Seize the water source to build barriers, enter the subdivision to seek growth, Nongfu Spring ＂two-pronged approach＂ to resist the ＂siege of the heroes＂

In the opinion of industry insiders, the layout of 12 water sources in Nongfu Spring can greatly reduce the distribution radius, reduce costs, and achieve cost leadership. Pure water can also achieve national development through factory layout, but things have two sides, which also leads to low barriers to pure water and strong replaceability. This is also the fundamental reason why Wahaha, Master Kong, Binglu and other brands account for a relatively small proportion.

Nongfu Spring has dominated the drinking water market for many years, making many peers envious. However, with the passing of the dividend period, the market growth rate has slowed down, and there have been changes such as consumption upgrades and market segmentation expansion. This has allowed a group of enterprises to see the opportunity to challenge Nongfu Spring and share the market. They have launched an attack on Nongfu Spring’s drinking water market. While Nongfu Spring continues to build barriers to seize more high-quality water sources, it has launched more segmented products to accelerate the penetration into the segmented field, in order to resist the siege of the industry.

Recently, the Nongfu Spring Water Source has gone to another city, and its newly completed twelfth water source factory has been put into operation, continuously strengthening the barriers to its own water source.

Competing for water and building barriers

Nongfu Spring calls itself "nature’s porter", a simple business that has made Zhong Shansui China’s richest man.

This track business is simple, but sustainable. Song Xiangqian, founding partner and chairperson of Jiahua Capital, once said that investment is in industries with high-frequency rigid demand and involving people’s livelihood.

The drinking water track is like that.

In the first half of this year, the convenience food industry was sluggish. As an industry giant, Imai Lang turned his energy to the drinking water field. Imai Lang Chairperson Fan Xianguo said that in the drinking water field, Imai Lang is most likely to wrestle with Nongfu Spring.

However, this Mailang billions of volume from the Nongfu Spring nearly 20 billion yuan volume gap is a bit big.

The most fundamental reason why Nongfu Spring has such a stable income is to preemptively deploy multiple high-quality water sources across the country, which in turn generates mental barriers in the hearts of consumers.

Recently, Nongfu Spring has built a water source factory in Guangxi, a region with the best water quality in China.

In 2022, the excellent rate of surface water quality in Guangxi will be above 96% for five consecutive years, and the excellent rate of coastal water quality will remain excellent for 10 consecutive years and rank among the top three in the country.

Nongfu Spring has been looking for water in Guangxi for more than 10 years. It entered in 2008, and it was only in 2021 that the water source of Daming Mountain in Nanning was determined. This place where locals often queue up to pick up buckets to receive water. At present, Nongfu Spring has built a number of production lines in the Daming Mountain factory, and the annual capacity is expected to be more than 500,000 tons.

Nongfu Spring said that by virtue of its location, the Daming Mountain production base will provide products for the consumer market in Guangxi and neighboring Guizhou, Yunnan, Guangdong and other places.

In recent years, the demand for natural water in southern China, with Guangdong as the core region, has been growing. According to Nielsen data, from May 2021 to May 2023, the compound growth rate of sales of natural water in Guangdong Province was 2.04%, while the compound growth rate of sales of purified water was -3.28%.

In fact, in the drinking water market, giants have been competing for high-quality water sources.

Centennial Mountain has built 6 production bases in Guangdong, Jiangxi, Sichuan, Italy, and Fiji. Forsywater, a subsidiary of Reignwood, has built the base in Shennongjia and Kunlun Mountain, a subsidiary of Jiaduobao. The base is in the 6,000-meter snow-capped mountains, and well-known high-end drinking water such as 5100 and Bama mainly focus on water source brands.

These water brands have higher prices due to their single water source and good water quality, such as Furse, Kunlun Mountain, 5100, etc. There are also water sources that are widely distributed and have lower costs. Although the quality is also higher, the price is relatively cheap, including Nongfu Spring and Centennial Mountain.

It is worth noting that Nongfu Spring is still strengthening its water source advantage. It is understood that from September 2022 to the present, Nongfu Spring has also reached cooperation with many governments to build production bases in the local area, and more water sources will be put into production and use in the future.

At present, the water sources of Nongfu Spring include Qiandao Lake in Zhejiang, Wanlu Lake in Guangdong, Danjiangkou in Hubei, Tianshan Manas in Xinjiang, Mount Emei in Sichuan, Taibai Mountain in Shaanxi, Changbai Mountain in Jilin, Wuling Mountain in Guizhou, Daxing’an Mountain in Heilongjiang, Wuling Mountain in Hebei, Wuyi Mountain in Fujian, and the newly put into production Daming Mountain in Guangxi.

Luo Xianliang, director of strategic positioning consulting at Reese, believes that the layout of 12 water sources can greatly reduce the distribution radius, reduce costs, and achieve cost leadership; Nongfu Spring has cultivated consumers’ awareness that natural water is better than purified water in the early years, which has greatly improved the brand value and natural water category value of Nongfu Spring, allowing consumers to pay more premiums for products. This is the key to the success of the water business, and only half of the competitiveness is not enough to succeed.

The heroes besieged the farmers and subdivided them into the key to victory

The layout of Nongfu Spring in the drinking water market has allowed it to make a lot of money.

The total revenue of Nongfu Spring in 2022 was about 33.239 billion yuan, an increase of 11.9% year-on-year; the profit was 8.495 billion yuan, an increase of 18.6% year-on-year. The revenue of the packaged drinking water product business was 18.263 billion yuan, accounting for 54.9% of the revenue, a decrease from 57.4% last year, but it is still the largest supporting force for Nongfu Spring’s revenue.

But the growth rate of Nongfu Spring drinking water began to decline. In 2022, the revenue of packaged drinking water increased by 7.1% year-on-year, while the growth rate in 2021 was 22.1%, a significant decrease in growth.

Luo Xianliang believes that most of the packaged water in Nongfu Spring is in the mid-range market, with a single bottle priced at 2 yuan. This market is already close to the ceiling, and the high-speed growth dividend period has passed. Therefore, the growth rate of packaged water in Nongfu Spring has begun to slow down since 2020.

Therefore, many companies began to challenge Nongfu Spring.

Centenarian Mountain uses "real mineral water" through international sports IP cooperation such as World Blue Federation, World Badminton Federation, World Table Tennis Federation, CBA, etc., to strengthen the high quality of its mineral water, and occupies the first cognitive mind of mineral water through relatively low prices.

Imami Mai Lang began to use low-end water and cool white water to start his efforts, and launched "Imami Mine" mineral water, achieving coverage from one-yuan water to three-yuan water. Based on this claim, Fan Xianguo most hoped to wrestle with Nongfu Spring.

Yibao has also launched dew mineral water while stabilizing the purified water market, but it is only limited to gaining market share.

Cofco’s Lake Baikal and Lake Kamchatka are overwhelmed and gradually disappear from the consumer’s field of vision, but it has launched Yuehuo Emei Mountain mineral water, still hoping to get a share of the high-end drinking water market.

In China’s drinking water market, the cheaper drinking water is pure water. Pure water has no limitations on the source of water, can build factories across the country, and the barriers are relatively low. In the mid-to-high-end drinking water market, the source of water has become the basis for many water companies to build their own mid-to-high-end brand perceptions and industry barriers, and high-quality water sources have become a must for several giants.

However, the key to winning the future of drinking water is no longer just the layout of high-end markets such as mineral water. Luo Xianliang believes that the next wave of dividends in the packaged water market will be consumption upgrades and the growth of sub-categories. Consumption upgrades refer to the upgrade from 2 yuan water (single bottle) to 3 yuan water (single bottle), and sub-categories refer to the demand for high-quality water in special scenarios such as tea making. Therefore, the long white snow natural snow mountain mineral water and tea making made by farmers are very meaningful and carry future growth. However, there are still many misunderstandings in the current practice of Nongfu Spring, which has caused it to fail in the 3 yuan water market.

Making tea is the touchstone

On the road to consumption upgrades, many brands have chosen the same option, choosing mineral water.

In the sub-category market, Nongfu Spring is the earliest layout. At present, Nongfu Spring’s drinking water includes natural water, mineral water, brewed tea, baby water, coffee water and other sub-segments, among which brewed tea has become a must-compete market for many brands.

At present, in the tea market, according to the JD.com supermarket survey questionnaire, JD.com online tea consumption users are mainly in first-tier cities and users aged 36-45. High-economic areas and some coastal areas have become the core consumption areas for tea.

From a geographical perspective, consumers in first-tier cities are the absolute main purchasers. More than 40% of the tea is bought by consumers from Beijing and Shanghai. Guangdong, Jiangsu, Zhejiang and other coastal provinces and cities are also the core consumption areas for tea.

At present, the standardization of brewed tea is also being achieved. It is understood that the group standard "Packaged Drinking Natural Brewed Tea Water" drafted by the Tea Research Institute of the Chinese Academy of Agricultural Sciences and other units has been released and implemented in July 2021, setting physical and chemical indicators for brewed tea for the first time.

The "Packaged Drinking Natural Tea Water" group standard covers non-fermented, semi-fermented and post-fermented tea making processes, and is basically applicable to six major tea categories. It is a basic standard with universal guiding significance.

In terms of specific indicators, the group standard points out that natural water containing certain mineral elements, TDS < 70 mg/L (conductivity < 100 μS/cm) and pH < 7.5 brews tea leaves, resulting in better quality tea soup.

Yin Junfeng, chief scientist of the China Tea Institute’s National Tea Industry Engineering Technology Research Center, said: "For special tea varieties, further research and improvement are needed."

At present, the largest tea drinking space on the market mainly uses Nongfu Spring, and brands such as Yibao and Liangbaikai have also expressed that their products are suitable for making tea on different occasions. Nongfu Spring has basically established a firm foothold in the field of brewing tea water. The brewing tea is mainly based on its large-scale red bottle water, as well as the brewing tea produced by Nongfu Spring Wuyishan Factory.

The blue whale financial reporter noticed that the tea-making water used in the rainforest ancient tree tea, bamboo leaf green and other tea spaces is generally the red bottle water of Nongfu Spring.

"Zhuyeqing’s stores in Chengdu and Chongqing use products from Nongfu ****** from the Emei water source, and even the tea water in the ******* store is shipped from the Emei water source," the relevant person in charge ** Zhuyeqing told Blue Whale Financial Reporter.

A person in charge of Rainforest Ancient Tree Tea told Blue Whale Financial Reporter that they selected a lot of products and finally determined the Nongfu Spring, and the water used by many tea customers is also the Nongfu Spring that Rainforest Ancient Tree Tea helped them contact, directly sent to customers from Hangzhou Qiandao Lake.

For some more professional tea customers, the water used to make tea is more particular. He Gongkai, the head of Zhuangyuan’s tea industry and a veteran tea person, told Blue Whale Financial reporters that at present, many tea people use the big red bottle water and brewed tea water from Nongfu Spring to make tea. "I use the red bottle for ordinary tea, and after brewing the tea, I will use their brewed tea water."

Nongfu Spring related sources have revealed that at present, Nongfu Spring not only offers tea and baby water, but also expands coffee-specific water.

No matter which sub-sector, high-quality water sources are needed, which is the core of competition. "High-quality water sources are scarce resources, and the layout of water sources is the future, and it is also the barrier for Nongfu Spring to distinguish other drinking water companies." Nongfu Spring said.