Bottled water has a short industrial history in China, dating back only 34 years to the launch of C'estbon in 1989. It is hard to imagine that a business selling water with a single taste and simple composition could become a huge industry, attracting companies to swarm in. According to public data, there are currently about 64,000 water-related enterprises in China, with no fewer than 3,000 water brands. The bottled water market size has approached 300 billion yuan. As the largest sub-category in China's soft drink industry, bottled water has evolved from early purified water, mineral water, natural water, and natural mineral water to today's natural spring water, further segmenting in various fields to cover all needs and drinking scenarios. How did China's bottled water market develop from its inception to its rise?

Inception

After 40 years of development in China's food and beverage industry, bottled water brands are numerous and products are constantly being updated. In China's vast soft drink consumption market, bottled water has become the largest sub-category. Laoshan Mineral Water should be the earliest bottled water product in China. Laoshan's innate geographical advantages determined the basic resources for bottled water. The center of the world's three major groundwater systems, besides the French Alps and the North Caucasus region, is the Laoshan area. According to official research, before 1900, a mineral water factory at Iltis Mountain near Zhanshan, south of Taiping Mountain in Qingdao, had already been built, and mineral water products were sold on Feidili Street (now Zhongshan Road) in Qingdao. At that time, the trademark was not the combination of the Chinese characters "Laoshan" and the mountain peak pattern opposite Huayan Temple, but the German trademark "Iltisbrunnen" (Iltis Mountain). This trademark was later registered in the Shanghai concession and Nanjing, and products quickly appeared in both places. Almost simultaneously, on the other side of the world in Italy, San Pellegrino mineral water had just been bottled and launched. Decades later, this mineral water appeared in the once-popular 007 film "From Russia with Love." In contrast, the fate of Iltis mineral water was much more turbulent. In 1914, the mineral water factory changed hands, and relying on the water source advantage, it produced Huquan brand soda. In 1922, Carl Rodewig and Max Gries purchased the Iltis mineral water assets from Japanese investors and renamed it Laoshan Jingquan Soda Company. In 1931, the German company Melchers & Co. acquired Laoshan Jingquan and renamed it Laoshan Soda Company, still retaining the "Iltisbrunnen" trademark. With Melchers & Co. taking over, production standards were aligned with French Vichy mineral water, and the product was sold to local hospitals, becoming the ALCA mineral water (also known as sanitary water) consumed by local patients. In addition to local sales, products were exported to Hong Kong and Southeast Asia. After the founding of the People's Republic of China, ALCA was renamed Laoshan Mineral Water and became the water used for state banquets, with exports resuming in the 1960s.

Early Development

Laoshan Mineral Water's unique success a century ago was driven by both capital and historical factors. It started early but had limited production capacity and was mainly for export, so it never made waves in China's domestic consumer market. In 1982, the state listed beverages as planned management products, and the industrialization of bottled water officially began. However, that period was dominated by carbonated drinks. The eight major soda brands nationwide, including Beibingyang, Bawangsi, and Zhengguanghe, were extremely popular. It was not until the late 1980s that the bottled water industry saw development opportunities. China's market-oriented bottled water products first emerged from Shenzhen, the frontier of reform and opening up, and were related to a beverage company. Longhuan Beverage (Shekou) Company was established in Shenzhen in 1985, originally a beverage company whose main product was the Guizhou specialty, Rosa roxburghii juice. Under the pressure of "Two Colas" and domestic carbonated drink brands, Longhuan Company suffered a heavy blow, and the Rosa roxburghii juice business had to be temporarily shelved. At that time, in the Hong Kong market across the water, bottled purified water products had become daily commodities. Longhuan Beverage decided to take a gamble. In 1989, it launched its first bottled purified water, which is today's C'estbon. Because of C'estbon, Zhou Jingliang became the first person to eat crabs in China's bottled water industry, and due to his forward-looking vision for the bottled water market, he is known in the industry as the "Father of China's Packaged Water." Zhou Jingliang left C'estbon in 1992 and founded his own company, Shenzhen Jingtian Industrial. The market influence of the two brands, Jingtian and Ganten, is now significant in today's bottled water market. After C'estbon and Jingtian, local brands in China's bottled water market began to increase, with Robust, Yili, Wahaha, Nongfu Spring, and others springing up like mushrooms.

Development

Companies entering the bottled water track share a common feature: most entered from fields such as health products or food. China Resources C'estbon was formerly Longhuan Beverage, which sold Rosa roxburghii juice; Wahaha was formerly a school-run factory in Hangzhou selling children's nutritional products; Robust's first product was yogurt drink... In the late 1980s, relying on sales and OEM processing of related products, Zong Qinghou earned his first pot of gold and began to consider the company's development direction. In 1995, Wahaha simultaneously launched mineral water and purified water, with ex-factory prices around 1.7 yuan, and terminal prices could reach up to 3 yuan. To gain a larger market share nationwide, Wahaha signed Jing Gangshan as a spokesperson in 1996 and bought the rights to his hit song "My Eyes Only Have You" for promotion, and Wahaha bottled water appeared on streets and alleys. Later, Wang Leehom endorsed for 20 consecutive years, establishing a reliable and stable brand image for Wahaha bottled water. At that time, carrying a bottle of Wahaha bottled water was the coolest thing on the street. In 1996, Wahaha purified water sales reached 100 million yuan, taking the top spot in the bottled water market. Four years later, sales soared to 2 billion yuan.

However, Zong Qinghou inadvertently cultivated a formidable opponent. In the 1990s, Zhong Shanshan was the general agent for Wahaha children's oral liquid in Hainan and Guangxi provinces. Because he resold goods across regions to earn price differences, Zong Qinghou revoked his provincial agency qualification. Zhong Shanshan left with the words, "Sooner or later, I will come back." The track he chose was bottled water, which would later compete with Wahaha. After returning to Zhejiang, relying on the rich water resources of Qiandao Lake in Chun'an, he founded Nongfu Spring in 1996. The slogan "Nongfu Spring is a bit sweet" was sung across the country. During the same period, He Boquan's Robust shouted the concept of 27-layer purification, giving Robust bottled water a high reputation. Yili is a well-known mineral water brand in South China, entering the market almost at the same time as C'estbon. In 1999, it became one of China's top ten beverage companies, sharing the Shenzhen market equally with C'estbon and Jingtian, and became China's first listed mineral water company, with the securities abbreviation Shen Yili. At that time, in China's bottled water market, besides Laoshan Mineral Water and Yili Mineral Water, the mainstream consumption was still purified bottled water.

Differentiation

According to water source differences, China's bottled water is generally divided into natural mineral water and packaged drinking water. Packaged drinking water includes drinking purified water, drinking natural water, and other drinking water. Purified water products mainly use urban domestic water as the source; natural water products mainly use lake and reservoir water; other drinking water is water products with added minerals. After years of development, China's bottled water market has formed a clear positioning pattern: natural mineral water > natural water > purified water and other drinking water. In 2000, Nongfu Spring, which had settled in Hangzhou, took the lead in abandoning purified water products and transitioning to natural water, causing a huge stir in the industry. Behind this was not only Nongfu Spring's quality upgrade strategy but also the need to establish a firm foothold in the 2-yuan water price band. With the product transition, Nongfu Spring's image as a "transporter" of natural water became evident. When Nongfu Spring was at its peak, Wahaha, Robust, and Yili, which had been invested in or acquired by French Danone, successively fell into disputes. The dispute between Wahaha and Danone lasted a decade and ended in reconciliation, which can be considered relatively satisfactory. After Robust was acquired by Danone, its products almost disappeared from the market and were later resold to Shenzhen Yingtou Holdings, the parent company of Angel drinking water dispensers. After Yili was acquired by Danone in 1998, it invested 500 million yuan in Huizhou to build Danone's largest mineral water production base in Asia. With many players entering the bottled water field, Yili faced increasing challenges, and its business entered a period of frequent adjustment. In 2017, Yili squeezed out Kunlun Mountain and became the exclusive water for Didi Chuxing's premium car service. However, under the trend of high-end mineral water, it failed to reverse its decline. In 2019, Yili's Longmen factory ceased production, and Yili bottled water, which had existed in the Chinese market for 30 years, completely stopped production and sales.

After the millennium, China's bottled water products flourished, not only purified water, mineral water, natural water, natural mineral water, and natural spring water, but also snow mountain water, glacier water, and products containing selenium, strontium, metasilicic acid, as well as tea-brewing water, baby water, and maternal water for different drinking scenarios. In the bottled water field, not only traditional food and beverage manufacturers but also outside capital participated, while foreign brands such as Coca-Cola, Pepsi, and Nestlé also got involved. Bottled water products have also been iterating and upgrading. Since 2006, many companies have focused on high-end bottled water products. Genki Forest launched Youkuang, Jilin Forest Industry's Quanyangquan, Taiji Group's Bulaoquan, Juneyao Health's Enci Natural Mineral Water, JDB's Kunlun Mountain, Yili's Yike Huoquan, and JML's Jinkuang, among others. Channels have been constantly changing and upgrading. In 2006, Tibet 5100 Glacier Mineral Water appeared on high-speed rail channels with the help of a large order from China Railway Corporation. Later, when the order was suspended, it fell sharply, and its invested Zhuomaquan appeared in nearly 30,000 Sinopec Yijie convenience stores. CNPC's Kunlun Haoke, with over 20,000 stores, also launched its own brand of bottled water, Gesangquan. Emerging companies also love bottled water. Mixue Bingcheng, relying on over 20,000 franchise stores, launched "Xuewang Aiheshui" bottled water last year. Liangpin Puzi, Three Squirrels, and Laiyifen have all laid out bottled water products. The bottled water track continues to attract giants, and even CP Group, which raises chickens and pigs, launched natural mineral water products this year. This is a huge market, and it is destined to be a fiercely competitive, life-and-death market. Have you noticed that there are more and more bottled water products on store shelves, traditional brands are as stable as Mount Tai, and new brands are emerging endlessly. Especially as the summer drinking season approaches, the shelf war in major supermarkets is about to break out. The business of a bottle of water has high gross margins and high-frequency demand. Terminal merchants, distributors, and bottled water companies come and go with satisfaction every year. Whether bottled water sells well is closely related to the company's control over water sources. Major brands are at odds over upstream water sources, and news of land grabbing frequently appears in the press. In the four high-quality water source areas of Southwest China, Changbai Mountain, Pearl River Delta, and Yangtze River Delta, mainstream bottled water companies have long been clustered. Even in some scarce and high-quality water source locations, a situation of multiple brands and multiple companies coexisting has formed.

Water Source Grabbing

Just as dairy companies reach out to upstream pastures, bottled water companies, after accumulating certain strength, are more interested in high-quality upstream water sources than expanding markets. In January this year, Nongfu Spring invested in a second production base in Dujiangyan, Sichuan, only about 200 kilometers in a straight line from the Emeishan production base that has been in operation for 15 years. According to the general 300-500 kilometer sales radius of bottled water plants, the scientific nature of choosing Dujiangyan is still controversial. But if you are told that Dujiangyan gathers the rich snow mountain spring water resources of the Min River and is also the first provincial-level longevity town in China, the doubts are resolved. Since transitioning to natural water in 2000, Nongfu Spring has never stopped searching for high-quality water sources. The accumulated water-finding stories have been made into advertising documentaries and widely spread. Through this, Nongfu Spring unveiled the mystery of water sources to the outside world and also demonstrated product differentiation through water sources. With Nongfu Spring as a precedent, many followed. Yingjia Gongquan, Genki Forest, Ganten, and other bottled water companies have particularly appealing stories about finding water sources. The bottled water industry is accelerating internal competition, and holding high-quality water sources is like holding a golden signboard. Water companies have extended from competing for natural waters to mountain springs, rock springs, snow mountain water, glacier water, and even rock fissure water. To meet the diversification of product structures, major bottled water companies must also rely on abundant water sources as backing. For example, although Nongfu Spring is already the overlord of natural water, it has also extended its hand into the field of natural mineral water. In fact, the number of mineral water sources in China is huge. According to data from Dolphin Investment Research, there are more than 4,000 qualified mineral water sources in China, with an allowed annual mining resource volume of 1.8 billion cubic meters. Currently, the annual development and utilization volume is 50 million cubic meters, accounting for only 3%. From the data, high-quality water sources are not scarce, but not every water company can easily obtain them. According to Zhou Jingliang, the Father of China's Packaged Water and founder of Jingtian and Ganten brands, it takes at least 5 years to obtain a mining permit for a mineral water source. If it is outside capital, such as real estate companies and pharmaceutical companies that have swarmed in in recent years, the time cost to obtain qualifications is greater and the review threshold is higher. Water is the foundation of bottled water companies. The more water sources they hold and the earlier they act, the higher the competitive barriers. In 2022, Nongfu Spring first entered Huangshan, and at the same time, invested in a base in Heyuan, Guangdong, with an annual production of 300,000 tons of natural drinking water. Ganten, which has been rooted in South China for many years, established a production base in Meizhou, Guangdong, last year. China Resources C'estbon invested 4 billion yuan in Heyuan in March this year, starting construction of a drinking water production base, and also planned 4 production bases nationwide. As of now, Nongfu Spring has about 12 water sources nationwide, and Ganten has 7. It is difficult for ordinary consumers to know that in the four high-quality water source areas of Southwest China, Changbai Mountain, Yangtze River Delta, and Pearl River Delta, almost all mainstream bottled water brands on the market have gathered.

Creating Concepts

Grabbing land at water sources is just the beginning of differentiation for bottled water companies. Next, how to tell a good story determines the market competitiveness of the product and also means how much added value can be mined and how much premium can be obtained. On the market, the eye-catching packaging of bottled water is a visual feast. Those words that are intentionally or unintentionally enlarged are all to attract consumers' attention. Zebra Consumption spent half a day to preliminarily sort out these enlarged selling points of bottled water, which can be roughly divided into three categories: functionality, drinking scenarios, and place of origin. Speaking of functionality, the high-frequency phrases used in bottled water products mainly include: weak alkaline, selenium-containing, strontium-containing, low sodium, hydrogen-rich, metasilicic acid, and small molecule. The elements contained in these waters are magnified, actually subconsciously "hinting" at the "functionality" of these waters. For example, selenium prevents aging, metasilicic acid is beneficial to blood vessels, small molecule water improves immunity, and weak alkaline water regulates the acid-base balance of the human body. In terms of drinking scenarios, there are mainly baby water, pregnant women's water, and tea-brewing water. In addition to emphasizing the safety of the product itself, companies also emphasize the palatability during drinking. For example, tea-brewing water emphasizes that the brewed tea soup is mellow and sweet. The place of origin is even more scarce, such as Bama Lilang and Taiji Group's canned strontium-rich mineral water (Bulaoquan), which are produced in Bama County, Guangxi, a longevity town, and Pengshui County, Chongqing, respectively. Once concepts and high-quality water sources are added, product prices naturally rise. Bama Lilang drinking natural weak alkaline mineral water, 4 barrels (4.6 liters each), is sold for 108 yuan on e-commerce platforms, equivalent to about 5.87 yuan per liter; Bulaoquan is 468 yuan for 120 cans (310 ml/can), equivalent to about 6.29 yuan per liter. Nongfu Spring also has a natural water product targeting infant drinking scenarios, produced from Moyaquan No. 2 Spring in Changbai Mountain, with a terminal retail price of 8 yuan per liter. In the current market, the terminal prices of mainstream natural water and purified water products are maintained below 4 yuan per liter. Looking back at the era of 1-yuan water and 2-yuan water, water companies at most claimed concepts such as 27-layer purification and nature's transporter. Today's bottled water selling points have been continuously upgraded and evolved in terms of contained elements and highlighting the place of origin. In 2015, the country introduced a new national standard for packaged drinking water, stipulating that products cannot be named with content such as activated water, functional water, or small molecule cluster water. It was determined that water is just water. Under the new national standard, bottled water products can only play on the edge by highlighting words and emphasizing water sources. Evergrande Spring is an outlier. Its selling points are constantly changing, from early health and longevity, cooking rice, to now one source supplying the world, but it has never found the right rhythm and has fallen into an awkward market position. After years of market reshuffling in China's bottled water industry, Nongfu Spring has become the overlord of natural water, China Resources C'estbon is the giant of purified water, and Jingtian and Ganten are recognized as the top brands in natural mineral water. According to public data, by sales amount, the top three in domestic bottled water in 2022 were Nongfu Spring, China Resources C'estbon, and Jingtian, with market shares of 25.7%, 17%, and 9.7%, respectively.

Price Wars

In 2000, Nongfu Spring acted like a dragon. It publicly declared war on purified water companies with experiments on mice drinking natural water and purified water, suddenly stirring up the bottled water market. Wahaha, Robust, and 69 other companies formed an alliance to publicly denounce it. Nongfu Spring decisively abandoned purified water products and switched to natural water, and within a few years, it sat on the throne of natural water overlord. With 2-yuan natural water products, it stirred up the entire bottled water market. Looking back at the commercial truth of this century water war, besides being unconventional in water sources, an important factor was that Nongfu Spring wanted to establish a firm foothold in the 2-yuan price band. Under the sweep of 2-yuan water, 1-yuan water products such as Master Kong and Ice Dew basically disappeared from the market around 2015, and the bottled water industry as a whole entered the era of 2-yuan water. 2-yuan water absorbed a large number of 1-yuan users, and some 2-yuan water users moved to 3-yuan water. The price structure of bottled water products has gradually evolved from the early pyramid structure to a spindle shape, with 2-yuan natural water and mid-to-high-end purified water becoming mainstream, the 3-yuan water market expanding, and 4-yuan and above high-end mineral water rising. According to a report by China Research and Intelligence, the domestic bottled water industry has shown four major camps. The first camp is high-end water in the 5-yuan price band, represented by Evian, Perrier, and Tibet 5100; the second camp is natural mineral water brands such as Ganten in the 3-5 yuan range; the third is brands mainly in the 2-3 yuan range with purified water and natural water, such as C'estbon, Nongfu Spring, and Wahaha; the fourth is 1-yuan water products scattered in third, fourth, and fifth-tier markets. The six major brands—Nongfu Spring, C'estbon, Ganten, Master Kong, Ice Dew, and Wahaha—mainly target the mass consumer market and together account for about 80% of the bottled water market share. Water is a good business. According to Nongfu Spring's annual report, the gross margin in 2022 was 57.4%. With the rise in PET and other materials, bottled water companies have faced cost pressure. Last year, Nongfu Spring adjusted the price of 19-liter barrel water in the Hangzhou market, which was widely interpreted by the market as the nature's transporter being unable to bear it. The company's executive director and CFO Zhou Zhenhua once publicly stated that cost pressure had exceeded the level that the company could digest unilaterally. However, on 2-yuan water products, the two giants, Nongfu and C'estbon, dare not raise prices first, and their almost unanimous action is to expand the 3-yuan price band. This has considerations of transferring cost pressure, but more likely it is the temptation of profit. According to data from China Investment Consulting, the average profit level of ordinary water is about 3.85%, and the profit level of high-end mineral water is 6 to 7 times that. Therefore, whether new players or old brands, they all want to cut a piece of the high-end water cake themselves.