In July 2023, Yili Group’s brand Inikin launched a bottled tea product featuring an innovative twist-cap design. This unique cap keeps the tea leaves separate from the water, ensuring maximum freshness and making freshly brewed, sugar-free tea a reality.
According to Yili’s financial reports, the company achieved revenue of RMB 88.733 billion (USD 12.4 billion) in the first three quarters of 2024, with net profit attributable to the parent company reaching RMB 10.868 billion (USD 1.5 billion). This marks a 15.86% year-on-year increase, surpassing the RMB 10 billion (USD 1.4 billion) threshold. The growth is attributed to Yili’s solid foundation in China’s dairy industry and its strategic exploration of non-dairy segments like bottled water and tea beverages.
Yili executives noted that Inikin’s freshly brewed tea has emerged as one of the company’s best-performing products in recent years. The product is now widely available in convenience stores nationwide, achieving a sell-through rate of 60% and an e-commerce purchase conversion rate of 7%—three times the industry average.
However, the entry of dairy companies into the tea beverage market is not a new trend. It reflects the industry’s urgency to uncover new growth opportunities amidst challenging market conditions.
Public data reveals that, from January to August 2024, overall sales in the dairy industry declined by 2.1% year-on-year, while the beverage market expanded by 6.9%. Among the 19 publicly listed dairy companies that released third-quarter financial reports, only six, including Yili and New Hope Dairy, recorded positive year-on-year profit growth.
To counter the supply-demand shocks caused by cyclical fluctuations in raw milk prices, major dairy companies like Yili are accelerating diversification strategies. By venturing into highly competitive markets such as tea beverages, they aim to capture new growth opportunities and create the next blockbuster product.
Adapting amid challenges
Yili’s foray into freshly brewed tea is not its first cross-industry venture. In April 2018, the company introduced its Plant Selected soy milk line, expanding its plant-based product portfolio. Later that year, in December, Yili entered the packaged water segment, investing RMB 744 million (USD 104.2 million) in a mineral water project, marking its first step into non-dairy beverages. By March 2020, Yili officially launched its Inikin volcanic mineral water product, sourcing from locations such as the Changbai Mountains.
While Yili has often referred to its water and tea businesses as being in the early stages, its 2022 financial report highlighted strong growth in emerging categories such as organic dairy products, plant-based nutrition, and natural mineral water, with year-on-year increases exceeding 20%.
By 2024, Yili’s diversification efforts have noticeably accelerated. Beyond expanding into the cheese and B2B markets, Yili ventured into new territory by launching a non-alcoholic milk beer in June. Shortly after, Yili’s ice cream brand Gemice opened a physical store in Chengdu, specializing in ice cream cakes.
Yili’s financial results for the first three quarters of 2024 show that retail sales of Inikin have doubled, closely tied to the rapid growth of its bottled water business.
Amid a challenging macroeconomic environment marked by declining consumer demand, leading dairy companies have faced more than two years of intense pressure. Nielsen data shows that the annual revenue growth rate for China’s dairy industry fell from 7.9% in 2021 to -6.5% in 2022 and -2.4% in 2023, though the rate of decline has gradually narrowed.
Encouragingly, in 2024, signs of recovery have emerged. By August, dairy production grew 1.1% year-on-year, marking the industry’s first positive growth rate of the year. By September, growth expanded to 2.1%, and the decline in industry revenue began to stabilize. Fresh milk prices in key production areas have also shown signs of stabilization in recent months.
To navigate this downturn, industry leaders have reached a consensus: innovation and diversification are essential for driving new growth. One effective strategy has been targeting the fast-moving beverage segment, which reduces market education costs while reaching a broader consumer base.
A Yili representative told 36Kr that its freshly brewed tea business is doubling in size, while its bottled water business is also experiencing rapid growth. During a previous financial briefing, Yili announced plans to further expand its tea offerings with new flavors and broader market coverage.
Cross-industry expansion becomes a necessity
Cross-industry moves by dairy companies are not uncommon in the fast-moving consumer goods (FMCG) sector. International giants like Nestle and Danone began in the dairy industry and successfully expanded into multiple product lines to become global brands.
Drawing from their experiences, Wang Yi, a partner at Deloitte specializing in the consumer goods and retail sector, suggests that leading Chinese dairy companies can leverage their ambient milk distribution channels to innovate and explore new categories. This approach offers a strategic way to navigate the challenging liquid milk market.
However, Yili’s intensified focus on bottled water and tea beverages comes at a time of fierce competition in the tea market. After years of stagnation, the sugar-free tea segment has been on the rise since 2023, with established players like Nongfu Spring and Suntory battling it out alongside newer entrants like Genki Forest and Ripe Fruit.
According to data from 36Kr, over ten brands have launched sugar-free tea products in 2024. Notable releases include Uni-President’s “Spring Breeze Green Tea” and Ripe Fruit’s Oolong series, both of which have generated significant market buzz.
Amid this rapid growth, price-based competition has become the norm. Southern Metropolis Daily reported that, this summer, sugar-free teas—initially priced at over RMB 5 (USD 0.7)—were heavily discounted, with some dropping to as low as RMB 3 (USD 0.4). Visits to convenience stores in Beijing revealed even more aggressive promotions, with certain brands offering deals like “buy a second bottle for RMB 1.”
In contrast, Inikin markets itself as a convenience-driven product, offering consumers freshly brewed tea in a bottle with just a twist of the cap—a feature enabled by its innovative technology. Retailing at RMB 6–6.5 (USD 0.8–0.9) per 455-milliliter bottle, Inikin faces an uphill battle in the crowded sugar-free tea segment and may eventually find itself drawn into the price wars.
Visits to convenience stores and supermarkets in Beijing by 36Kr revealed that tea beverage shelves are dominated by products from Uni-President, Nongfu Spring, and Suntory. Cross-industry brands, including those launched by dairy companies, remain far less prominent in comparison.
Dairy industry analyst Song Liang noted that, while Yili has made frequent cross-industry moves, it has maintained a cautious approach to market entry. According to Song, Yili’s bottled water and sugar-free tea businesses remain in the exploratory phase.
However, as a legacy dairy brand, Yili benefits from robust distribution capabilities. The company has previously stated that its bottled water products will leverage its existing liquid milk distribution network while experimenting with hybrid distribution models specifically tailored for the bottled water segment.
“Can Yili and other dairy companies carve out a share of the tea market? The answer is yes, but the size of that share remains to be seen,” Song said. He further emphasized the importance of diversifying into functional beverages and health foods, as well as leveraging overseas markets to unlock additional growth opportunities.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Chen Sizhu for 36Kr.