago said Coke was not targeting Chinese consumers at that time. Executives persuaded Chinese authorities to make the soda available for foreigners traveling to the country in order to bring in more foreign income and boost tourism.

According to Zhang Shoujun, one of the earliest Chinese employees in Coca-Cola's Chinese plant, the caramel-colored cola didn't taste good on first sip.

"It leaves this weird traditional Chinese medicine-like taste in your mouth," Zhang said, "but we figured since it was popular in other parts of the world, it should feel welcome in China."

However, 35 years later, a new breed of savvy Chinese consumers is driving changes in the beverage maker's offerings.

Soda trailed drinking water and juice in market share in China in 2012, according to statistics from China's National Bureau of Statistics.

Meanwhile, the rise of Chinese beverage makers like Wahaha and Jiaduobao has also prompted Coca-Cola and other foreign brands to come up with new products to stay relevant in the increasingly crowded beverage sector.

For nearly a decade, the company has been aggressively marketing a line of juice-based soft drinks sold under its Minute Maid brand. The line was developed in 2005 exclusively for the Chinese market.

Pepsi, another U.S.-based soft drink maker, introduced its Tropicana line to China with similar juice products amid signs over the past decade that competition in the Chinese beverage sector had expanded from traditional segments to a broader range of products, including juice, water, tea and herbal drinks.

Brooks said the company remains committed to developing soda drinks in China, but he admitted that innovations in other products and marketing strategies are priorities in the years ahead.

He added that innovation in both Coke and other drink products will help the company take advantage of opportunities in an economy where market forces will play a more decisive role.

"(At Coca-Cola) we held internal meetings to review the implication of the policy documents of the Chinese government," Brooks said, adding that the slew of reforms that Chinese authorities have vowed to carry out are not slogans, but something the company takes "very seriously."

Brooks said he clearly underestimated 35 years ago what China would look like today. With the rise of e-commerce and social media, the future of the Chinese market could be yet another wild guess.