Xinhua Finance: Calcol Sees Fat Profits from Diet Drinks in China

The article below is reprinted from Xinhua Finance. BEIJING (XFN-ASIA) - Calcol Inc (CLCL-OTC) believes its diet soft drinks will spell sweet success. The Cleveland-based company is launching a China-wide marketing campaign for its Malibu-Cola and other soft drinks aimed at health- and cost-conscious consumers, said Calcol chairman and president Norman C. Kaplan. The Cleveland-based company is launching a China-wide marketing campaign for its Malibu-Cola and other soft drinks aimed at health- and cost-conscious consumers, the company's chairman and president Norman C. Kaplan said. "I see a focus on diet soft drinks making us a leader in the beverage industry in China," Kaplan told XFN-Asia in an interview. "I see no barriers, as all our products in China will be available in both diet and regular varieties." He said the company has set an ambitious goal of challenging global giants Coke and Pepsi in China as sugar-free drinks gain broader appeal. "With our lower prices and diet options for all our flavors, we see ourselves with a 25-30 market share in China in three to five years, and will be among the top three. That is because the other two simply don't have the wide variety of diet choices and flavors yet," Kaplan said. The company has so far focused on Beijing and the northern city of Tianjin. It said it now has around a 5 pct share in those markets. Malibu-Cola is produced and sold exclusively in the China market. It first appeared in Beijing and Tianjin supermarkets and in nearby Hebei province just three years ago. But Kaplan is already setting his sights on becoming a market leader in China and directly taking on the world's two carbonated soft drink giants -- Coca-Cola and Pepsi -- in the country. "In many major hypermarkets in the Beijing-Tianjin area, Malibu was already getting one-third of the shelf space with Coke and Pepsi products," he said. Kaplan said Coke and Pepsi derive the bulk of their earnings in China from sugared soft drinks, and offer sugar-free options only for their flagship cola products. "We believe regular soft drinks sweetened with sugar, consumed in moderation, have a place as part of a healthy diet. But we also think diet soft drinks are probably a healthier choice, particularly if consuming more than one 12-ounce can per day," Kaplan said. Malibu soft drinks come in sweetened and diet versions of traditional cola as well as orange, lemon-lime, lightly carbonated lemonade and golden apple among other flavors. Their most obvious advantage is price. "We retail 20-25 pct cheaper than Coke and Pepsi in the China market, even with the very tight margin they operate on here, tighter than is seen elsewhere," Kaplan said. And even a tiny price gap is enough to drive sales in China. "China is a very price sensitive market, as a small difference in the cost of our 2-liter product compared with the competition is enough to pay bus fare for our customers to get home from the supermarket," he said. But price alone will not result in big gains in market share. "Chinese consumers read labels and want new sugar-free products, and they are more interested than ever in what goes into their bodies. I believe that health and cost-conscious consumers will switch to our drinks," Kaplan said, saying his company's diet products contain non-sugar sweeteners aspartame or sucralose/ace-K. He said growing dietary concerns may help in the company's sales push. "Adult onset Type II diabetes and obesity as well as heart disease due to dietary factors are growing problems in China. And Malibu-Cola emphatically wants to be part of the solution and not part of the problem," Kaplan said. Dr. Barry R. Bloom, dean of the Harvard School of Public Health, when asked about Calcol's diet soft drink campaign, said that an emphasis on diet flavors was an effective way to slow rates of obesity in China. "There is a worrying increase of obesity worldwide, especially among children -- and China is no exception. In a world where kids have no exercise and adults are sedentary, we see great increases in obesity," Bloom told XFN-Asia. "One form of sugar in our diet that is completely avoidable is sugared sodas, which are a major cause of obesity. Artificially sweetened diet soft drinks are a viable option," Bloom added. Calcol's Kaplan said the company will first focus on the north, and then expand elsewhere in China as early as next month through its sales and distribution contracts with Tesco, Carrefour, Wal-Mart, Trust-Mart and other retailers. "The diet campaign will begin in the north, and then expand to Shanghai and the northeast where we will have established sales networks. By 2008, we estimate that 25 pct of our sales will be in the diet segment," he said. "There are now two major competitors in the stores we operate in, and the local competition seems to have disappeared. We are offering healthier alternatives in many different choices," he said. Calcol plans a second bottling and canning plant in Shenzhen in south China, penetration into Shanghai with a third plant there, and nationwide distribution of its products within the next two years. Malibu-Cola is produced under an exclusive license from Calcol Inc, which owns and operates a bottling and canning plant with an annual capacity of 13 mln cases as well as 800,000 units of concentrate. Calcol, which has shares trading on the OTC Bulletin Board in the US, succeeded at securing one of three business licenses for manufacturing of foreign-branded soft drinks in China and says it is rapidly capturing market share from the other two major higher-priced American brands. Its recent expansion into 160 large retail stores in China marks the start of a major business development cycle with China-based revenues expected to grow to 16.9 mln usd and operating profits projected at 2 mln usd by 2008. No comparative figures were provided. [email protected] xfnap/xfnjb1/xfnap/xfnrc/ap