Eastroc vs Red Bull: The New Champion of China’s Beverage Market

Moutai was once the most valuable company in China, surpassing Tencent during the government's tech crackdown. It was known for its resilience, with its share price remaining stable even in a weak or downtrending market. However, recent price cuts have shaken investor confidence, leading to a 15% drop in its share price year-to-date.

Nongfu Spring, the best-selling bottled drinking water in China, also enjoyed a reputation as a 'white-horse' stock like Moutai. Its IPO was a blockbuster with 1,148x oversubscription, and its share price surged 54% on the first day. However, its reputation suffered when founder Zhong Shanshan was criticized following the death of Wahaha's founder. Accusations of unethical practices and controversial product labeling resembling Japanese architecture led to a national boycott, causing its share price to fall 24% year-to-date.

Eastroc Beverage (SSE:605499) might be less known, but it has made a significant impact in the energy drink market in China, surpassing Red Bull to become the best-selling energy drink. Unlike Moutai and Nongfu Spring, Eastroc has shown remarkable resilience, with its shares still up 14% year-to-date, despite a correction from April to date.

You may find the can version of Eastroc similar to Red Bull. This resemblance is typical of many Chinese companies that emulate successful Western products. Other brands, such as Hi Tiger, have also adopted similar packaging and design.

However, there was a problem: the can was expensive to produce and had to be fully consumed once opened. Red Bull could afford the cost because it was priced at ¥6 per can, a price point that positioned it as a premium product. In contrast, the relatively unbranded Eastroc couldn't compete at the same price. Decades ago, a ¥6 beverage was considered affordable only for upper-class Chinese. To address this, Eastroc switched to a PET bottle design, which significantly lowered production costs.

The PET bottle was not just a cost-saving measure but a strategic advantage in winning over consumers. To understand this, we need to consider the primary consumers of energy drinks: long-distance truck drivers and construction workers. China has the largest number of truck drivers in the world, making it crucial to design a product suitable for their needs.

One issue with these outdoor occupations is that an exposed can would collect dust and debris. The PET bottle, however, can be easily capped to prevent contamination and spillage, especially while driving. Additionally, each bottle comes with a cup that can be used for drinking and then repurposed as an ashtray. This thoughtful design caters specifically to the needs of these workers, providing convenience and practicality.

This design change significantly boosted Eastroc's popularity among truck drivers. It was said that every truck driver needed three things: cigarettes, betel nuts, and Eastroc. This testament to Eastroc's success highlights how the product became an essential item for these workers. The story goes that truck drivers consumed Eastroc bottle by bottle and helped the company go public.