Taiwan Today

For Taiwanese, having to cope with the enervating heat and humidity of summer would hardly be possible without soft drinks. Beverages of all varieties are available to quench their thirst: carbonated soft drinks (CSDs), bottled water, functional drinks, pure juices, juice drinks, sports drinks and ready-to-drink teas and coffees. According to the Taiwan Beverage Industries Association, non-alcoholic beverage consumption is expected to reach 2.7 billion liters in 2007, worth NT$50 billion (US$150 million). That's about 120 liters per year for every man, woman and child in Taiwan.

Taiwan's drinks market has some unique characteristics. For example, in almost every country CSDs dominate the soft drinks market. But not in Taiwan. Here the market leader is ready-to-drink tea, consumption of which is still rising. CSDs lie only in third place, after bottled water, and sales have been sliding--down 8 percent last year, for example.

To illustrate just how competitive Taiwan's beverage market is, every year the public sees the launch of over 450 products, of which only 10 percent can survive in a highly saturated market, says Fan Feng-ming, general manager of Hey Song Corp., who has worked in the beverage industry for 35 years.

Fan thinks that Taiwanese tend to like the new and dislike the old and this characteristic plays a role in the way they consume beverages. "Taiwan's beverage industry is akin to the fashion industry. The shelf life of a product is becoming very short. New products are launched every season," says Fan. Even Hey Song, a leading beverage company in Taiwan, has to launch 20 new products every year.

Given such customer attitudes, cultivating brand loyalty is difficult, and it is difficult to meet rapidly changing likes and dislikes while staying in step with fashion and coping with long-term changes in dietary culture. Nevertheless, 82-year-old Hey Song continues to successfully weather the challenges such a market presents.

Hey Song started business as a soda manufacturer in 1925 during the Japanese colonial era (1895-1945). According to Fan, there were three grades of beverages in those years. The top rank contained imports from Japan; products by local Japanese companies came second; and at the bottom were local Taiwanese products. Hey Song originally fell within this last category, in which competition was keen. "Everyone was engaged in price competition," Fan says. During World War II, the production of beverages was taken over by the colonial administration. Not until Japanese rule was terminated in 1945 did Hey Song regain control of its own operation and gradually become a key player in the market.

Market Dominance

Before the international giant soft drink brands such as Coca-Cola and Pepsi-Cola entered the market in the 1960s, and products such as Seven-Up and Sunkist came in the 1970s, Hey Song was literally synonymous with CSDs. During that time, CSDs were regarded as a luxury, reserved for festive occasions only. Hey Song sodas were seen as such, retailing at NT$2 per bottle, an amount equal to a third of a worker's daily pay.

Hey Song's heyday came with the launch of its flagship product in 1950, Hey Song Sarsaparilla. Before that, Hey Song had already aggressively established marketing channels penetrating into every township. The image of Hey Song as a refreshing and thirst-quenching beverage brand had gradually taken root in consumers' minds through intensive marketing campaigns. To much surprise, even in the face of competition from foreign giants such as Coca-Cola and Pepsi-Cola, Hey Song was able to hold its own in Taiwan in the CSD market. "Few local brands could stand up to Coca-Cola or Pepsi-Cola," Fan says.

The beverage sector was among the first Taiwanese markets to be opened up to imports, and the entrance of the two cola giants put huge pressure on Hey Song. Fan says the two international brands have, however, never been able to monopolize Taiwan's beverage market because they are not very strong in the new beverage categories such as juice, coffee and sports drinks, which emerged in the 1980s. To date, total sales of Hey Song Sarsaparilla has exceeded 5.5 billion bottles, and Hey Song Soda over 2.7 billion bottles. After wrestling for decades, Hey Song and Coca-Cola are still the two major players in Taiwan's CSD market.

To compete with foreign brands, Hey Song quickly learned about branding and product management from its competitors. "We countered our competitors by learning from them," Fan says. After looking closely at Coca-Cola's branding and marketing operations, Hey Song made a few changes in its own. First, it changed its product packages to look fashionable. It also started promoting its products more aggressively. And it modernized its production equipment. Fan says that via a series of TV commercials, Hey Song has carefully built up its branding and consumer loyalty. "Hey Song's ads had their fingers on the pulse of Taiwanese society. No wonder people responded to them," Fan says.

Keeping it Relevant

For example, a 1991 TV commercial used "eliminating the invisible line separating people" as its theme to reflect the crisis of trust in society at the time. In 1988 the company ran an ad with the theme "my future is not a dream," which struck a chord among the many young people hoping to be their own bosses or to establish their own businesses. A 1999 TV commercial addressed the popularity of getting a job in the media among young people. All of these advertisements were targeted at younger consumers and helped refresh Hey Song's aging image.

Hey Song's success in the CSD market soon inspired a number of imitators. "There emerged 38 products with packaging very similar to Hey Song Sarsaparilla. The confusion resulted in Hey Song Sarsaparilla's market share dropping from 91 percent to 83 percent," Fan says. In response, Hey Song launched a TV commercial in 1998 to remind people to choose the authentic Hey Song product. In the ad scenario, a policeman approaches a man whom he suspects of entering the country illegally. The man being questioned responds by singing a local song to prove he's Taiwanese. But then another policeman asks him to identify the genuine local brand of sarsaparilla. The man is dumbfounded and as a result is arrested. The ad traded on themes that were local and contemporary, illegal immigration from China being a major concern at that time. Moreover, the commercial implies that familiarity with Hey Song is a way to distinguish an "authentic" Taiwanese, another cultural concern of the time. "Actually 99 percent of Taiwanese know Hey Song Sarsaparilla, but 99 percent of Chinese have no idea about it," Fan says. The commercial proved so popular that Hey Song had to purchase more airtime to meet audience requests. Following the airing of the commercial, market share rose again to 90 percent.

When new beverage categories entered the market, Hey Song did not hesitate to launch its own products to counterattack, be it juice, coffee or even functional drinks. The company was not afraid of diversification. What proved to be a challenge, however, was the entrance of American fast food chains into Taiwan. McDonald's and Kentucky Fried Chicken are usually contracted with the US giants, as are convenience stores whose soda dispensers are a major sales outlet. This led to a fall in demand for traditional drinks such as soymilk. But "they have no way to reach Hey Song's products, either," Fan says.

To reverse this position, Hey Song began to aggressively develop as many channels as possible to sell its products, such as convenience stores, restaurant chains and pizza stores, but such efforts proved to be of little help. "The strategy set out to break traditional food associations. For example, pizza does not have to go with Coke," Fan says. By linking Sarsaparilla with Chinese traditional hot pot and Western fast food chains like Napoli Pizza, Hey Song regained some lost ground. Nevertheless Fan says, "We don't have a real solution to this change." Another blow has come from the prohibition of CSD vending machines--formerly a big outlet for Hey Song--on elementary and junior high school campuses.

Expansion into Tea

When ready-to-drink tea was first launched in the 1990s, Hey Song did not take the potential competition seriously because it had been so successful in the CSD market. "We launched ready-to-drink tea in 1984, much earlier than Kaixi Oolong Tea, (the first successful tea brand), but our first tea product was not really profitable, so we thought tea products would not really go anywhere," Fan says. A few years later, ready-to-drink tea became trendy. Coca-Cola Enterprises even forged a strategic alliance with Ten Ren Tea to enter the tea market.

Tea is, of course, part of traditional Chinese culture, but was little exploited in prepackaged form until cold and sweet or flavored tea was promoted. Hey Song realized that its previous attempt to launch a tea product failed because it had not added the must-have ingredient--sugar. Ironically, ready-to-drink tea without sugar has grown fast in recent, more health-conscious years. But when Hey Song launched Justea in 2003, it had already missed its chance to really challenge the leading brand in the tea category.

Despite all its efforts to diversify its brand, add value to its products and invent new business models, such as forging alliances with video game businesses and sponsoring music festivals, Hey Song's revenue has seen a slow decline in recent years, tracking the country's reduced consumption of CSDs. Fan thinks this is because Taiwan's market is saturated and limited in size. In 2003, therefore, the company started to invest in China--actually quite a late date compared to other Taiwanese beverage companies.

Hey Song has decades of brand recognition in Taiwan, but in China everything was new. "China is a market entirely different from ours in every respect," Fan says, "It is wrong to think that we can copy our successful business model or experience in Taiwan when doing business in China."

Expansion into China

Hey Song originally planned to use its Sarsaparilla brand as the steppingstone to success in the Chinese market. But the product met with failure because its flavor simply wasn't attractive to Chinese consumers. "When they first tasted Sarsaparilla, they said it tasted like shoe polish," Fan recalls. Beverage consumption has a lot to do with dietary habits, and if people don't like the taste of a product, no marketing strategy is going to get around this obstacle.

Stung by the failure of its flagship product, Hey Song rallied and launched barley tea, then still a new product for Chinese consumers. The strategy paid off. Since 2006, Hey Song's China revenue has grown 170 percent. It expects to start profiting on its China operations in 2009 and for its China revenue to exceed Taiwan revenue by 2012.

In China, Hey Song Sarsaparilla imported from Taiwan retails at around 6 yuan, (US$0.80), nearly three times the price of the same product manufactured in China. "In fact, the formula is the same and the plant manager in China used to do the same job in Taiwan, but many Taiwanese working and living in China are still willing to pay a higher price for imported Hey Song Sarsaparilla," Fan says. For many elderly Taiwanese, Hey Song Sarsaparilla is not an ordinary drink, but rather a bond linking them with their home country. "Hey Song Sarsaparilla helps cure homesickness among overseas Taiwanese," Fan adds. The collective memory of Taiwanese about Hey Song is something exclusive to this country.

To sharpen its competitive advantage overseas, Hey Song realizes that a flexible strategy is necessary. Branding is the only way to enhance its visibility in such a competitive market. "Nowadays, we are selling value and brand recognition," Fan says. It takes years to build up a brand, but at least Hey Song has already decided on the most trendy beverage item suitable for globalized distribution. "Perhaps only ready-to-drink tea has a truly global future," Fan says.

Write to Zoe Cheng at zoecheng@mail.gio.gov.tw