Uni-President Plant Closures Signify Parched Times for Beverage Industry

(Beijing) — Uni-President China Holdings Ltd., one of Asia’s largest beverage makers, has closed two plants amid declining sales and changing market tastes.

Uni-President began giving employees extended vacation leaves of absence at its production facilities in the northern city of Shijiazhuang and eastern Xuzhou city beginning in the first quarter of the year and recently suspended production at the plants, a company representative told Caixin.

The temporary closures are a result of the company’s strategy to “improve its products and upgrade its facilities,” the company said in a written statement to Caixin.

The two plants made the company’s once-popular Haizhiyan sea-salt drinks as well as other teas and juices, which had a combined monthly capacity of 520,000 cases, according to the Uni-President website.

As China’s economy slowed and the entire beverage market stagnated, Uni-President saw its overall company revenue drop 5% to 21 billion yuan ($3.1 billion) in 2016, while revenue of its beverage businesses slid 13% to 12 billion yuan.

The Haizhiyan salted drink with various fruit flavors has been popular since it was launched in 2014 and was recognized as a “Groundbreaking Innovative Product” by consultancy Nielsen Holdings PLC a year later. But the company overestimated consumption rates and delivered more products than the market desired, resulting in excess inventories and a 2016 decrease in profits, according to its annual report.

Some analysts noted that the decline also resulted from the change in consumer trends, in which beverages often maintain popularity for about two years.

In order to offload money-losing subsidiaries, Uni-President in November sold the soft-drink brand Jianlibao to a Beijing-based subsidiary of Citic Asset Management for 950 million yuan.

Similar moves in the industry include French food giant Danone SA selling its Chinese purified-water business Robust Co. Ltd. to local Win Holding, and Coca-Cola Co. divesting 13 bottling plants and related operations on the mainland to two longtime franchisees.

The beverage companies are responding to changing consumer tastes in China, where urbanites are becoming more health-conscious.

Between 2003 and 2012, which China beverage-industry analysts call the sector’s “golden decade,” soda sales by volume on the mainland increased sixfold to 130 billion liters (34.34 billion gallons). Industrywide revenues jumped to more than 471 billion yuan from 77 billion yuan during that period, according to consultancy Zhiyan.

But growth has slowed since 2012. From 2013 through 2014, for example, soft-drink production rose 4.6%. But it climbed only 3.7% in the first 10 months of 2016 compared to the same period in 2015.

Shares of Hong Kong-listed Uni-President decreased 0.7% to HK$5.76 (74 U.S. cents) on Thursday.

Contact reporter Coco Feng (renkefeng@caixin.com)