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Kagome enters Chinese juice market

By Dominique Patton , 03-Aug-2006

Japan's biggest juice maker, Kagome, has launched four pure juices in Shanghai, as it sets about creating a leading position in the country's premium juice market.

Kagome opened a production plant in Hangzhou, close to Shanghai, in October last year and it plans to launch its products in other cities along the country's more affluent east coast, targeting urban consumers with higher purchasing power.

 

 

 

"We estimate the market capacity of 100 per cent vegetable and fruit juice in Shanghai will be more than CNY250 million (€24.6m), with pure vegetable juice at 5-7 per cent," Shoshin Asano, general manager of Kagome's China operations told the Shanghai Daily.

 

 

 

He said the firm wanted to make CNY20 million in sales this year, eventually reaching CNY150 million annually.

 

 

 

China's juice market is growing rapidly and has already attracted a number of foreign investors. Most recently, French multinational Danone bought a stake in one of the few national brands Huiyuan, and Del Monte Pacific is also involved in the market through its fully owned subsidiary Great Lakes.

 

 

 

While the juice drinks business is tough, with low prices, foreign firms are concentrating on higher-margin, pure juices. Great Lakes has recently sought to differentiate in this market by reformulating its product as 'not from concentrate'.

 

 

 

However it has racked up significant losses over the years, citing heavy marketing costs required in the Chinese market.

 

 

 

Bo Guanhui, an analyst with Citic Securities, told AP-Foodtechnology.com that the juice market is distinctive from China's beer or dairy sectors in that there is not even one nationally recognized brand.

 

 

 

"Domestic brand Huiyuan and the US-based Dole may be said to have national recognition, but it cannot compete with that of the dairy giants," he said.

 

 

 

He added that few of China's juice makers are involved in the deep processing of juice.

 

 

 

"Most are just exporting juice to developed countries as raw materials for further processing."But according to data from the National Bureau of Statistics of China, China's juice production in 2005 was 6.34 million tons, a 29.17 per cent increase from 2004; fruit and vegetable juice production accounted for 7 per cent of the total soft drinks production, and contributed more than 15 per cent of the sales value of all the soft drinks.

 

 

 

"This may be a sign for the better profitability of juice than, say, carbonated drinks, which accounted for 37 per cent of the total production but contributed 43 per cent of the total sales value. And this might be a reason why foreign investors are eying the juice industry," explained Bo.

 

 

 

Pure, or 100 per cent, juices account for a small part of China's juice market but they are seeing double-digit growth.

 

 

 

Pure juice suppliers are hoping that a rising awareness of nutrition among the Chinese will increase demand for the more expensive product, as consumers upgrade from juice drinks to gain more vitamins and fruit nutrients.

 

 

 

It is thought however that local manufacturers have advantages in the 100 per cent juice section since they have better access to cold storage necessary for these juices.

 

 

 

Additional reporting by Francis Yang.