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Sumol Compal in China

It was July 2014 and Julio Gomes – International Market Manager at Sumol Compal – sat in

the business lounge of Dubai airport, awaiting his flight to Shanghai. Although he had already

been to China earlier in the year, it was going to be his first visit since the Board Of Directors

of Sumol Compal had set the new three-year sales goal for the company in China.

Now, Gomes understood the clear necessity of – at least – tripling the current sales value in

order to convert this niche market into a real strategic business, which in turn could help the

company not only compensate for the sales decrease in Portugal but also for the meager

sales performance in Africa.

Sumol Compal began actively selling its products in China in 2010, and ever since, sales had

been steadily increasing. Nevertheless, at this stage, it was crucial to re-evaluate the existing

business operations, as the established model of sales and distribution was not sufficient to

drive Sumol Compal towards the achievement of its new sales goal. It was time to undertake

a new ambitious and proactive approach.

With this challenge at hand, Gomes had to re-evaluate Sumol Compal’s business strategies

towards the Chinese market, namely: define a new brand positioning, build a new business

model and establish the correct marketing mix to implement. It was indeed a great challenge

and Gomes was convinced of its high probability of success. With this in mind, he was

travelling to China to obtain all the information he needed to prepare a new strategy as soon

as he returned to Lisbon.

Sumol Compal

Sumol Compal was the result of a merge of the two major beverage companies in Portugal:

Sumolis/Refrigor and Compal. Sumolis – founded in 1945 – was recognized by its major

product: Sumol, a Juice Drink. Compal – founded in 1952 – was mainly focused on fruit

juices, prepared vegetables, tomato derivatives and sparkling water.

By the end of 2005, Sumolis had announced its acquisition of Compal and in 2008, the

consolidated company Sumol Compal was created. In 2013, the company’s EBITDA was

over 39M € with more than 405M litres of sales worldwide.

This case study was prepared by Jorge Velosa and Daniela Munhoz.


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Sumol Compal was the market leader of non-alcoholic beverages in Portugal, with more than

25% market share by value.1 The company employed approximately 1,300 people and had

five production plants: four in Portugal (Almeirim, Pombal, Gouveia and Vila Flor) and one in

Mozambique.

Sumol Compal products were distributed throughout 70 countries, with the main market

outside Portugal being Angola. In 2013, the sales value grew by 7.7% for international

markets, accounting for 28.7% of total sales of 86.5M €.2

In the same year, Europe witnessed a growth of 4% in sales volume; however, this market

did not represent a potential for the company, due to the on-going financial crisis and its

maturity.

In an effort to expand and capture new markets Sumol Compal had invested substantially in

Africa. In addition to a factory in Mozambique, the company was planning to build a new

production plant in Angola. Sales had grown by 2.3% in 2013 across 30 African countries, a

figure far below expectations. In Angola competition had increased and the government had

also raised import duties to protect local producers.

On the other hand, in 2014, the Chinese market forecasts revenues of 1M€ (7.1M RMB),

meaning 30% growth when compared to 2013, which demonstrates how attractive is the

market.3

China

China is a complex country with many different realities and unique culture characteristics,

with a population of 1.3B, and an average GDP growth of 7.7%, China was considered one

of the most attractive markets for Fast Moving Consumer Goods companies.

The country is geopolitically divided into tiers, which provide an important dimension in

differentiating China’s internal market by creating a distinction between their political status,

economic power, population size and regional influence.

The first-tier cities are the most developed and include cities such as, Shanghai, Beijing,

Shenzhen, Tianjin and Guangzhou. These megalopolises have populations of over 10M

1 Sumol Compal Annual Report 2013

2 Sumol Compal Annual Report 2013

3 RMB The Renminbi is the official currency of the People's Republic of China. 1 RMB = approx. 0,16€. Accessed

2015/05/05

http://en.wikipedia.org/wiki/Currency

http://en.wikipedia.org/wiki/China


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people and mature markets with huge regional influence. Moreover, there is a high presence

of imported products due to the high number of foreign residents. (see Exhibit 1)

The developed second-tier cities are composed of eight cities with population of over 5M

people and a majority of medium income consumers. These cities are growing steadily which

would take those to become first-tier cities in a near future.

Following this, there are sixteen medium-developed second-tier cities and seven

underdeveloped second-tier cities that are also fast growing markets with high potential,

despite the low average consumers’ income.

The remaining population is divided amongst more than 500 cities, which have also been

categorized by the same variables mentioned above.

Juice Market

The juice market in China is divided into four different categories: “100% Juice”, with no

added water; “Nectars”, with 24% to 99% juice content; “Juice Drinks”, with less than 24%

juice content and “Cereal/Pulse”, juice mixed with milk or tea, directed to the local Chinese

market.

The Juice Drinks dominate the juice market in China. (see Exhibit 2) The main brand,

Minute Maid, which is owned by The Coca Cola Company, has been a huge success case in

China. Having entered the market in 2004 with a strategy of adding pulp into to the drink,

Minute Maid had made consumers believe that they were eating the whole fruit while drinking

the juice. In 2014, Minute Maid represented 13.3% of the fragmented brand market share in

China. (see Exhibit 3)

Moreover, between 2012 and 2013, Juice Drinks and 100% Juice products had grown at a

similar rate to the overall market category, approximately 10%. On the other hand, Nectars

had the lowest growth category, with less than 3%. Meanwhile Cereal/Pulse, due to recent

successful new products, had experienced 12% growth. (see Exhibits 4-a,b)

Competition

The juice market in China was fragmented. The brands with higher market share could be

divided in two groups: one including international companies, such as The Coca Cola

Company and PepsiCo and; another formed by members of various conglomerate groups,

such as Ting Hsin International Group, owner of both WeiChuan, 100% Juice, and Master

Kong, Juice Drinks, and also the owner of Family Mart, a large convenience store chain in


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China. They were all big players that had national distribution and were high investors in all

layers of second, third and fourth-tier cities. These companies were also usually found in all

different channels of modern distribution in China.

HuiYuan for instance, the national market leader in sales volume of Nectars and 100% Juice

categories, was popular amongst all retailers and on premises channels. The 1L package of

Nectar had an average price of 8.7 RMB, the 100% Juice an average price of 14.6 RMB for

1L and 3.25 RMB for 200ml package.4 (see Exhibit 5)

Imported products were usually found in modern channels and specialty gourmet stores in

first and developed second-tier cities. The competition was intense. (see Exhibit 6-a,b)

Products from many different parts of the globe with different qualities and similar packaging

were competing for shelf space. Normally, the language of the country of origin was kept on

the package and a sticker with the name and contents in Mandarin was glued onto to it. (see

Exhibit 7)

The price range for the imported juices was wide, ranging from 15 RMB to 67 RMB for a 1L

package. The price average was 26 RMB, depending on channels and brand positioning.5

Products targeted to children were usually found on special shelves and visually appealing,

however, most of them had low juice content and therefore, were Juice Drinks.

Qoo, the children oriented Juice Drink from The Coca Cola Company, had the highest

market share within this category, with 0.4% of the whole Chinese juice market. It had 20%

of juice content and its price was the lowest compared to the main competition, 3.2 RMB for

its 450ml package. (see Exhibit 8)

Specificities of China

Consumer

China is known for its “Tea Ceremony” that started more than 1,000 years ago in the Tang

Dynasty. More than just a drink, having a Tea is a spiritual enjoyment, according to Mr. Wu

Juenong, an expert of the Chinese tea industry.

However after China’s reform and opening-up policy in the 70s, enhanced by the

development of macro-economy and the increase of public awareness of different foreign

4 Source: Euromonitor Pricing Data on July 2014.

5 Source: Survey made by the China Lab Group in Shanghai and Hangzhou on July/2014


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cultures and behaviours, products such as coffee, milk and juice drinking, have increased

penetration in China and its own people have been gradually influenced by western life style.

Although the consumption of many foreign products had rapidly increased, other aspects of

the western world, particularly social and cultural behaviours, were more difficult and slower

to proliferate. For instance, in 2014, less than 1% of the Chinese people were English

speakers and this was perceived as an element that hampered economic development.6

Moreover, as consumption habits changed, obesity began to emerge as an increasing

concern for the Chinese population. The overweight and obese population accounted for

more than 40% of people aged more than 15 years in China.7 Consequently, Chinese

consumers had started paying more attention to a healthy diet on a daily basis. Thus, soft

drinks have lost share since 2013 as more consumers shifted to healthier options.

Juice was considered a healthy choice to replace carbonates. However, the perception of

quality between Juice Drinks and Nectars or 100% Juice was still not clear for the majority of

Chinese consumers, and the price differences remained determinant.

The main reasons for choosing one brand/ flavour over another were aspects such as the

sweetness, since Chinese consumers preferred sweeter tasting products, and brand

awareness, because consumers were much more aware of the brand’s reputation, specially

after some food safety scandals.8 Previously, international brands were seen as much more

reliable, nevertheless, this has changed, as the national brands increased quality and its

relevant marketing investment.

Another interesting insight about the connection between health and culture in China, which

strongly affected consumption habits, was the importance of keeping ones’ body balanced.

The Ying-Yang theory of balance uses the principle of tonic food, and claims that food can

improve one’s wellbeing or avoid sickness. Juices are also considered part of tonic food. The

idea is that the person should balance ones’ body with what it needs. Therefore, depending

on the time of the year, how and what ingredients the food is prepared, and according to the

individual health, each person should consume a different “hot” or “cold” food, including

fruits. (see Exhibit 9)

6 Source: http://en.wikipedia.org/wiki/List_of_countries_by_English-speaking_population. Accessed march/2015

7 Source: Euromonitor Consumer Lifestyle in China July/2013

8 Source: http://en.wikipedia.org/wiki/Food_safety_incidents_in_China. Accessed April/2015


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For instance, orange and pear juice, know as “cool” food, were the most popular types of

juice in 2013, since it were recommended to cool the lungs, clear sore throats and prevent

from cold. With air pollution a serious problem in some developed cities, such as Beijing and

Shanghai, causing people to easily suffer from respiratory diseases, orange and pear juice

were considered a solution.

The Ying-Yang theory of balance also influences the temperature at which beverages should

be consumed and, because of that, the majority of Chinese consumers prefer warmer

beverages. For instance, even during summer, Chinese usually drink warm water with a

belief that drinking cold water will drain your energy because the body will have to use it to

warm it up.

Collaborators

Media

The Chinese media market was also diversified and each media channel had different levels

of geographic coverage. New media such as Internet websites had rapidly increased in

number and coverage rate within the fast development of a national network in recent years.

In general, media investment had an annual growth of more than 10% over the last four

years, reaching 255B RMB in 2013, and was forecasted to continue to grow at the same

pace. The distribution inside each medium had slightly changed, and the most remarkable

case was the increasing investment in Internet and the decreasing investment in

newspapers. (see Exhibit 10)

Chinese TV has over 3,100 channels, out of which only 16 were channels with national

coverage. Therefore, advertising on one main national channel required large investment.

Big brands such as Minute Maid spent in 2013 more than 2.5B RMB just on TV advertising

and for smaller companies such investment was beyond reach.

On the other hand, Chinese consumers have been rapidly adopting the Internet and it

certainly represented a huge potential. With more than 600M users in 2014, out of which

400M were also connected to a social media platform, for instance WeChat. This social chat

platform, had allowed companies to be much closer to consumers through Personal Chats,

Subscriptions and Service Accounts. By doing this, it was possible for companies and brands

to share information with their customers such as availability and/or benefits of their

products, new product launches, promotions and new campaigns.


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Besides Internet and mobile applications, QR codes were also becoming popular in China.

The monthly scanned codes had grown four times between 2013 and 2014, reaching 9M

scans per month, and became useful for companies to provide clients additional information

about products and marketing campaigns.

Retail in China

The total number of retail outlets in China was very high and was estimated to be 3.4M

points of sale. Retail outlets were generally divided into three categories, “traditional trade”

such as mom-and-pop stores (59%), “non-grocery trade” such as unchained drugstores,

cosmetics and ice cream stores (35%) and “modern trade” for instance supermarkets and

hypermarkets chains and convenience stores (CVS) (6%).9 (see Exhibit 11)

In modern trade, the fastest growing segments were minimarkets and convenience stores,

with hypermarkets failing to expand to lower tier cities and closing in high tier cities due to

low profitability and logistic difficulties. One explanation for this was the unwillingness of

Chinese consumers to buy in bulk because houses are generally small and have little

storage space availability. As a consequence, there was a great amount of frequent

consumers with a low-ticket average purchase.

Online was the emerging channel for grocery shopping in China. The typical online consumer

was young, wealthy and highly educated. Furthermore, the practicality of this channel was

seen as the most positive fact as the car penetration was low and on average people would

spend many hours a day commuting between home and work.

For the beverage category, traditional trade was the main channel but the volume and value

of sales per store was very low when compared to modern trade. Modern trade accounts for

35% of the category sales with just 6% of the number of outlets. Additionally, it was risky and

more time consuming for companies to deal with a high quantity of small independent

retailers in traditional trade.

More important, as the juice quality increased, more sales were made in the modern trade.

For instance, 92% of the sales of the 100% Juice category were made in these channels with

brands like WeiChuan exclusively available in modern retailers.10 The benchmark of product

sales per store would vary according to the price of the product, brand awareness and

9 Source: Nielsen in China 2013

10 Source: Nielsen in China 2013


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channel type. National products of lower prices could sell four times more than imported

products. (see Exhibit 12)

Online sales for the beverage category accounted for 5% of value in first- tier cities. For

instance, “Yihaodian”, the 4th top online seller on grocery products in China, had 50,000

consumers that bought imported juice in June 2013. The top brand in sales was Cyprina from

Cyprus that sold almost 90 packages of 1L orange juice per day with a price between

9.9RMB and 10.9RMB. The advantage of the online channel was its easiness and

inexpensive way to target consumers with customised advertisements and samples.

However, to boost sales in this channel most brands marked down, approximately by 20%,

their products’ prices in order to obtain larger quantity sales.

Another interesting sales channel in China is TV Shopping. The target consumers of these

channels were housewives of over 55 years old. Nevertheless, beverages had low weight in

sales and no prime time exposure. To do business, TV shopping companies such as Oriental

CJ, demanded a discount over the average retail price for this category, between 35 to 50%,

and a commission of approximately 35%. Therefore, the product needed high awareness

and high market share to ensure stock rotation.

New supplier fees, new SKU (Stock Keeping Unit) prices per store and target margins would

vary according to the type of retailer: Supermarkets or Hypermarkets and CVS did not

charge an entrance fee to new suppliers, while Super/Hyper charged 2,000 RMB per new

SKU per store, which was two times CVS’s fee. Online channels charged 900 RMB for a new

supplier and 50 RMB for new SKU of a chosen product. (see Exhibit 13)

More importantly, even big chain conglomerate groups such as Wal-Mart would consider to

negotiate per region, therefore, there were no national agreement but rather local

agreements only.

On premises, Chinese habits do not include juice during meals, leading to a low relevance of

social consumption of the category. However, with the recently enforced restrictions on

“drinking and driving” more customers were turning to juice as an alternative to alcohol

during meals. Additionally, the juice base cocktails were becoming trendy in bars and

nightclubs. However, whilst social consumption remained small, the industry believes that it

will grow considerably.


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Sumol Compal products

Sumol Compal’s portfolio in China offered juice products as well as water related products

such as Frize, B! and Serra da Estrela. Juice products accounted for 90% of the volume

sales in 2013 and hence, this case study focuses on this category.

The company invested in a sticker label declaring “Made in Europe”. All products had this

attached to their packages. In fact, Jiawen Zhang, supervisor assistant at Sumol Compal in

China, walked through supermarkets in Shanghai with a bag of stickers, attaching and

checking if all the company’s products were displayed accordingly. (see Exhibit 14).

However there were infinite varieties of imported juice brands in China, especially in specialty

gourmet stores. Some of them from Europe as well, such as, Germany, Italy, Austria and

Spain.

Portugal, in particular, had no major special relation with Mainland China. On a survey

conducted in 2014 with university students, 63% answered that they were not familiar with

Portugal and 18% chose “only impressed by wine” alternative. This last, mostly due to the

word “Portugal” in Mandarin, which means land of wine. The other answer was Cristiano

Ronaldo, the soccer player. 11

Apart from Sumol Compal, Portuguese companies such as, Sogrape, Gallo, Manná, and

Delta were slowly entering into the Chinese market, however, without engaging in any

partnership strategy among them.

Sumol Compal Juice Products

The juice products available in China were: Juice Drink – Sumol – 100% Juice – Compal

100% –Nectars – Compal NFC, Vital and Um Bongo. They were sold in different sizes for on-

the-go and take home consumption. The target price of Sumol Compal’s products was

comparable with other imported products and, its product positioning was kept the same as it

was in Portugal. (see Exhibit 15).

In 2013, Um Bongo represented 63% of the sales. The success of this product was mainly

attributed to three factors: lowest competition; attractive package, especially for kids; and the

11 Survey conducted in July 2014 with 550 Students and Alumni from Fudan University in Shanghai.


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increase in purchasing power of Chinese mothers who improved their demand for high

quality and imported products for their children. (see Exhibit 16)

Business model

From 2010 to 2014, Sumol Compal had been practicing a pure export model. For this

operation, it had been using two different distribution partners: direct sales to retail chain or

to distributors. (see Exhibit 17)

The main strategy of both partners was to sell Sumol Compal as a niche and premium brand

in gourmet markets at major city centers, where the products were located on special

shelves for imported products.

With this type of business model, Sumol Compal had low risk and low cost. On the other

hand, it had low control over the supply chain and high dependence on its distribution

partners. Additionally, these players retained approximately 70% of the gross margin over

the final consumer price of the product, without VAT.

In addition to this, Gomes, had different problems with their distributors and most of them

needed to be replaced within two years. The issues were motivated not only by cultural and

language misunderstandings, but also because the distributors lost interest in Sumol Compal

products after a short time since they were not adequately trained.

In 2014, Sumol Compal had a small team of three Chinese employees who worked full time

and were in charge of control and interaction with distributor and retail partners.

Nevertheless, it was already clear that three employees were not sufficient to cover

distributors and products that were spread throughout China.

Strategic Decisions

Business Model

One of the most important decisions was whether Sumol Compal should change its business

model in China for a more direct approach in which the company assumed ownership of

marketing and sales functions. To take that path Sumol Compal had two options: a

Representative Office (RO) or a Wholly Foreign Owned Enterprise (WFOE).

Besides the lead-time for implementation, the major difference between both alternatives

was the scope of activities. With a WFOE, it would be possible to perform all the market

activities: contract, invoice and manage operations. With less activity coverage, the

Representative Office (RO) option does not allow a full implementation of any plan in China.


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Since the RO has limitations on contracting services (and recovering the VAT), many of

these activities would have to be done directly by the company in Portugal, unlike the WFOE

that would act as a full subsidiary company. (see Exhibit 18)

Moreover, if a WFOE was the choice made, it would be possible to increase gross margins,

overtaking the distributors share by having full control of its logistics and distribution

operation (see Exhibit 19).

In this option, the overall profit from logistics and distribution would compensate the

expenses of the new office in China, which could reach up to 1.5M RMB, considering

additional human resources and overhead annual costs. This cost considers a small

management team because, even if Sumol Compal establishes a WFOE, there is no need to

directly perform all tasks, as some of non-core activities could be outsourced in the same

country at a relatively lower price.

Brand Positioning

Sumol Compal did not have any clear strategy to build the positioning of its brands in China.

To reach the new sales goal of 21M RMB in 2017, it was necessary to re-evaluate Sumol

Compal’s brand and its product positioning and for that purpose three options could be

evaluated: 1) Should Sumol Compal explore the juice market by offering just one product and

one target, for instance Um Bongo targeting kids in wealthy families? 2) Or should they

explore the Juice Drinks mainstream market via Sumol against Minute Maid? 3) Or should

the company focus on the high-end market with Nectars – Compal and Um Bongo – and

100% Juice – Compal 100% –, targeting wealthy and foreigner consumers?

From a managerial point of view, Um Bongo had a very nice and interesting niche market.

With the current price, Um Bongo was the product with higher profit margin mainly because

the company was taking advantage of Chinese mothers’ willingness to pay higher prices for

good products for their children.

On the other hand, Sumol was part of the large and more valuable category and even a

small market share could represent enormous earnings.

Compal has a range of flavours and subcategories, for instance NFC and Vital, of high

quality products. The main challenge here was a strategy that would make Compal excel

beyond its competitors, for instance, the combination of its fruits.


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Above all, for each of these alternatives it was important to define the brand as European,

Portuguese or Chinese and perhaps explore alternatives of Chinese demography and

geographical segmentation.

Marketing Mix

Product

Apart from the positioning alternative chosen, one promising strategy could be to

progressively expand the number of SKUs per brick and mortar store over the years as

brand awareness and customer loyalty increases.

For the options 1) and 2) - outlined in Brand Positioning- which are one-product strategies, 4

SKU’s on year-one, reaching 8 SKU’s at year-three, would be a reasonable approach.

For option 3), it would be important to define first its product mix based on the attractiveness

of each product and, for instance, for a strategy with three Sumol Compal products, 10

SKU’s would be a good quantity for year-one, reaching 18 SKU’s on year-three.

On the other hand, for online channels in all alternatives, the number of SKUs per chain from

year-one could be the maximum, since the price per new SKU in this type of channel is

lower.

In general, it would be necessary to decide whether the company should consider any

packaging adjustments, as the products themselves, for instance the juice offering, were not

able to be changed over the short term.

Promotion

To promote the products and to launch marketing campaigns, Gomes knew that it would be

impossible to develop a nationwide marketing strategy not only because of Chinese social-

economic differences but also, because of the prohibitive cost of advertising on a massive

market such as China. However, this increasingly virtually connected country offered

opportunities that could help enhance the brand awareness of the company.

The year-one promotion investment of Sumol Compal in new geographies was allowed to

reach up to 80% of its forecasted sales revenues, however in subsequent years the

expenditure level needed to average 20%. The company usually spent four times more of its

marketing budget on above-the-line campaigns than on below-the-line alternatives.


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Management knew that successful advertising was able to engage Chinese consumers and

their cultural traditions. It was necessary to determine the main target consumers, its

communication targets, the creative strategy for the chosen option/product and to define

which consumer and/or trade promotion would offer the best return on investment. (see

Exhibit 20)

Place

Since the target margin of each channel, for all three different categories of trade in China,

could vary significantly, it is reasonable to consider 40% as a benchmark.

Previously, partners had mainly chosen modern trade, specialty gourmet supermarkets, in

first-tier cities to distribute Sumol Compal’s products. However, it was an option to explore

other possibilities of modern retail outlets taking into account their quantity and customers

visit frequency per month. (see Exhibit 21)

Management believed that the largest opportunity was in the take-home consumption

market, as their company had high quality products, experience in modern trade and

knowledge in marketing and branding. The other opportunity, supported by the company’s

competences and local strengths, was the on premise consumption segment. However, it

was an emerging segment and still small in value.

The on-the-go consumption was a relevant segment in size, but management believed that it

could only be a solution in the mid-term, because it required high brand awareness, a

necessary driver of high product rotation in the shelves.

Price

The resulting product price, should be aligned with its positioning and selected sales channel

to generate competitive advantages. (see Exhibit 22)

If Sumol Compal adopts the direct approach, a perfect match between product differentiation

along with brand awareness and consumer willingness to pay can affect product pricing and

respective margins.

Should Sumol Compal decide to keep its current business model, the indirect approach,

consumer final prices would be close to impossible to control, leading the way to a potential

cannibalization of the remaining channels.


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Moving Forward

Gomes was on his way to Shanghai. He knew that he had a big challenge and numerous

opportunities ahead of him. If successful, this experience could turn Sumol Compal into a

global player, becoming an internationalization case study.

In the event of a higher investment deemed necessary, the board would be receptive

provided that the marketing and business plans proved themselves feasible and profitable.

It was time to dig deep in the Chinese universe and formulate the best strategy for a

successful consolidated position in China.


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Exhibit 1 China cities’ location and classification by tier

City-tier Sum of GDP (Billion RMB) %

First-tier 85,095 15.0%

Second-tier developed 60,157 10.6%

Second-tier medium-developed 104,606 18.4%

Second-tier underdeveloped 28,103 4.9%

Source: China Statistical Yearbook 2013

Exhibit 2 China Juice market share by volume and value

Source: Euromonitor International, June 2014. Passport, Juice in China

Beijing/ Guangzhou/

Shanghai/ Shenzhen/

Tianjin

Chongqing/ Dalian/

Hangzhou/ Jinan/

Nanjing/ Ningbo/

Qingdao/ Xiamen

Changchun/ Changsha/

Chengdu/ Dongguan/

Foshan/ Fuzhou/ Harbin/

Shenyang/ Shijiazhuang/

Shenyang/ Suzhou/

Taiyuan/ Wuhan/ Wuxi/

Yantai/ Xian

Hefei/ Kunming/ Nanchang/ Nanning/ Tangshan/ Wenzhou/ Zibo

79%

10%

9%

2%

Market Share Volume (%) 2013

Juice Drinks

Cereal/Pulse-based Drinks Nectar

100%

79%

10%

9%

2%

Market Share Volume (%) 2013

Juice Drinks

Cereal/Pulse-based Drinks

Nectar

100%

¥78 432

¥12 979

¥13 426

¥4 806

Market Share Value (Billion RMB; %) 2013

Juice Drinks

Cereal/Pulse-based Drinks

Nectar

100% 72%

12%

12%

4%


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Exhibit 3 Top Brands Market Share (%) 2013


Exhibit 4-a Graph about the relation between Market Share and Growth in 2013 of juice

categories in China. The size of the bubbles is representative of the category market share.


13,30%

8,60%

5,80%

4,40%

4,20%

3,70%

3,20%

2,20% 1,50% 1,30% 1,30%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

45,00%

50,00%

Tropicana

Hek

Nongfu

Qian Shou

China Green

Wahaha

Coconut Palm

HuiYuan

President

Master Kong

Minute Maid

15%

100%

JUICE DRINKS

CEREAL/PULSE

100%

NECTARS

9.8%

50% 25%

5%

0% % growth market

%market share

0%

higher market share

higher growth


17

Exhibit 4-b Forecast Off-trade Sales of Juice by Category: % Value Growth 2013-2018

2013-18 CAGR (%) 2013/18 TOTAL (%)

100% Juice 11.0 68.3

Nectars 2.0 10.5

Juice Drink 10.2 62.7

Cereal/Pulse 8.3 49.3


Exhibit 5 Market leaders and the approximate market share within category.

Source: Huiyuan Annual Report 2014; Nielsen China data; Euromonitor International, June 2014. Passport, Juice in China

Exhibit 6-a Wal-Mart, Shanghai. July 2014

100% Juice Nectars

HuiYuan

56% market share

WeiChuan

23% market share

HuiYuan

45% market share

Nongfu

12% market share

Juice Drink Cereal/Pulse

Minute Maid

18% market share

Master Kong

12% market share

China Green

27% market share

Vitasoy

11% market share

BRAND COMPANY COUNTRY

WeiChuan Ting Hsin

International Group China

Besides regular shelves, WeiChuan was present

in the refrigerated shelves inside some of the

supermarkets and convenience stores. This was

one strategy to be perceived as a more “natural”

juice type.


18

Exhibit 6- b Century Mart, Hangzhou (top) BLT Gourmet Shopping, Shanghai (bottom) July 2014


Compal Sumol Compal Portugal

Chabaa Chabaa Bangkok Co.

Thailand

Dimes

Dimes Food Industry

and Trade Joint

Stock

Turkey

Joos Company not Identified

Malee Malee Sampram Public Company Limited

Thailand

Mogu Mogu

Sapanan General

Food Company Thailand

Premium

Fresh Philicon-97 S.A Bulgaria

Sonrisa Grupo Almonojo, S.A

Mexico

Sterigalda Zuegg Ltda. Italy

Um Bongo Sumol Compal Portugal


Compal Sumol Compal Portugal

Cyprina New Sevegep Cyprus

Dimes

Dimes Food Industry

and Trade Joint

Stock

Turkey

Jala Super

Juice

Azerbaijian Juices

Ltda Azerbaijian

Premium

Fresh Philicon-97 S.A Bulgaria

SK

Special New Sevegep Cyprus

Skipper Zuegg Ltda. Italy


19

Exhibit 7 Stickers on imported products. Shanghai. July 2014

Exhibit 8 Kids juice products in China. Shanghai, Beijing and Hangzhou. July 2014

Source: Supermarkets and Hypermarkets visits in Shanghai, Hangzhou and Beijing. July 201

Picture Brand Company Made in

Nectars

Mogu Mogu

25% Juice Content

Sapanan General Food Company

Thailand

Kato Drink

With Nata de Coco

25% Juice Content

Leadertrade products Co., Ltd.

Thailand

Juice Drinks

Qoo

20% Juice Content The Coca Cola Company China

San Benedetto Baby Drink

10% Juice Content

San Benedetto Italy

Robinsons Fruit Shoot

11% Juice Content Britvic United Kingdom

Pororo

2% Juice Content Paldo Company/Yakult Korea


20

Exhibit 9 Tonic Food, effects of each fruit according to Chinese Medicine

Fruit Effect

Orange Cool the lungs, eliminate phlegm and clear sore throats

Pear Cool the lungs, nourish kidneys, and prevent from cold

Guava Cool, benefit stomach, nourish kidneys

Passion fruit Cool, anti-aging, beauty

Strawberry Cool, strengthen spleen and stomach

Coconut Cool, good for skin care

Banana Cool, prevent constipation

Tomato A little cool, benefit for beauty care

Apple Neutral, good for intestine, resolve summer heat

Peach A little Warm, benefit stomach and intestine

Raspberry A little Warm, good for liver and kidney

Apricot A little Warm, anti-cancer

Plum Warm, benefit throat

Grape Warm, can prevent cancer, strengthen spleen and stomach

Mango Warm, can prevent cancer, and good for beauty care

Pineapple Warm, can cure cold, and good for beauty care

Blueberry Warm, benefit eyesight

Source: Chinese Medicine, research obtained by Fudan Chinese team in July 2014; http://www.chinesemedicinedoc.com/boulder-acupuncture/articles-and-handouts/diet-chinese-medicine/ Access at April 2015

Exhibit 10 Share of investments by advertising medium

Source: AdPower CTR (Monitoring spending)/ Havas Media in China interview in 2014

Exhibit 11 Retail in China distribution by type of outlets Source: Nielsen in China 2013

2.0M

1.2M 3K

15K 36K

136K

0.19M

Retail in China

Traditional Trade

Non-grocery Trade

Hypermarkets

Supermarkets

CVS

Minimarkets 59%

35%

6% 72%

1% 8%

19%

18% 14% 19% 23%

16% 13%

14% 15%

4% 4%

4% 4%

38% 43%

41% 40%

2% 3% 2% 2%

22% 23% 19% 16%

2010 (177B RMB) 2011(209B RMB) 2012(231B RMB) 2013(255B RMB)

Internet Outdoor Radio TV Magazine News

http://www.chinesemedicinedoc.com/boulder-acupuncture/articles-and-handouts/diet-chinese-medicine/


21

Exhibit 12 Benchmark of sales per type of store

Retailer type Product Brand Size Price Sales/ SKU per store/ per day

Hyper/Super 100% juice Imported 1L 20 to 30 RMB 1

Hyper/Super Nectar Imported 600 ml 7 to 10 RMB 1

Hyper/Super Juice

Drink

Imported 330 ml 6 to 8 RMB 1

Convenience Store 100% juice National 400 ml 6.9 RMB 3 to 4

Convenience Store 100% juice Imported 350 ml 16.8 RMB 1

Retailer type Product Brand Size Price Sales/ per store/ per day

Online Store 100% juice Imported 1L 20 to 30 RMB 70

Online Store Juice

Drink

Imported 330 ml 6 to 8 RMB 30

Source: interviews, and meeting with supermarket chains and market research companies. Shanghai. July of 2014

Exhibit 13 Benchmark of sales investment prices for different retail outlets.

Source: Benchmark from interviews, and meeting with supermarket chains and market research companies. July 2014

Exhibit 14 Sticker “Made in Europe”

Financial Sales (prices in RMB)

Type Target margin

without VAT

New Supplier New SKU

CVS 35%-40% 0 1,000

Hyper/ Super 25%-35% 0 2,000

On-line 40% 900 50

TV Shop 40% - -


22

Exhibit 15 Sumol Compal Juice products in China

12 “In China, the use of stevia and other natural and artificial sweeteners in food and beverage production is

licensed. However, many beverage manufacturers are still reluctant to use them. The replacement costs from cane sugar to healthier sweeteners are higher, indicating that manufacturers were forced to either have reduced margins or raise their selling prices and risk losing competitiveness.” Source: Better for you Beverages in China Euromonitor International, Passport May 2014

Picture Brand Flavors

Packages/ Prices (RMB) Specification

Positioning in Portugal

100% Juice

Compal 100%

100%

juice content

Orange; Apple

Citric flavor

No sugar added

No colorings

No preservatives

To demanding Portuguese consumers, Compal 100% is the most healthy and nutritious classic fruit juice because it relies on the expertise and quality of Sumol Compal brand.

1L TetraPak 25 RMB

330ml TetraPak 11 RMB

Nectars

Compal Nectar/ NFC

30-50%

juice content

Orange, Pear; Peach; Mango; Multi Fruits

Sugar added.

NFC juices are squeezed direct from the fruit, thereby not from concentrated. However, there was no clear knowledge from the Chinese population about the meaning of NFC.

To demanding Portuguese consumers, Compal NFC is a tasty, healthy and nutritious fruit juice because it is squeezed direct from the fruit. More than that, Sumol Compal is a reliable and well-know brand

1L TetraPak

23 RMB

330ml TetraPak

11 RMB

Compal Vital

50%

juice content

Pineapple Cocoa;

Mango Orange;

Red Fruits

Low calorie nectar mix of fruit

Stevia, the natural sweetener with low calorie, is used instead of cane sugar.

12

To demanding Portuguese consumers, Compal Vital is a tasty, healthy and low calorie fruit juice because is sweetened with stevia. More than that, Sumol Compal is a reliable and well-know brand

1LTetraPak 23 RMB

330mlTetraPak 11 RMB

Um Bongo

50%

juice content

8 Fruits; Pineapple; Orange; Strawberry Sugar added

No colorings

No preservatives

For kids, Um Bongo is the quality, tasty and amusing fruit juice, which carries kids to the "fun jungle kingdom".

1LTetraPak 23 RMB

200mlTetraPak (pack 3units- 600ml)

8 RMB


23

Source: Sumol Compal website and China Sumol Compal catalogue.

Exhibit 16 Sumol Compal volume sales of Compal, Um Bongo and Sumol products. January to June/ 2014

Source: Sumol Compal in China data. June 2014

Exhibit 17 Sumol Compal’s partners in China since 2010.

Source: Sumol Compal data and interviews. June 2014

Sumol Compal Portugal

Retail Chain

Through AICEP,the Portuguese Investment and Foreign Trade Agency, Sumol Compal made an agreement in 2010 with City Shop, supermarket

chain, which buys products direct from the company and sells them in 14 own gourmet stores in Shanghai and Beijing. In 2014, City

Shop was still a partner.

Distributor

Sumol Compal made agreements with distributors that then took over transportation, storage, sales to retail chains and marketing.

Promotions and advertisement campaigns were made through the agreement between them and

supermarket chains or directy by the supermarket chains.

Retailers

BLT Gourmet Shopping, Century Mart, Yihaodian,...

Juice Drink

Sumol

10%

juice content

Orange; Pineapple; Passion Fruit; Lemon

Slight sparkling juice drink with real fruit juice and pulp.

Sugar added

No colorings

For young consumers, Sumol is the unmistakable Juice Drink that adds to the fruit exciting sparkling flavor. It is the first Juice Drink in Portugal.

300ml Glass 6.0 RMB

330ml Can 6.5 RMB

Volume sales per product/ package

200 ml 300ml 330 ml 1 L Total

Compal 5% - 16% 79% 25%

100% 80% 30%

NFC 20% 80% 67%

Vital 20% 3%

Um Bongo 41% - - 59% 63%

Sumol - 33% 67% - 12%

Total 27% 4% 12% 57% 100%

48%

30%

11%

11%

Volume sales per region

Guangzhou

Beijing

Shanghai

Hangzhou


24

Exhibit 18 Wholly Foreign Owned Enterprise X Representative Office

Presence in

China Strengths Weaknesses

Rep Office Simple form of starting a business

in China

Not a legal incorporation

Does not isolate S+C of China financial risks

Can not invoice

Can not have profit

Can not deduct VAT

Lead time to incorporation

(3 to 4 months)

WFOE Legal form of incorporation

Can isolate S+C from financial risks

in China

(enhanced if dependent from a

holding in Hong Kong)

No limitation on market activities

VAT deduction on imports and

costs

Lead time to incorporation

(6 to 12 months)

Minimum capital requirements

(300K to 1,000K RMB)

Source: AICEP, Deloitte Doing business in China

Exhibit 19 Current Business Model margins estimate and benchmark for direct approach

Product Current Model Price RMB

13

Margins Direct Approach

Price RMB Margins

COMPAL 100%

1L

Retail price 25.00 25.00

Price no VAT 21.37 17% 21.37 17%

Retailer price 15.17 29% 12.82 40%

Distributor price 10.77 29%

S+C Cost 5.97 45% 6.57 49%

330ml


Price no VAT 9.40 17% 9.40 17%

Retailer price 6.68 29% 5.64 40%


S+C Cost 2.48 48% 2.73 52%

13 Source: case writer estimate.


25

COMPAL NECTARS/ NFC + VITAL

1L Retail price 23.00 23.00

Price no VAT 19.66 17% 19.66 17%

Retailer price 13.96 29% 11.79 40%


S+C Cost 5.97 40% 6.57 44%

330ml Retail price 11.00 11.00

Price no VAT 9.40 17% 9.40 17%



S+C Cost 2.48 48% 2.73 52%

Product Current Model

Price RMB Margins

Direct Approach Price RMB

Margins

UM BONGO

1L


Price no VAT 19.66 17% 19.66 17%

Retailer price 13.96 29% 11.79 40%


S+C Cost 4.52 54% 4.78 59%


Price no VAT 6.84 17% 6.84 17%



S+C Cost 1.50 56% 1.58 61%

SUMOL


Price no VAT 5.56 17% 5.56 17%



S+C Cost 1.42 49% 1.52 54%


Price no VAT 5.13 17% 5.13 17%



S+C Cost 1.30 50% 1.40 55%


26

Exhibit 20 Benchmark Media campaign prices and impact.

Media Channel Price Expected Discount

Period Likely Impact

Above the Line

Consumer Promotion

TV Ads Campaign

(above developed tier 2 cities channels)

20,000,000 RMB 50% Price per campaign/ per city

45 days

Increase of 200% sales during campaign

14

TV Ads Campaign

(below developed tier 2 cities channels)


45 days


Digital Adv. Campaign

(above developed tier 2 cities channel)


45 days


Digital Adv. Campaign

(below developed tier 2 cities channel)

300,000 RMB 70% Price per campaign/ per city

45 days


15

Cinema Adv.

(above developed tier 2 cities channel)


30 days


Cinema Adv.

(below developed tier 2 cities channel)


30 days


Mobile Website

40,000 RMB 1st Year

+

10,000 RMB maintenance

- Brand Awareness and consumer retention

Social Network page

10,000 RMB 1st Year

+

8,000 RMB maintenance

- Brand Awareness and consumer retention

Trade Promotion

On-line Retailers Adv. 300,000 RMB 70%

1 RMB per click in recommendation area.

Benchmark of 30% sales after click

Increase of 50% sales online during campaign

16

14

Data calculated by average of other brands’ media information from Havas Group in China and OCC Media Company in Shanghai. However, impact can vary significantly according brand and location. Besides sales growth, there is also benefit of increase of brand awareness.

15 For instance, according Exhibit 12, during campaign would be sold 2 packages, per SKU in each store, per

day.

16 For instance, according Exhibit 12, during campaign would be sold 105 packages in each online store, per

day.


27

Below the line

Consumer Promotion

Tasting 100 RMB 3h tasting event inside supermarkets.


Samplings Hyper/Super 30,000 RMB - Approx.10,000 small packages of defined product. Approx. one week


Samplings Online 30,000 RMB - Approx.10,000 small packages of defined product. Approx. one week.


Trade Promotion

Special Shelves 300 RMB - Price per month

Brand Awareness Usually is combine with Samplings campaign

Source: Havas Group in China and OCC Media Company. Shanghai/July 2014

Exhibit 21 Evaluation of Modern Trade

Source: Nielsen Shopper Trend in China 2013

7,4

3,1

0,9 1

1,9

6 6,2

1,7 1,3

2,4

-19%

100% 89%

30% 26%

Hyper CVS Specialist On-line Average

Customer visits per store/month

Visits per month 2008 Visits per month 2012 Growth

CVS Hyper/Super CVS Specialty Online Average


28

Exhibit 22 Benchmark prices and channels’ scenarios

Sumol and Compal

1. Supermarket

Orange juice; 1L; Supermarkets in cities Tier 1, such as Shanghai and Beijing; prices in RMB

Market Share, bubble sizes, within the category (juice drink, nectar and100%)

2. Convenience Store Orange juice; 330ml; Convenience Stores in cities Tier 1, such as Shanghai and Beijing;

prices in RMB

Market share, bubble sizes, according perception of presence.

Compal 100%

WeiChuan

Compal Nectar

Minute Maid

Tropicana

Nongfu (30%)

Wahaha

WeiChuan Juice Drink

NFC Fruit & Co.

Sun & Shine

Mr. Juicy

20 0

0%

Quality 100%

10 Price

Sumol

WeiChuan

HuiYuan

Great Lakes Happy Day Compal 100% Skipper

Compal Nectar

HuiYuan

Nongfu 30% Sunfresh

Jale

Minute Maid Master Kong Snapple

Uni-President

Tropicana

Quality % juice content

40 50%

0%

0

20

100%

Price

Sumol

higher price

From juice drink to 100%

higher price



29

UM BONGO

1. Supermarket

Orange juice; 250ml; Supermarkets in cities Tier 1, such as Shanghai and Beijing; prices in

RMB

Market share, bubble size, within this niche.

As the size’s packages were different among products, the price considered was the

weighted average.

Source: Supermarkets and Hypermarkets visits in Shanghai, Hangzhou and Beijing. July 2014;

Pricing Passport Juice in China by Euromonitor International June 2014.

Qoo

San Benedetto

Robisons

Pororo

Um Bongo

Mogu Mogu Kato

Quality % juice content

5.0 10.0

1.0

40

30%

20

10%

Price

higher price


higher price

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