In winding its way into the China market, that possesses one fifth of the world's population, this soft drink phenomenon has come face to face with the largest market in the world. Since 1979, the US giant has invested $1.2 billion in 23 plants nationwide and now claims an enormous 70 per cent in the soft-drinks market in China.

Fiercer competition

Despite its phenomenal success, Coca-Cola is not able to rest on its laurels. Besides its global arch rival - Pepsi - never far behind in the drive to conquer the open world market, there are now some domestic competitors taunting the king of the soft drinks world with their small, but increasing, market share.

Based in the capital of East China's Zhejiang Province, Hangzhou Wahaha Group Corp is increasing production lines at its headquarters plant from two to six and adding a total of three new lines at facilities in North China's Tianjin Municipality and Northeast China's Jilin Province.

Each of the new lines will be able to churn out 700,000 bottles of soft drinks a day when they go into operation by the end of the year.

"Coke and Pepsi have long dominated the China market, their empire should be dismantled and more domestic players should enter the fray," said Zong Qinghou, general manager of Wahaha Group. "Chinese people should have their own Cola."

The firm's aggressive expansion plans are based on sound performance over the past years. In 1998, Wahaha sold 100,000 tons of its Future series soft drinks and company representatives say the figures for last year, soon to be released, are expected to hit 400,000 tons, including 300,000 tons of Future Cola.

While the most popular item in the mix is cola, the series also includes Future Lemon, Future Orange and Future Apple drinks.

The company attributes its sound performance to active absorption of advanced know-how and technology from the US and Italy and its aggressive move in expanding the marketing network nationwide with a 1,000-strong army of sales agencies in China, said Yang Xiuzhen, a spokeswoman for the firm.

Yang noted Future Cola also has many brand-loyal customers among the Chinese people who believe it is better to buy Chinese.

Spending more on ads

Domestic brands are not only limbering up in production techniques, but also readying themselves to take on their competitors in the battle of advertisements.

Fenhuang Coke, based in Guangdong Province, spent about 1.296 million yuan ($156,000) on its total advertising budget in 1999, which is 6.6 times more than the year earlier. Yanjing Coke, a Beijing-based soft drink maker, also aggressively marketed its Coke product on TV in Beijing, according to reports by Beijing Youth Daily.

The Coke king, Coca-Cola, which used to rely mainly on outdoor advertisements in China, turned its attention to TV last year. The new strategy pushed up its total expenditure on advertising last year to hit 9.86 million yuan ($1.19 million), up 26 per cent over the same period in 1998.

Some Chinese-language newspapers in China also started rumours that Coca-Cola, under pressure from domestic rivals, was considering a price cut this year. Coca-Cola's China branches, however, dismiss the rumour.

"Who told you that? We have heard no such thing," said a senior representative with Coca-Cola's China operation in Shanghai.

The reports are not even credited by officials with Future Coke.

"I don't buy the story. Even if it were to be the case, we would not over-react to it and I would imagine it would only run for a very limited amount of time. It is ultimately the producers who suffer if a price war ensues," said Yang.

Zhang Huiming, an economist with Fudan University, said that it was too early to say whether Coca-Cola was feeling the heat from domestic players in the China market.

"They are not competing on the same footing. Coca-Cola now has a massive 70 per cent share of the market, while even the biggest domestic player, Future Coke, trails far behind with 10 per cent. Domestic players remain small fry in the soft drinks market," he said.

Zhang said he would urge foreign and domestic players to fight for their corner by catering to different market segments.

"It is obvious that Coca-Cola and Pepsi have consolidated their position in China's cities, especially big or medium-sized cities, the vast countryside areas remain unexploited and domestic players should be targeting them," he said.

Self-confidence

Indeed, it is that very strategy that has given Fortune Coke an edge in China's soft drinks market.

"Though foreign brands are popular in the cities, we can start in the vast rural area where brandname recognition isn't high and where consumers value a low price above all else," said Zong.

Future Coke is priced at five to six jiao ($0.06 to 0.07) less than Coca-Cola in China, which has won over many rural consumers in China.

"We plan to expand our share in the rural markets," said Zong.

Zhang also believes competition is a positive thing. "The subsistence of domestic players, even in a small capacity, can thwart the monopoly of Coke or Pepsi.

Having rivals to contend with, meanwhile, the big producers will be goaded into improving their products and favouring consumers with better promotions and services."