Over the past year, Nongfu Spring, the water giant, has spared no effort in expanding into new categories. First, during the Spring Festival last year, it partnered with Wumart to launch a fresh-ground coffee machine, revealing its ambition to enter the coffee sector. As expected, in May, during the summer carbonated beverage sales peak, it launched a ready-to-drink carbonated coffee called "Tanbing" (the character "仌" is pronounced bīng, meaning "ice"). By October, following seasonal changes, it introduced three new Tanbing ready-to-drink coffees to extend the sales season. Nongfu Spring's latest move in the coffee sector is to continue the Tanbing series by launching a drip coffee during the "March 8th Women's Day" promotion, one of the most important sales events in the first half of the year, further increasing the SKUs in its coffee category. It's not hard to imagine that if these products sell well and Nongfu Spring continues to bet on this pace, we might soon see Nongfu Spring's cold-brew coffee liquid in the summer, or its instant freeze-dried coffee before the Q4 Double 11 promotion. Moreover, coffee is not the only new category Nongfu Spring has ventured into over the past year: last year, it also launched a plant-based yogurt, stepping into the plant-based and yogurt sectors. Behind such frequent new product line expansions is undoubtedly Nongfu Spring's R&D capability and all-category strategic thinking in recent years, but is Nongfu Spring prepared for the risks that come with all-category expansion? **-01- **The All-Category Ambition of a Water Giant? In the drinking water category, Nongfu Spring is already an undisputed giant. Currently, there are over 3,000 brands in the domestic bottled water market. According to media reports, the six major brands—Nongfu Spring, China Resources C'estbon, Ganten, Coca-Cola (Ice Dew), Wahaha, and Master Kong—account for 80% of the market share. Among them, Nielsen data shows that in 2018, Nongfu Spring ranked first with a 26.5% market share, followed by China Resources C'estbon and Ganten with 21.3% and 10.1%, respectively. From the annual Zhejiang Private Enterprise Top 100 list and data disclosed in the prospectus of its sibling company Wantai Biological last year, Nongfu Spring's 2018 revenue was 20.911 billion yuan, net profit (unaudited) was 3.616 billion yuan, and sales market share was 28.3%, with profits higher than competitors like Uni-President and Master Kong. But compared with Nongfu Spring's impressive performance, the highly saturated drinking water sector has clearly entered a plateau, making rapid growth difficult. Currently, the industry relies more on product differentiation to seek growth space. Therefore, in the past two years, Nongfu Spring has not only expanded its premium water product line through acquisitions like the New Zealand water plant Otakiri Springs, but also used user segmentation to launch low-sodium natural water for infants and lithium water for middle-aged and elderly people, aiming to target different groups in the existing drinking water market to create vertical products with higher unit prices. Nongfu Spring's premium water, drinking water (for infants), and lithium water While creating more segmented sub-categories is a strategy, compared with the drinking water market where growth ceiling is near, the growth space in new categories is clearly more attractive, and leveraging the momentum of rapidly developing categories naturally yields twice the results with half the effort. Coffee, especially ready-to-drink coffee, is precisely such a category that is rapidly growing globally. According to Euromonitor International, by 2022, global bottled ready-to-drink coffee will achieve $3.1 billion in growth, with a compound annual growth rate of 7.5%, and market demand is much higher than soft drinks and bottled water. According to Jieshu Consulting data, on the Alibaba platform, the categories of instant coffee and coffee beans/ground coffee have grown rapidly over the past three years, especially during the 2019 Double 11 promotion, which saw a high-speed growth peak. The rapidly growing market size has naturally attracted the attention of many industry giants to the coffee market. In addition to Nongfu Spring, Uni-President also launched two coffee beverages in the mainland market in April last year: canned ready-to-drink Manya Coffee and ready-to-drink coffee "Left Bank Café". Coca-Cola's ready-to-drink coffee, created after acquiring Costa, was also launched in some overseas markets in June last year. Nestlé, the instant coffee giant, after acquiring Starbucks' packaged retail business in 2018, will launch its high-end instant coffee products on major e-commerce platforms like Tmall and JD.com starting mid-to-late this month. The coffee new retail sector is also quite lively. Luckin Coffee, which has been promoting unmanned retail coffee machines, is a given, and even home products giant MUJI recently cross-industry launched its own coffee vending machines. It can be said that, both inside and outside the industry, coffee has become one of the hottest fields in the past two years, and Nongfu Spring's choice of coffee as a key bet naturally aligns with the logic of leveraging industry growth dividends. Nongfu Spring's choice of plant-based yogurt, however, seems more risky. Plant-based products themselves are a popular emerging category globally in recent years. According to the latest market report from the Plant Based Foods Association, U.S. retail sales of plant-based foods grew 11% in 2019, reaching a market size of $5 billion. In the same period, the overall U.S. food market grew only 2.2%. But looking at the domestic market, Chinese consumers have a shallow understanding of plant-based products, and market demand still needs to be cultivated. At the same time, the advantages of plant-based yogurt over ordinary animal yogurt seem less clear—even in overseas markets, the fastest-growing products are mature ones like almond milk and oat milk, and the most attention-grabbing are topic products like plant-based meat. Returning to plant-based yogurt, at this stage, consumers may not have sufficient motivation for differentiated choices, which means the category will require significant market education investment going forward. This might also explain why Nongfu Spring, when launching the "Tanbing" coffee series, specifically ran a two-week interactive activity for the name, but for the plant-based yogurt product, it didn't even give a more specific brand name, directly using the plant-based yogurt name. Perhaps Nongfu Spring is also aware that in the short term, the category name is more memorable than the brand name for this product, and users need time to build recognition for the category itself—and choosing to venture into plant-based yogurt at such a time is likely a bet to seize an emerging category, establish category barriers early, and accumulate natural traffic. However, the risks of trying a product with such low market awareness are obvious. **-02- **The Hidden Concerns of All-Category Strategy Beyond coffee and plant-based yogurt, Nongfu Spring has actually made many new moves in existing categories over the past year. For example, it completely revamped the packaging of its sports drink Scream, a product line that has been around for 16 years, with a more design-conscious new bottle, and introduced two new flavors: green mango and white peach. In the juice category, it added chilled juice to its NFC line and introduced a new series for the Nongfu Orchard line, which was launched in 2003, with juice content increased to 50%. At the beginning of this year, it took advantage of the "Happy Little Bottle" marketing trend to launch a series of 250ml small bottles, living up to its reputation as "an advertising company delayed by selling water." In the process of developing all categories, Nongfu Spring has had some success stories: previously, Oriental Leaf, although its sales were never disclosed, gained significant traffic due to polarized taste reviews; publicly reported, the sales of Tea π alone approached 3 billion yuan; Scream was also reported to have sales growing at an average annual rate of over 30%, making it one of the top products in the sports drink segment. But Nongfu Spring's current channel-based horizontal diversification strategy not only means greater growth space but also higher management requirements for multi-category product selection and R&D, as well as the risk of category failure that needs to be guarded against. In the industry, failure cases of all-category strategies are not uncommon. Even Coca-Cola, which explicitly pursues an all-category strategy, cut more than 600 zombie brands in 2019. So-called zombie brands are products that mostly account for only 1% of total sales but, for various reasons, continue to occupy company resources. Including 2018 data, Coca-Cola cut a total of 1,300 failed zombie products in two years. Even the coffee category, now seen as a rising star, Coca-Cola entered in 2006 but had to abandon it two years later due to category failure, only restarting after acquiring Costa. And just today, Nestlé, a giant in the beverage industry, was again reported to be planning to sell its stake in Yinlu. After acquiring Yinlu outright in 2018, Yinlu's peanut milk and eight-treasure porridge sales declines repeatedly dragged down Nestlé's overall profit performance, so much so that news of Nestlé considering selling Yinlu has almost never ceased. Nongfu Spring itself has had many single-product failures. Just from the product lines listed on its official website, several failed precedents can be seen: Da Nai Cha, launched in 2013, was once selected by Beijing News' "New Food" weekly as one of the top ten "disappointing foods" for "beautiful appearance and poor market reputation"; the fruit-flavored water series like Shui Pu Tao and Shui You Zi in 2016, and the carbonated fruit juice tea drink Pao Pao Cha launched in 2018, have all quietly disappeared from the market without a splash. Nongfu Spring's parent company, Yangshengtang, has also tasted the bitter lesson of rashness: in 2006, under the leadership of founder Zhong Shanshan, Nongfu Spring entered the agricultural sector, planting 12,000 mu of navel oranges in Gannan, Jiangxi. However, due to a lack of due diligence before building the factory, the factory operation faced problems such as steep terrain and harsh climate in the plantation, short juice extraction period due to the chosen variety, and extremely low equipment utilization, resulting in annual losses of 20 million yuan on this project alone. It wasn't until 2014, after introducing extensive planting technology, that Nongfu Spring produced its 17.5° orange, taking a full 8 years to adjust. Seeking growth space inevitably requires innovation, especially cross-category innovation, but the risks of aggressive innovation cannot be ignored. International giants often reduce risk by acquiring or investing in mature companies within a category. But on one hand, the capital threshold is not low, and on the other hand, the challenge of product integration may not be smaller than self-developed new products: the lesson of Yinlu is right before us, and the entanglement between Coca-Cola and Monster once affected both parties' category strategies. In the past two years, the number of venture capital firms focusing on consumption has increased significantly, leading to higher valuations for investable targets, and for domestic companies, the options in the market are relatively limited. Strengthening R&D capabilities through digital means to reduce risk is a longer road, but betting on this path may yield greater long-term benefits for companies. Nongfu Spring currently seems to be taking this path: according to public data, Caihongyu, an information technology company under Yangshengtang, has expanded rapidly, from a scale of fewer than 100 people in 2017 to a planned 221 pure IT personnel in 2019, more than doubling in three years. The development history on Caihongyu's official website Public reports also show that since 2010, Nongfu Spring has been consciously building its own terminal management system platform to strengthen its absolute control over terminals. In 2015, it even launched a self-operated delivery app called "Song Shui Dao Fu" (Water Delivery to Home), directly bypassing distributors and platforms at all levels to serve end-consumer orders. It is still difficult to estimate how much such investment has directly brought to Nongfu Spring today—especially since maintaining an in-house development team is likely not a small cost. But overall, digital operation for retail enterprises is a set direction, and getting data into your own hands as early as possible will inevitably be beneficial in the long run. Source: Explosive Rules (ID: baokuanfaze) Tips will be paid 400-2000 yuan upon adoption.