Trade Secrets | Low-priced drinking water products coexist with high-end products. Is the price war self-regulation or vicious competition?
2024-08-07
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In the current drinking water market, consumers can buy products priced below 1 yuan, or carefully choose from a number of high-end drinking water brands priced above 10 yuan. This pattern seems fragmented, but it is also harmonious, and products in different tracks are slowly finding their own positions in the competition.
The drinking water market has been turbulent this year. Some brands have returned to the pure water market, some brands are in the running-in period of handover, some brands have been misunderstood by the association because their products were classified in the wrong category, and some brands continue to explore the high-end market. However, the common experience of more brands is that they have been involved in price wars.
Regarding the price war, some people in the industry believe that the drinking water price war is a normal phenomenon of market self-regulation, while other operators believe that the price war aims to compete for market share and attract consumers, but may have a certain impact on the long-term development of the industry.
What are the categories of drinking water?
No matter how the market landscape changes, the most important thing for consumers is to find drinking water products that meet their needs and are reasonably priced.
So, how many categories are there of drinking water on the market?
In July this year, the Hong Kong Consumer Council apologized for misclassifying Nongfu Spring products. This shows that there are many types of drinking water and it is easier to confuse them.
A reporter from China Business News learned that according to the "Food Production License Classification Catalogue" (2020 edition), packaged drinking water includes drinking natural mineral water, drinking purified water, drinking natural spring water, drinking natural water and other drinking water. According to the national food safety standards, packaged drinking water is only divided into drinking natural mineral water, drinking purified water and other drinking water.
According to an article published by the Beijing Mining Association, drinking natural mineral water refers to water that naturally gushes from deep underground or is collected through drilling, contains a certain amount of minerals, trace elements or other ingredients, is uncontaminated in a certain area and prevents pollution. The limit indicators in mineral water include strontium, metasilicic acid, total dissolved solids, etc. In my country, natural mineral water has clear national standards, and only water that meets national standards can be labeled as natural mineral water for sale.
Purified drinking water is packaged drinking water made from water that meets the raw material requirements, using distillation, electrodialysis, ion exchange, reverse osmosis or other appropriate water purification processes. Purified water tastes good and contains almost no minerals.
Natural drinking water is packaged drinking water made from natural sources such as wells, mountain springs, reservoirs, lakes or mountain glaciers that have not been supplied by the public water supply system. Except for limited treatment (such as filtration, ozone or equivalent treatment), it is not changed, which not only removes the very small amount of impurities and harmful substances in the raw water, but also retains the nutrients and minerals and trace elements in the raw water that are beneficial to the human body.
Other drinking water is produced from water that meets the raw material requirements, and is processed appropriately. Food additives may be added in appropriate amounts, but sugar, sweeteners, flavors, or other food ingredients may not be added. It mainly refers to mineral water, which is simply pure water with a small amount of minerals added, sterilized and bottled. The purpose of adding minerals is mainly to meet consumers' taste requirements.
The above-mentioned types of drinking water can all be found on the market, and the leading brands basically produce more than one type of drinking water. According to the official website of Nongfu Spring, its products include drinking natural water, drinking purified water, and drinking natural mineral water. Wahaha also produces drinking purified water and drinking natural mineral water, and China Resources Beverage also has drinking purified water Yilibao and drinking natural mineral water Benyou.
Drinking water can be purchased for less than 1 yuan
This summer, China's drinking water industry is experiencing fierce competition. A "water source war" with extremely low prices as its core competitiveness has begun in full swing. Since the cost of purified water is relatively low, the price war is particularly fierce in the purified water sector.
Recently, a reporter from the First Financial Daily learned from various offline channels and e-commerce channels that the price of a bottle of some brands of purified water is as low as less than 1 yuan.
Reporters saw in several convenience stores and large chain supermarkets in Shanghai that the price of a bottle of Nongfu Spring green bottled purified water is mostly 2 yuan, and the price of a bottle of Yilibao purified water is also mostly 2 yuan, and the price of a bottle of Baishuishan mineral water is mostly more than 3 yuan. According to media reports, in some channels in low-tier cities, some supermarkets sell Nongfu Spring green bottled purified water for as low as 9.9 yuan for 12 bottles, Wahaha purified water for 12 yuan for 12 bottles, Yilibao purified water for 11.9 yuan for 12 bottles, and 15 bottles of Master Kong cold boiled water for 9.8 yuan, with each bottle as low as 0.65 yuan.
The prices in online channels are relatively low. In the brand flagship store, 12 bottles of Nongfu Spring green bottled purified water are sold at a low price of 11.6 yuan, equivalent to 0.97 yuan per bottle; Yilibao purified water is about 1.25 yuan per bottle after discounts; and Wahaha purified water is about 1.5 yuan per bottle.
The First Financial reporter learned from industry insiders that the production cost of purified water is relatively low, which is beneficial for promotion. Lin Xianping, secretary general of the Institute of Cultural Creativity at Zhejiang University City College, said that the production cost of purified water is usually lower than that of mineral water, because mineral water needs to be processed and treated during the production process, which has relatively higher requirements and greater technical difficulty, while purified water is relatively simple.
How much room is there for pricing of drinking water? Why are prices different in different channels?
In this regard, an owner of a private convenience store told the First Financial reporter that the price that manufacturers sell to first- and second-tier distributors is unified, and the price that distributors sell to retailers is also uniformly priced, but retailers still have relatively free pricing space for purified water and beverages.
The beginning of this "water war" can be traced back to April this year. At that time, Nongfu Spring announced its entry into the field of purified water, "disrupting" the purified water market. Previously, the purified water market was dominated by two major brands, Wahaha and Yibibao. Relying on its extensive channel network and strong supply chain, Nongfu Spring achieved nationwide coverage of low-priced purified water products in just two months.
Some experts believe that drinking water should not be an expensive product.
Zhang Shule, an industry commentator, told China Business News: "Earlier, drinking water manufacturers mostly positioned it as 'nature's porter', which made it difficult for consumers to raise its price perception. Often, its price was more tied to the 'bottle', and the technical added value was not high. It was only after the new consumption track was opened that drinking water was influenced by various online celebrity freshly made teas and began to develop in the direction of online celebrity instant teas, which led to a rise in prices. However, as the drinking water market structure returned to stability after the shock, price wars became inevitable in order to stabilize market share."
In Zhang Shule's view, the price war of drinking water is not a bad thing. It is a normal self-regulation of the market. On the contrary, it will push drinking water manufacturers to build their own moats through R&D innovation, rather than just being limited to micro-innovations of "porters" or weird flavors. For brands, price wars can essentially force merchants to exchange technology for premiums and new momentum for the market.
But there are different views in the industry. Chen Xiaolong, a food and beverage industry operator, believes that the reduction in drinking water prices is caused by periodic market competition. This price war is to compete for market share and attract consumers, especially in the peak consumption season. Price wars may have a short-term positive impact on the market, such as consumers can buy products at lower prices. However, in the long run, price wars may squeeze the profit margins of enterprises. If the price war continues, it may cause vicious competition and affect the healthy development of the entire industry.
High-end drinking water market is less affected by price wars
While the price war for mid- and low-end drinking water continues, high-end drinking water has not been "relegated to the sidelines". The healthier and more high-end upgrades of drinking water in the Chinese market are still evolving, and many brands have entered the high-end water market.
Brands including Nongfu Spring, Wahaha, Baishuishan, Evian and VOSS are also competing for a piece of the high-end drinking water market. The price of a single bottle of these products ranges from 4 yuan to 30 yuan.
The "2023-2029 China High-end Mineral Water Industry Chain Panoramic Research and Development Strategy Consulting Report" released by Gongyan Industry Consulting shows that the retail market size of China's high-end mineral water industry in 2023 will increase by 8.3% year-on-year, and it is expected that the retail market size of China's high-end mineral water industry in 2024 will increase by 5.7% year-on-year.
Zhong Hao, head of the Chinese market at VOSS, said in an interview with Caixin that the logic and thinking of the high-end drinking water track and the mainstream price range track are different, and VOSS will not blindly follow market changes and may not join the price war. Moreover, VOSS is not very sensitive to the increase in raw material costs, and its main task is to expand the market rather than control costs.
In Chen Xiaolong's view, although the price war may have an impact on the entire market, high-end drinking water brands will not be greatly affected due to their added social value and identity value. Their target consumers are less sensitive to price and are more inclined to buy mineral water containing trace elements and minerals, which shows that high-end brands still have their market positioning and consumer groups. In addition, high-end brands can maintain their market position through product innovation and differentiated competition, such as developing functional water or providing additional services such as environmentally friendly packaging.
The reporter of China Business News noted that in addition to being less susceptible to price wars, high-end drinking water also has a common feature: they are willing to spend a lot of money on marketing, and the forms are not limited to simple advertising marketing. Cooperation with the Black Pearl Restaurant Guide, hotels, and high-end nightclubs and cinemas is their usual strategy.
Zhang Shule believes that high-end drinking water has been too flaunting its "social currency" and has fallen into the trap of Internet celebrities similar to the "ice cream assassin". The key reason why such brands have difficulty gaining a foothold in the price war is that the added value is too unrealistic, whether from the perspective of health or taste, there is a lack of real experience. Regardless of whether it is affected by the overall environment, it is not a long-term solution to just sell concepts and be high-end.
(This article comes from China Business Network)
