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By Wang Huiying

Editor/Midnight

This summer, Nongfu Spring has been a bit busy - busy bringing the price of drinking water to one yuan, and busy confronting the Hong Kong Consumer Council.

In May, Nongfu Spring launched a new pure water product with green packaging to grab the market, and sold it to terminal stores at a price that was cheaper than the red bottled water;

In June, Nongfu Spring lowered the price of green bottled water to less than one yuan per bottle, starting a new round of price war in bottled water.

In July, Nongfu Spring was again questioned by the Hong Kong Consumer Council about its "bromate" content. Faced with the unfounded doubts, Nongfu Spring chose to confront them head-on, listing the three major errors in the Hong Kong Consumer Council's article and demanding an apology from the Council.

In the end, the public opinion storm ended with the Hong Kong Consumer Council apologizing for the "misunderstanding caused by the discrepancy in sample classification", and Nongfu Spring stated that it would "continue to provide safe, high-quality products and services to the Hong Kong market."

Nongfu Spring’s latest response, source: Nongfu Spring Weibo

But this summer's bottled water price war is far from over.

From the perspective of the entire market, the "water war" dominated by ultra-low prices has already begun. According to Xinhuanet Finance, many convenience stores are offering discounts on packaged drinking water from brands such as Nongfu Spring, Wahaha, and Yibibao, with the price of each bottle of drinking water as low as 0.8 yuan. Online, brand discounts are also non-stop.

In fact, as the initiator of the price war, Nongfu Spring had no choice. In the public opinion incident in March this year, tens of thousands of people "boycotted Nongfu Spring" in the name of pushing Nongfu Spring's sales and stock price to the lowest point.

In order to maintain its brand and market, Nongfu Spring must fight back fiercely.In addition to the tough attitude of the Hong Kong Consumer Council, Nongfu Spring not only launched a new category of purified water, but also entered the layout of this summer's popular category of ice cups.

Essentially, it reveals that Nongfu Spring is looking for new growth points in the drinking water market, which it has dominated for many years. After all, regaining market share and stock price is a top priority.

1. To maintain its brand and market, Nongfu Spring is very aggressive

Nongfu Spring launched a "defense war".

Nongfu Spring works very hard to maintain its brand reputation.

On July 15, the Hong Kong Consumer Council tested 30 bottled water samples in its latest "Choice" monthly magazine. They were collected from the food departments of supermarkets, convenience stores and department stores from November to December 2023, including 3 distilled waters, 3 purified waters, 1 mineral distilled water, two mineral purified waters, 17 natural mineral waters and 4 sparkling natural mineral waters, including Yilibao, Ice Dew, Baishuishan, Nongfu Spring, etc.

This test result was aimed at Nongfu Spring, causing Nongfu Spring to fall into a whirlpool of public opinion and directly affecting Nongfu Spring's stock price.

According to the Hong Kong Consumer Council, it found that the bromate content in Baishuishan and Nongfu Spring reached the EU upper limit. Intake of large amounts of bromate can cause nausea, abdominal pain, vomiting and diarrhea, and in severe cases it can even affect the kidneys and nervous system.

This time, facing public opinion and doubts, Nongfu Spring took a tough stance.Nongfu Spring issued a lawyer's letter to the Hong Kong Consumer Council, pointing out that the article published by the Hong Kong Consumer Council had three major errors: incorrect application of standards, incorrect standard judgment, and obvious subjective misleading.

Image source: Nongfu Spring Weibo

Nongfu Spring believes that even if the EU standard is adopted, the samples tested should also comply with the drinking water safety standard (bromate content should not exceed 10 micrograms/L), rather than the natural mineral water standard mentioned by the Hong Kong Consumer Council (bromate content should not exceed 3 micrograms/L). Secondly, any standard is only "qualified" or "unqualified", and the Hong Kong Consumer Council's use of the words "reached the upper limit" is suspected of misleading consumers.

In addition, Nongfu Spring also believes that the Hong Kong Consumer Council is engaging in double standards. The article published by the Hong Kong Consumer Council is based on misunderstanding and unprofessional analysis, and made an objective evaluation of the bromate content of Nongfu Spring products, which has caused great damage to Nongfu Spring's reputation. Nongfu Spring solemnly requests that the Council clarify and apologize in writing and eliminate all negative impacts on Nongfu Spring.

On July 18, the Hong Kong Consumer Council apologized in a statement for the misunderstanding caused by the discrepancy in sample classification during the test. In response, Nongfu Spring said it would "continue to provide safe and high-quality products and services to the Hong Kong market."

In fact, the surging public opinion attacks are not unfamiliar to Nongfu Spring, especially its founder Zhong Shanshan. In the past 30 years, Zhong Shanshan and Nongfu Spring have experienced many business wars and have been at the center of public opinion storms many times. Every time a problem is resolved, Nongfu Spring takes a step forward.

The difference is that in this "misjudged" public opinion war, Nongfu Spring is particularly tough. Not only because it is "upright and not afraid of its own shadow", but more importantly, in the tight market competition, Nongfu Spring will not allow any accidents to happen.

Since March this year, after experiencing the public opinion incident, Nongfu Spring’s sales and stock price have been in a slump, and product removals have occurred frequently. In order to regain the market, Nongfu Spring launched a "self-defense war."

Entering the summer, Nongfu Spring restarted its pure water products and launched pure water with green packaging. A month later, Nongfu Spring kicked off the bottled water price war this summer with green bottled water.

Nongfu Spring purified water, source: Nongfu Spring official website

During this year's 618 event, the company directly lowered the price of a 12-bottle green bottle of purified water to 9.9 yuan, or 0.825 yuan per bottle, directly hitting its competitors' heartland.

The fierceness of a price war lies in that once it is started by one party, the most direct option for competitors is to follow suit, otherwise sales are likely to be directly affected.

According to media reports, Wahaha pure water is only 11.99 yuan for a pack of 596ml*12, which is less than 1 yuan per bottle; Master Kong boiled water, cooked drinking water, is 9.9 yuan for a pack of 550ml*12, which is 0.825 yuan per bottle; Baishuishan, which usually retails for 3 yuan, has also reduced its price to 1.8 yuan.

You know, in the past, summer was the peak season for bottled water consumption, and bulk and large-package promotions were quite common, but it is the first time to see such low prices as this summer.In terms of small packages, although the main products of Nongfu Spring, Yilibao and Wahaha are different, the retail price is 2 yuan.

Not only the retail price at the terminal has dropped, but the supply price of Nongfu Spring green bottled water at the terminal has also dropped. According to China Entrepreneur, in May, the purchase price of green bottled water at a convenience store in Chengdu was 0.8 yuan per bottle, 0.2 yuan cheaper than red bottled water; a Nongfu Spring salesperson in Beijing also said that the terminal purchase price of a box (24 bottles) of green bottled Nongfu Spring pure water was a few yuan cheaper than red bottled water.

From the supply end to the retail end, Nongfu Spring has single-handedly launched a price war in the bottled water industry.As the initiator of the price war, Nongfu Spring is coming with great momentum. Looking at the entire market, purified water is the largest market segment in the packaged water industry, with a large market capacity and many competitors. Nongfu Spring has its own considerations for entering the purified water track.

2. The re-launch of purified water is still aimed at grabbing new markets

For a long time, Nongfu Spring and purified water stood on opposite sides.

In 2000, Nongfu Spring took a different approach and pioneered the concept of "natural water", creating a new category, thus making a strict distinction between it and the "pure water" of other companies such as Wahaha.

It was also in this year that Nongfu Spring’s founder Zhong Shanshan said that purified water does not contain minerals and is not beneficial to human health, and announced that he would no longer produce purified water.

This move was undoubtedly a fatal blow to the pure water brand. According to the Southern Metropolis Daily, in Hangzhou, the "base camp" of Wahaha, a "gathering" initiated by Wahaha and attended by 69 pure water manufacturers including Robust was held to jointly hold the "2000 Seminar on Maintaining the Healthy Development of Pure Water" and issued a joint statement demanding that Nongfu Spring "apologize." Subsequently, Wahaha and Nongfu Spring both took each other to court. In the end, this massive "water war" ended with Nongfu Spring paying a fine of 200,000 yuan.

Nongfu Spring thus stood on the opposite side of purified water, and this position lasted for 24 years. Little did people know that from 1997 to 1999, Nongfu Spring was also a "porter" of purified water, and it was not until 2000 that things changed.

Since then, Nongfu Spring has successfully educated the market and secured its leading position in the bottled water industry with slogans such as "We don't produce water, we are just nature's porters" and "Nongfu Spring is a little sweet."

Even this year, Zhong Shanshan published an article titled "Two or Three Things Between Me and Mr. Zong" and mentioned: "To this day, I still insist that the mineral elements in water are vital to human health, which is why I insist on producing natural water."

Within three months, Nongfu Spring's attitude changed significantly. Not only did it launch pure water in green packaging, it also raised the price to a new competitive dimension, clearly showing a bit of impatience.

When the market was eager to know an answer, Nongfu Spring gave a response.

At the 2023 Annual Shareholders' Meeting, Nongfu Spring responded that the production of purified water is to give everyone more choices, just as the product promotion slogan says: "I have the obligation to inform, and you have the right to choose. One more choice, one more comparison."

Rather than giving consumers more choices, it is more like giving Nongfu Spring more options.

At present, my country's packaged drinking water market is mainly divided into five categories: drinking natural mineral water, drinking purified water, drinking natural spring water, drinking natural water, and other drinking water.

The only sub-category that Nongfu Spring has not involved in for 24 years is drinking purified water, which happens to be the market segment with the largest space in the packaged drinking water market.

According to a report by Frost & Sullivan, drinking purified water is the largest market segment, with market retail sales of 120.6 billion yuan in 2023, accounting for 56.1% of China's packaged drinking water market, and is expected to reach 197.8 billion yuan in 2028.

Such a large market is quite attractive to Nongfu Spring now. If it can occupy a place in the pure water market, it may have new growth.

From the cost point of view, the gross profit of water is not low, and the production cost of purified water is lower than that of mineral water. Mineral water needs special equipment to process during the production process, which has relatively higher requirements and greater technical difficulty, while purified water is relatively simple.

Looking at Nongfu Spring itself, "water" is the kingdom that Nongfu Spring has established. Although Nongfu Spring has also laid out its business in tea, sparkling water and other sub-segments, the drinking water business has always accounted for more than half of Nongfu Spring's revenue, with a gross profit margin of up to 60%.

Image source: Nongfu Spring Weibo

The reality is that as the packaged drinking water market enters the stage of stock competition, market competition is also particularly fierce. According to a report by Frost & Sullivan, in terms of retail sales, the size of China's packaged drinking water market will be 215 billion yuan in 2023, with a compound annual growth rate of 7.1% from 2018 to 2023.

Seeking growth in the existing market and re-entering the purified water market with higher gross margins is the safest option for Nongfu Spring in both the offensive and defensive stages.

In this market, Nongfu Spring has production experience and a customer base accumulated from natural water, and can tell stories around the basic concept of water. More importantly, the emergence of the small green bottle fills the gap in Nongfu Spring's pure water and directly attacks the market of its competitors, Yilibao and Wahaha. If this battle is fought beautifully, Nongfu Spring will be tantamount to a Jedi counterattack.

3. Nongfu Spring wants to regain all the lost market value and channels

In the first half of the year, Nongfu Spring did not have a good time and was even surrounded by enemies.

The public opinion in March hit Nongfu Spring accurately, which became the most difficult problem in Nongfu Spring's 30-year operating history.

At that time, Zong Qinghou, the founder of Wahaha, passed away. Public opinion looked back at the past of Wahaha and Nongfu Spring, and Zhong Shanshan was controversial. In the live broadcast room of Nongfu Spring, the anchor who sold the products was also "implicated" and even scolded and cried.

Faced with this public opinion storm, Zhong Shanshan responded with a short essay.As time went by, public opinion gradually calmed down, and Nongfu Spring was severely damaged.

Sales volume has fallen precipitously. According to Chanmama data, on February 27, Nongfu Spring's live broadcast GMV was between 1 million and 2.5 million. The next day, it dropped to below 750,000. On March 4, it fell below 5,000 yuan.

Offline channels have also been hit hard. According to data from the offline retail monitoring network of Mashangying, Nongfu Spring's national offline sales have declined nearly half a month ago. On March 10, bottled water sales fell by about 22% compared with February 25 before the public opinion fermented, and ready-to-drink tea sales fell by 10%.

Reflecting on the capital market, Nongfu Spring is also declining. Since February 28, Nongfu Spring's stock price has fallen by 6%, and its market value has evaporated by nearly HK$30 billion. As of press time, Nongfu Spring's stock price is HK$34 per share, and its market value is HK$3,823, down 21.6% from the closing price on February 28.

The situation is far from optimistic, and both Nongfu Spring and Zhong Shanshan can no longer sit still.Under the leadership of Zhong Shanshan, Nongfu Spring began to walk on two legs. On the one hand, it launched purified water, engaged in price wars, and increased the sales of "water"; on the other hand, it launched new product categories such as ice cups to save the market on multiple fronts.

There is no need to elaborate on the story of "water". What is worth thinking about is that the lower production cost of purified water is the basis for Nongfu Spring to launch a price war. However, if the low-price strategy continues, whether it will affect the market and the company's profit margin is worth thinking about.

Another story is about ice cups, a product originally popular in convenience stores in Japan and South Korea, which has become one of the hottest categories in the domestic retail market this summer.No one expected that a small cup of ice would dominate the summer of young people and trigger competition among convenience stores, tea shops and drinking water manufacturers.

Currently, ice cups on the market can be roughly divided into two categories. One is the pure water ice cup, that is, the ingredient list only contains water; the other is the flavored ice cup, including coffee ice cup, fruit ice cup, etc.

According to the "2023 White Paper on Instant Retail Ice Products and Ice Drinks Consumption Trends", it is estimated that by 2026, the scale of instant retail sales of ice products and ice drinks will more than quadruple, and is expected to exceed 63 billion yuan.

In the past, ice cups were not as popular as they are this year, but with the formation of consumption scenarios, the biggest advantage of ice cups is that they can meet consumers' pursuit of personalized beverages.

For consumers, an ice cup costing three or four yuan is essentially a freshly made drink, which not only satisfies the fun of DIY but also ensures a cool taste.

Seeing the market demand, Nongfu Spring, which has been in the "water" business for many years, naturally wants to get a piece of the pie.

As early as 2023, Nongfu Spring began to lay out the ice cup. In May last year, Nongfu Spring applied for a patent for the label (ice cup). In July, product pictures appeared on the Internet and began to test the waters on a small scale. In February this year, Nongfu Spring's first batch of ice cup products were launched on the market and appeared in the freezers of convenience stores and street shops.

The market is still uncertain about how long the popularity of ice cups can last, and where the future competition will be depends on the development of the industry. For Nongfu Spring, it is more important to enter the market in the early stage to grab the cake and stabilize the sales volume and stock price of the Nongfu Spring brand in parallel.

Nongfu Spring now faces considerable challenges in both winning back the market and restoring its stock price. Nongfu Spring once dominated the market with its slogan “Nongfu Spring is a little sweet”, and its founder Zhong Shanshan has been China’s richest man for several consecutive years. Now, Nongfu Spring urgently needs to regain this “sweetness”.

(The header image of this article comes from Nongfu Spring’s Tmall official flagship store.)