Eastroc: Challenging Red Bull and Monster, how does the domestic 'life-sustaining water' become the king of counterattack?

$EASTROC BEVERAGE(605499.SH) In our article "Monster: How Did It Achieve a 100-Fold Growth in 20 Years by 'Tearing Apart' Red Bull?", we discussed how Monster "defeated" Red Bull and achieved a miraculous 100-fold growth over 20 years. In China, there is also a formidable player in the energy drink sector that has carved out a path of rapid growth during years of traditional consumption downturn.

Since its listing in 2021, this company's revenue has grown at a compound annual growth rate of over 30%, with profit growth exceeding 40%, making it the fastest-growing dark horse among A-share and H-share soft drink companies. This company is Eastroc Beverage (hereinafter referred to as Eastroc).

So what exactly did Eastroc do to achieve its rise from a regional brand to the national leader? Dolphin Research will take you through a detailed analysis of this company, from the perspectives of business model & strategy, future growth potential, and valuation, to provide some insights for investors. This article, as the first part, focuses on Eastroc's business model & strategy. Let's dive into the main content:

Detailed Content:

I. What Kind of Company is Eastroc Beverage?

1. From Deeply Rooted in Southern Guangdong to Nationwide Expansion

Before delving into a detailed analysis, let's briefly introduce Eastroc Beverage as per usual.

Eastroc is a long-established beverage manufacturing company in Shenzhen and one of China's first beverage enterprises. After completing the transformation from a state-owned enterprise to a private enterprise through employee stock ownership in 2003, it entered a fast development track.

In 2009, it launched the 250ml Eastroc Special Drink, successfully entering and focusing on the energy drink track, initially deepening its roots in its home base of Guangdong to accumulate experience. In 2016, as Red Bull faced trademark disputes and a decline in market share, Eastroc seized the opportunity to launch the strategic large single product 500ml Eastroc Special Drink and began national expansion. By 2021, its market share surpassed Red Bull, and it has been the highest-selling energy drink brand in China for four consecutive years.

From the revenue side, Eastroc's revenue scale soared from 4.2 billion yuan in 2019 to 15.8 billion yuan in 2024, with a compound annual growth rate of 30%. What is even more commendable is that after Eastroc's revenue exceeded 10 billion yuan in 2023, it still maintained a super high growth rate of 40% in 2024, breaking the traditional soft drink company's "10 billion bottleneck" of slowing growth.

From the category perspective, initially, the energy drink category represented by "Eastroc Special Drink" accounted for more than 90%. In the later stage, Eastroc gradually expanded into multiple categories such as electrolyte water, fruit juice tea, ready-to-drink coffee, and plant-based beverages, advancing towards a platform-type soft drink company. Currently, the proportion of energy drinks has dropped to 84%, still being Eastroc's absolute mainstay, while the electrolyte water "Replenish Water" has, after two years of cultivation, accounted for nearly 10% of Eastroc's total revenue, becoming the second growth curve.

From the regional perspective, in recent years, Eastroc has completed its penetration from its home base in Guangdong to nationwide. Apart from Guangdong, the development in other regions is relatively balanced. As of the first half of 2025, the proportion within Guangdong Province has dropped from over 60% initially to 24%, transforming into a national soft drink giant.

2. Heavy Asset Model, Full Control of Production and Channels

In terms of business model, unlike Monster, which focuses only on the light asset segments of brand management and product development, Eastroc adopts a typical heavy asset strategy—fully controlling heavy asset segments such as production and channel construction.

As shown in the figure below, before listing, the proportion of fixed assets + construction in progress to total assets was over 30%. After listing, as the company accelerated its national expansion in recent years, the climbing capacity drove the release of scale effects, and by the first half of 2025, this proportion had dropped to 23%.

On the production side, Eastroc chose a fully self-built production model from the beginning. Initially, it only established production bases in South China. Later, with continuous national expansion, Eastroc continued to set up production bases and production lines nationwide to meet new demand. Currently, Eastroc has built 13 production bases nationwide (4 are under construction), covering five core regions: South China, East China, Southwest China, Central China, and North China, with the actual transportation radius in each region controlled within 500 kilometers. The advantage of this approach is that production is not subject to others, and it can enjoy the profitability improvement brought by scale effects. However, correspondingly, the difficulty of production and management will also increase significantly.

As shown in the figure below, Eastroc's capacity utilization rate has gradually climbed since 2018, reaching 90% by the end of 2024, which is at the top level in the entire soft drink industry (the average capacity utilization rate in the soft drink industry is between 70%-80%), reflecting Eastroc's extremely high single-line production efficiency.

In terms of channel construction, compared to Monster's expansion through giant networks, Eastroc adopts a full-channel intensive cultivation model. Generally, the traditional distribution system in the soft drink industry adopts a long chain model of manufacturer - distributor - wholesaler - terminal, resulting in weak control over channels and terminal outlets.

Eastroc, however, adopts a three-tier independent distribution structure of distributor-postman-terminal store, with the postman being a unique link. Generally, Eastroc's postmen are local operators with customer resources, delivery capabilities, and familiarity with the regional situation. Unlike traditional wholesalers who simply transport goods and earn price differences, postmen are responsible for delivering products to terminals, developing outlets, maintaining terminal customer relationships, and collecting market information.

It can be said that postmen are the key drivers for Eastroc's deep channel penetration, directly determining the breadth and quality of Eastroc's terminal outlet development. To bind interests with postmen, Eastroc provides exclusive delivery subsidies and outlet development rewards to postmen, and distributors also give up half of their profits to postmen, forming a tripartite interest community.

For terminal outlets, Eastroc not only enhances brand exposure through large-scale placement of refrigerators but also personally sends salespeople to work with postmen to maintain terminal outlets and improve outlet quality.

As of the first half of 2025, Eastroc has over 3,000 distributors, 67,000 postmen, and 4.2 million terminal outlets nationwide, forming a deep channel network system that firmly occupies the first tier in the industry. Compared to the traditional distribution structure, Eastroc's system is flatter and more efficient, allowing better control over terminals (to be elaborated later).

3. Outstanding Cost Control Ability, Industry-Leading Gross Margin

In terms of profitability, Eastroc's gross margin is around 45%, with the gross margin of energy drinks close to 50%, while the gross margin of electrolyte water and other categories is currently less than 30% due to their small scale, dragging down the company's overall gross margin.

Although it does not reach the top level of 60% like Nongfu Spring, considering Eastroc's cost-effective route and low pricing, reaching this level is already very impressive.

From the perspective of unit manufacturing cost, in 2024, Eastroc's unit manufacturing cost (excluding raw materials and manufacturing labor costs) is 216 yuan/ton, while the average unit manufacturing cost in the soft drink industry is between 500-600 yuan/ton, indicating that Eastroc has extremely strong cost control capabilities.

4. Surpassing Cola and Nongfu with Ultra-High Shareholder Returns

In terms of shareholder return indicator ROE, in 2024, Eastroc surpassed Nongfu and Coca-Cola, becoming the "king of shareholder returns" in the soft drink industry, significantly higher than other listed soft drink companies in China.

From the DuPont analysis, although Eastroc's net profit margin, turnover rate, and equity multiplier are not the highest in any single indicator, it surpasses all other companies through the mutual balance of these three indicators, reflecting Eastroc's extremely high management level and operational efficiency, making it a model of heavy asset operation.

II. Why Eastroc and Monster?

Above, we focused on analyzing Eastroc's business model from a financial perspective and determined that Eastroc is an extremely high-quality company. The question is, how did Eastroc achieve this? Compared to Monster, why can two companies with seemingly different business models and strategies "overthrow" Red Bull in their respective countries and become the later comers? Let's continue the analysis:

1. The Commonality Lies in Avoiding Red Bull and Achieving Differentiated Competition

Similar to the United States, before Eastroc, Red Bull entered the Chinese market as early as 1995, relying on the operation of the Huabin Group, and has long been positioned in the high-end energy drink market, with the core target audience being white-collar workers and extreme sports enthusiasts. Since 1996, it has invested over 100 million yuan to sponsor CCTV's Spring Festival Gala, Olympic broadcasts, and continued to sponsor F1 racing, cliff diving, and other extreme events, strengthening its "high-end international brand" image, with a domestic energy drink market share once exceeding 80%.

Like Monster, to avoid direct competition with Red Bull, Eastroc targeted the unmet lower-tier market and focused on blue-collar workers engaged in physical labor, such as truck drivers and construction workers.

Dolphin Research believes that the core reason for not targeting young people like Monster is that the national conditions of China and the United States are different: as a mature developed country, the United States has a high tolerance for caffeine due to long-term consumption of coffee/Coca-Cola. According to data from the International Coffee Organization (ICO), the current average daily caffeine intake per capita in the United States is about 135mg (equivalent to one and a half cans of Red Bull), so the functional aspect of energy drinks is significantly weakened, serving more as a need for identity expression and social entertainment. Research shows that the largest consumption scenario for energy drinks in the United States is parties/gatherings (nearly 38%), which is also an important background for Monster's rapid rise in the United States.

As a developing country, China is still dominated by labor-intensive industries, which means a large and rigid demand from the blue-collar group. According to the "China Blue-Collar Group Employment Research Report", the total number of blue-collar workers in China exceeds 400 million (core groups include drivers, delivery workers, couriers, etc.), accounting for 54% of the total employed population, providing an excellent soil for Eastroc's rise.

The biggest characteristic of the blue-collar group is extreme price sensitivity, so Eastroc strives for large volume and affordability in its products. Compared to Red Bull, with similar efficacy, the price is still 1 yuan cheaper even after doubling the capacity. As shown in the figure below, in terms of unit milliliter price, Eastroc Special Drink is basically the cheapest among domestic energy drinks. The high cost-effectiveness not only expanded Eastroc's audience but also achieved a transformation from low-frequency optional to high-frequency essential attributes.

Additionally, since most physical laborers work outdoors, Eastroc creatively changed the can to a bottle for multiple uses and thoughtfully added a dust cover, increasing product recognition and becoming a car ashtray for many truck drivers. This deep insight into the user group quickly won the favor of the blue-collar group.

2. The Difference in Channel Structure is Key

2.1. China's Channel Structure is Relatively Fragmented and Low in Standardization

For fast-moving consumer goods, Dolphin Research believes that in some sense, where consumers see your product is more important than advertising. For example, if truck drivers can see Eastroc in any channel, over time, it will form muscle memory, and this ubiquitous channel coverage and control is the trump card for taking market share from Red Bull!

Dolphin Research mentioned in "Monster: Besieged on All Sides, Will the Former 'Monster' Become a 'Sick Cat'?" that in the United States, the food and beverage channels are centered around convenience stores, supplemented by large chain retail supermarkets and warehouse membership stores, forming a centralized and unified channel system with standardized SKU management, consistent product display, and pricing systems, and early establishment of direct supply relationships with giants like Coca-Cola and Pepsi. Therefore, for small and medium-sized brands, reaching a distribution agreement with giants is often the most efficient choice, allowing rapid penetration into various terminals, which is also an important reason why Monster, as a chaser, can achieve rapid expansion through giants without building its own channels.

In contrast, China's channels are mainly dominated by independent small grocery stores and comprehensive supermarkets, with highly fragmented terminals and significant differences in markup rates between different regions and types of terminals, lacking unified management and pricing systems. Therefore, to firmly control terminals, one must be personally involved, but the fragmentation and complexity of channels make it much more difficult to build channels in China than in markets like the United States, where channels are highly concentrated.

2.2. Digitalization is the Soul

Due to the above differences in channel structure, to better control channels and terminals, Eastroc began digital construction in 2015, as a "top priority project" within the group, investing nearly 3 billion yuan over 10 years to build the most advanced digital system in the industry. It can be said that an efficient digital system is the key to supporting Eastroc's full-channel intensive cultivation, significantly improving the efficiency of Eastroc's various operational links, and is Eastroc's most core moat.

To give investors a clearer understanding of how Eastroc achieves deep control over each channel link through the construction of a digital system, Dolphin Research needs to provide some background information. Overall, Eastroc's digital construction is divided into two stages:

First Stage: "One Yuan Enjoyment" Achieves BC End Linkage: Around 2015, the mainstream marketing method in the soft drink industry was still the "another bottle" promotion model pioneered by Master Kong. However, this model had a complex redemption process, requiring multiple levels of circulation through consumers, terminal stores, and distributors, with low efficiency, leading to low willingness of many terminal stores to cooperate.

In this context, Eastroc first started with C-end consumers, launching the bottle cap code, embedding red envelopes in the form of QR codes in the bottle cap, allowing consumers to directly receive cash red envelopes by scanning the code. With the comprehensive promotion of the bottle cap code, consumer participation surged, and Eastroc also accumulated a large traffic pool through the bottle cap code, obtaining precise consumer profiles, laying the foundation for subsequent targeted advertising.

In 2018, to include terminal stores in the digital system, Eastroc launched the heavy marketing campaign "One Yuan Enjoyment" (not conflicting with the consumer scan to win red envelopes activity). Simply put, after consumers purchase products and win prizes by opening the cap, they can redeem the prize at the store by paying 1 yuan to get another bottle. Store owners only need to scan the bottle cap code to receive a redemption coupon (no need to recycle the bottle cap), and after collecting 24 coupons, they can exchange them for a box (24 bottles) from the postman. Assuming an average winning rate of 30% (corresponding to 7 bottles), it means that store owners can earn an additional 7 yuan per box sold on top of the original channel profit.

However, it should be noted that to scan and redeem, store owners must register as Eastroc's merchant members. In this way, Eastroc built its own merchant membership system through "One Yuan Enjoyment", achieving a connection between consumers and terminal stores.

To ensure the smooth operation of this system, as shown in the figure below, Eastroc has set incentives at each redemption link, allowing terminal stores, postmen, and distributors to enjoy the benefits brought by "One Yuan Enjoyment".

Source: Mido Big Data, Dolphin Research

Second Stage: "Five Codes in One", Full-Chain Digitalization

Although Eastroc enhanced control over terminals and consumers through "One Yuan Enjoyment" and "Bottle Cap Code Red Envelopes", the circulation links from production lines to distributors, postmen, and terminal stores still lacked transparency.

Therefore, based on this, in 2019, Eastroc transformed its production lines, assigning an internal cap code and an external cap code to each bottle of Eastroc beverage produced on the production line. When 24 bottles are packaged into a box, the internal cap code and external cap code are associated with the internal box code and external box code, and bound to the stack code and batch number of each batch of goods, achieving bottle-box association and five codes in one, allowing Eastroc to monitor the entire product lifecycle (production, outbound, inbound, sales, redemption, etc.).

Specifically, distributors scan the stack code and external box code upon inbound, terminal stores scan the internal box code upon opening, and consumers scan the external cap code and internal cap code after purchase. Based on the order of scanning times, the hierarchical relationship of channels can be corresponded one by one. In this way, if the system detects that the scanning location of consumers/terminal stores does not match the box code's belonging area, the system will automatically lock the corresponding bottle cap code and alert the headquarters.

Through the above sorting, it can be seen that Eastroc has explored consumer digitalization since 2015 with scan-to-win red envelopes, followed by terminal and channel digitalization, and finally, to match the five codes in one system, carried out digital transformation on the production end. Currently, the five codes each perform their duties, connecting the entire chain from production to circulation to consumption, successfully building a digital management closed loop, maximizing market operation efficiency. Specifically:

1) Deeply Control Channels, Ensure Channel Order and Profit: Based on the company's five codes in one full-chain monitoring, once the system detects distributor cross-regional sales, Eastroc will directly revoke the distributor's regional agency qualification and require the distributor to pay a heavy penalty. If internal company personnel are involved in assisting cross-regional sales, all performance bonuses will be directly deducted.

Under heavy pressure, according to research information, Eastroc's cross-regional sales rate is less than 1%, which is absolutely top-notch compared to the general level of over 10% in the soft drink industry.

It should be noted that cross-regional sales have always been the most troublesome problem in the soft drink industry, not only disrupting market pricing systems, undermining the confidence of regular distributors, but also severely damaging brand image, allowing competitors to seize market share. Even strong players like Nongfu, the "soft drink leader", have a cross-regional sales rate of 8%-10%, and due to the larger profit margin of energy drinks, cross-regional sales between regions are often more prominent. Therefore, it is very commendable that Eastroc can control the cross-regional sales rate within 1% under such circumstances, and the low cross-regional sales rate also ensures the stability of the price system at all levels of channels.

From the perspective of channel profit, combined with research information, as shown in the figure below, in the distributor link, Eastroc distributors' single-box profit is nearly four times that of Red Bull, and for postmen, based on previous analysis, since they not only undertake specific delivery tasks but also are responsible for outlet development and terminal customer maintenance, if outlet development incentives and comprehensive subsidies are included, Eastroc postmen's comprehensive income is 15%-20% higher than that of traditional logistics providers. Finally, for terminal stores, if scan rebates (internal box code), redemption red envelopes, shelf subsidies, and other benefits are included, the comprehensive gross margin of stores is over 40%, 5%-10% higher than the industry average.

Channel profits at each link higher than the industry average also give Eastroc industry-leading channel thrust, reflected in financial indicators. As shown in the figure below, Eastroc's inventory turnover efficiency is also a cliff-leading in the industry, only 27 days (industry average is around 40-60 days). This is also an important reason why Eastroc's outlets have rapidly expanded from less than 600,000 in 2018 to the current 4.2 million. It can be said that this industry-leading digital system is the core lever for Eastroc's rapid national expansion and rapid growth.

2) Greatly Improved Eastroc's Production Efficiency: In addition to deep channel control, as mentioned earlier, Eastroc's capacity utilization rate is as high as 90%, with extremely high single-line production efficiency, which is largely dependent on Eastroc's full-chain digital system.

According to previous analysis, under the "five codes in one" system, no matter which terminal in the country, as long as consumers open a bottle to drink, Eastroc can know through the data platform that a bottle of beverage has completed a real sale. Moreover, the company analyzes sales data daily based on real-time scan data, produces inventory reports, and pushes them to the production line, dynamically adjusting production plans, truly achieving production based on sales, greatly avoiding stockouts and inventory backlogs, maximizing capacity utilization.

Additionally, it is worth mentioning that to achieve the ultimate cost leadership strategy, Eastroc pioneered the use of PET plastic bottles for all categories of beverage materials (energy drinks, electrolyte water, tea beverages, etc.) in the industry. This method, on the one hand, because PET bottles are lighter in weight, can increase the logistics loading capacity per trip, and more importantly, it can achieve multi-category co-line production, further improving production efficiency. For comprehensive soft drink companies like Nongfu, which use different packaging for different categories and specifications, the switching between production lines also invisibly increases the unit manufacturing cost of products.

Overall, on the surface, the "five codes in one" action seems simple, but in fact, to achieve the tracking effect of the five codes, real-time control of data across all channels is required, which in turn requires the cooperation of production end, distributors, postmen, and terminal store owners across all channels. Implementing it has a high threshold and is the result of Eastroc's continuous exploration and investment over 10 years. The 250 million user profiles accumulated by Eastroc over 10 years have also become Eastroc's unique data asset advantage compared to competitors.

In fact, as an extremely traditional industry, the food and beverage industry, to achieve full-chain digitalization like Eastroc, not only requires continuous capital investment in the early stage but also requires the transformation of various links in the original channel and internal organizational structure, allowing internal and external members to readapt, requiring time to settle. In the long run, it is a typical difficult but correct thing. Eastroc's commendable aspect is that the management realized the importance of digitalization early on and promoted it from top to bottom, ultimately achieving digital transformation in the industry. Currently, although other soft drink companies also generally use digital tools, overall, in terms of effectiveness and integration, there is still a significant gap compared to Eastroc, and a complete closed loop has not been formed. In Dolphin Research's view, the digital barrier will gradually widen the comprehensive strength gap between enterprises.

3. Highlight Functionality, Defeat with One Move

Finally, let's briefly compare the marketing links of Eastroc and Monster. If Monster's success lies in deeply binding a relatively niche but highly sticky "subculture group" through community marketing, forming identity recognition, Eastroc has positioned itself as a "national functional drink" from the beginning, trying to cover a significantly broader target audience.

Therefore, in terms of marketing methods, in the early stage, Eastroc adopted saturated advertising marketing, occupying consumers' minds through comprehensive, high-frequency, and multi-scene advertising bombardment. The advertising slogan "Tired? Drink Eastroc Special Drink" is simple and direct, anchoring the product's functional characteristics.

On the one hand, Eastroc has deeply cooperated with CCTV, becoming a sponsor of the CCTV World Cup broadcast in 2018 and a top partner of the Paris Olympics in 2024, advertising to convey the national brand image of "bringing glory to the country, Eastroc energy", covering national TV audiences. According to the prospectus information, as shown in the figure below, Eastroc's advertising investment in TV and radio is the highest.

Offline, Eastroc has infiltrated advertising slogans into all densely populated areas such as buses, waiting halls, and subway stations, with high-frequency exposure to strengthen brand recognition.

In the later stage, Eastroc further refined its target customers into 8 key groups (drivers, blue-collar workers, new blue-collar workers, entertainment groups, white-collar workers, students, sports groups, public service groups), launching more targeted marketing plans based on the characteristics of these 8 groups.

For example, for the driving group, the company reached a strategic cooperation with Amap in 2019, launching customized navigation voice packages during peak travel traffic nodes such as Spring Festival, May Day, and National Day. For the student group, Eastroc actively sponsors youth sports events and holds "campus energy station" activities, offering free trials with a points reward system (scanning codes to accumulate points for redeeming study supplies). After a series of combination punches, combined with the rapid distribution of all-channel terminal outlets, Eastroc's brand recognition has significantly improved.

Summary: Heavy Assets + Scale + Digitalization

In summary, based on the analysis of the entire article, it can be seen that Eastroc's core competitiveness has never been about being simply cheap and cost-effective. The real competitiveness lies in the efficient operation system supported by digitalization built over ten years, continuously expanding scale, saving costs, and ultimately giving back to channels and consumers, forming a positive cycle.

Eastroc's chairman Lin Muqin once said: To make Eastroc Special Drink so that others are no longer willing to enter this category because it is "unprofitable". In fact, in Dolphin Research's view, Eastroc's strategy is to push Porter's cost leadership strategy to the extreme, by building cost advantages across the entire value chain, allowing the company's product and service costs to be lower than competitors in the industry, thereby participating in market competition at a lower price or achieving higher profits at the same price, ultimately establishing a long-term competitive advantage.

When the scale effect is large enough, the price is low enough, and the operational efficiency is high enough, this is the most solid moat.

In the next part, we will review Eastroc's future growth space, overseas expansion potential, and investment value from the current perspective. Stay tuned!

Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure

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