Followed by a 10 billion Dongpeng Beverage

Zebra Consumer Shen Tuo

In yesterday's volatile A-share market, Dongpeng Beverage still managed to achieve a significant rise, which was the market's reward for its performance.

In its early years, Dongpeng Beverage started by imitating the products of Huaqin Red Bull, capitalizing on the timing of the dispute between Chinese and foreign Red Bull brands to rise rapidly. Its flagship product, Dongpeng Special Drink, has now surpassed an annual revenue of 10 billion yuan.

However, problems remain. The company has long relied on a follow-the-leader strategy, quickly launching similar products whenever a market trend emerges—be it sugar-free tea, electrolyte drinks, or even cocktails. Yet, none of these have achieved the same level of success as its energy drink, failing to reach the heights of its dominance in the energy beverage market.

Creating a Billion-Yuan Product Through Imitation

In China's energy drink sector, Dongpeng Beverage is a latecomer. With its Dongpeng Special Drink, it has become a small but formidable player in the industry.

On the evening of April 14, Dongpeng Beverage (605499.SH) disclosed its 2023 annual report, reporting revenues of 11.263 billion yuan and net profits attributable to shareholders of 2.040 billion yuan, representing year-on-year growth of 32.42% and 41.60%, respectively. The company proposed a cash dividend of 2.5 yuan per share (including tax), totaling 1 billion yuan.

Stimulated by this news, despite the unusual volatility in the A-share market yesterday, Dongpeng Beverage still rose by 4.45%.

Dongpeng Special Drink is the company's absolute core product, with 2023 revenues exceeding 10 billion yuan to reach 10.336 billion yuan, accounting for 91.77% of the company's total revenue.

Turning an imitated product into a billion-yuan flagship item, Dongpeng Beverage's founder Lin Muqin has taken "copying" to the extreme.

Fifteen years ago, Dongpeng Special Drink was launched, highly resembling Huaqin Red Bull in terms of formula, packaging, and even advertising slogans. Despite this, in the face of the dominant Red Bull, Dongpeng Special Drink remained confined to Guangdong for a long time. It wasn't until 2016 that a major opportunity arose due to its competitor's troubles.

At that time, Huaqin Red Bull became embroiled in a trademark dispute, with tensions escalating between Chinese and foreign Red Bull entities. Huaqin Red Bull's distribution channels and marketing efforts were severely impacted, creating a rare window of opportunity in the otherwise tightly controlled energy drink market.

Huaqin Red Bull's market share dropped from 71.3% in 2016 to 55.2% in 2022. Meanwhile, Dongpeng Beverage aggressively expanded its channels, products, and marketing, increasing its market share from 8.8% to 26.6% during the same period.

During this golden window, Dongpeng Special Drink won over a large blue-collar consumer base, including drivers and couriers, with its highly cost-effective product, becoming a budget-friendly alternative to Huaqin Red Bull.In 2023, Dongpeng Special Drink sales reached 2.3846 million tons, a year-on-year increase of 28.24%.

According to Nielsen data, by sales value, Dongpeng Special Drink's share in China's energy drink market rose from 26.62% in 2022 to 30.94% in 2023, solidifying its position as the industry's second-largest player.

However, in recent years, the slowing growth rate of this flagship product cannot be ignored. Amid competition from products like Tencel Red Bull, Dongpeng Special Drink's revenue growth has declined from 43.34% in 2021 to 26.48% in 2023.

The Ultimate Follow-the-Leader Strategy

Dongpeng Beverage's sudden rise is closely tied to the personal experience of its leader, Lin Muqin.

In his early years, he was an employee at Shenzhen Dongpeng Beverage Factory, which manufactured products for Huaqin Red Bull, giving him familiarity with Red Bull's products and operations.

In 1998, Lin Muqin replicated Dongpeng Special Drink, mimicking the ingredients, taste, and packaging of the then-popular Huaqin Red Bull in the Chinese market. However, the factory's focus at the time was on products like winter melon tea, herbal tea, and chrysanthemum tea, leaving little room for energy drinks.

It wasn't until 2003, when Dongpeng Beverage Factory was on the verge of bankruptcy, that Lin Muqin and 20 employees took over and relaunched Dongpeng Special Drink. The product directly competed with Huaqin Red Bull, introducing PET bottled versions to challenge the market leader.

Dongpeng Special Drink even copied its competitor's advertising slogans, changing "When tired and sleepy, drink Red Bull" to "When tired and sleepy, drink Dongpeng Special Drink." In 2013, the company spent heavily to bring in celebrity endorser Nicholas Tse, gradually gaining traction.

In the energy drink sector, Dongpeng Beverage achieved great success through its follow-the-leader strategy. It applied the same approach when expanding into other new product categories, quickly launching similar products whenever a market trend emerged.

In 2020, when Genki Forest's sparkling water became a hit, Dongpeng Special Drink introduced Dongpeng Jiaqi carbonated energy drink, followed by Dongpeng Sparkling Special Drink two years later.

In 2023, as Genki Forest's Alien Electrolyte Drink doubled in sales, Dongpeng Special Drink launched its own electrolyte drink, "Rehydrate."

Last year, when Nongfu Spring's Oriental Leaf became a sensation, Dongpeng Beverage promptly introduced Oolong Supreme Tea, with plans to further expand in the sugar-free tea sector this year.

Last year, the company's other beverage revenues totaled 915 million yuan, accounting for 8.12% of total revenue.

Heavy on Marketing, Light on R&D

Imitation and borrowing have indeed helped Dongpeng Beverage save on costs, particularly in R&D expenditures.

In 2023, the company spent 54.3907 million yuan on R&D, with the R&D expense ratio dropping further from 0.61% and 0.51% in 2021 and 2022 to 0.48%. At the same time, the number of R&D personnel was significantly reduced, from 163 in 2022 to 91 last year.

This stands in stark contrast to the company's lavish spending in sales and marketing.

In 2023, Dongpeng Beverage spent 1.957 billion yuan on sales expenses, a 35.06% increase from the previous year, with promotional expenses surging by 35.69%.

In recent years, the company has favored sponsorship deals with popular regional TV variety shows, including "Day Day Up" and "Brave Forward." It has also heavily invested in product placements in TV dramas like "Happiness to Ten Thousand Homes" and "Home."

For this, the company has spent substantial sums. From 2021 to 2023, promotional expenses totaled 645 million yuan, 636 million yuan, and 864 million yuan, respectively.

This spending aims not only to solidify Dongpeng Special Drink's market position but also to expand the reach of products like Rehydrate electrolyte water, coconut latte, sugar-free tea, and cocktails to more consumers. The goal is to reduce reliance on the flagship Dongpeng Special Drink and accelerate the strategy of building a diversified product portfolio.