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- The premium bottled water market is heating up
Image source: Tmall
From July 10-12, 2018, Tmall launched a Super Category Day for premium water, a marketing tactic typical of the platform known for creating shopping festivals. This event brought together major brands such as Evian, Perrier, Nongfu Spring, and Sourcy. According to official data, sales on the first day exceeded the total sales of all water-related campaigns in 2017, with Perrier's sales reaching 33 times its daily average.
On the final day of the Super Category Day (July 12), Tmall, in collaboration with Vogue, released the "White Paper on Water Category Consumption Trends." The report highlighted several trends in drinking water:
Premiumization: Better quality, higher style;
Health: Sterile and safe, 0 sugar, 0 calories;
Entertainment: Diverse flavors, more fun;
Four distinct consumer segments for water, each with different preferences.
In previous years, giants like Nongfu Spring, C'estbon, Wahaha, Ganten, and Master Kong were competing for the ordinary drinking water market. After the market landscape for ordinary water was initially settled, food and beverage giants began shifting their attention to the premium drinking water market, which offers higher profits and faster growth.
According to a report by Jiemian News, citing Nielsen data, China's premium drinking water market grew by 46%-50% in 2017. Meanwhile, Tmall's 2018 White Paper on Water Category Consumption Trends showed that online sales of premium drinking water grew by 27%, far exceeding the 5% growth of ordinary drinking water.
Image source: Tmall Supermarket
In 2017, Danone introduced AORAKI, a premium New Zealand water brand, to China. Coca-Cola also brought Valser, a Swiss mineral water brand it acquired in 2002, sourced from the Alps, into China. Around mid-2017, reports from Shidai (a food industry media) mentioned that COFCO Chairman Zhao Shuanglian visited Coca-Cola's headquarters, hoping Coca-Cola would pay more attention to expanding its water category.
COFCO's listed subsidiary, China Foods, holds 65% of COFCO Coca-Cola, which is one of Coca-Cola's largest bottlers in China, responsible for producing, bottling, and distributing most of Coca-Cola's products in the country.
Image source: Jiemian News
A year later, in August 2018, COFCO Coca-Cola launched its own premium water brand, Zhongke Kamchatka, with an online debut on JD.com. Notably, Zhongke Kamchatka is a private label brand led by COFCO, operated through its joint venture with Coca-Cola.
In 2015, Nongfu Spring launched premium water products sourced from the Moyaquan spring in Changbai Mountain, introducing three products: glass-bottled water, baby water, and student premium water. Except for the baby and student waters, the glass-bottled premium product did not achieve commercial success.
Nongfu Spring's acquisition of Otakiri Springs. Image source: Shidai
To strengthen its position in the premium water market, Nongfu Spring acquired Otakiri Springs, a New Zealand premium water company, this year. The company's water is sourced from deep underground and is available in both sparkling and still forms, with glass and PET packaging.
Although Otakiri Springs products have not yet entered the Chinese market, Nongfu Spring's moves indicate it will likely promote them aggressively in the future. However, given past setbacks, the entry plan for Otakiri into China may be more cautious.
VOSS premium bottled water. Image source: Huabin Group official website
In July 2016, Huabin Group introduced VOSS, a Nordic premium mineral water brand, to China. Leveraging its distribution channels, Huabin quickly expanded VOSS products nationwide. After achieving good results, in June of this year, it established a local bottling line in China, sourcing water from Zhuxi Danxia Mountain in Hubei.
Looking at international markets, Danone invested in Hawaii's premium water brand KonaDeep, Coca-Cola acquired Topo Chico, and PepsiCo launched sparkling water brand Bubly and premium water brand LIFEWTR. Even in mature premium water markets abroad, new entrants continue to emerge.
- Why is premium bottled water receiving so much attention?
5100 Tibet Glacier Water is owned by Tibet Water Resources, a Hong Kong-listed company with two main business segments: premium drinking water and highland barley liquor.
5100 Tibet Glacier Water. Image source: 5100 official website
According to its annual reports, from 2013 to 2017, the company's gross margins were 73%, 63%, 60%, 60%, and 59%, respectively. Net profit margins for 2015-2017 were 33.29%, 35.48%, and 33.80%. Both gross and net profit margins are exceptionally high for a food and beverage company, even when including the barley liquor business.
Breaking down the water business alone, gross margins from 2013 to 2017 were 81.2%, 78.4%, 74%, 69%, and 65%. Although the water business gross margin has declined year over year due to product mix changes (e.g., launching more affordable lines like the co-branded "Yijie Zhuomaquan" with Sinopec's Yijie convenience stores), overall margins remain very high.
For comparison, Moutai's net profit margin in the first half of 2018 was 47.2%, with gross margin close to 90%. Yili's net profit margin was 8.7%, and gross margin was 38.67%.
Tibet Water Resources' premium water brands include 5100 Glacier Water, Gesangquan, and Zhuomaquan. Annual revenue was 443 million RMB in 2014, 441 million in 2015, 484 million in 2016, and 570 million in 2017. Growth was modest or slightly negative in earlier years, but in 2017 it grew 18%, driven mainly by the 5100 Glacier Water and Gesangquan series.
Market share of bottled water in China. Image source: Shidai
According to 2016 data from China Business Industry Research Institute, China's bottled water market was nearly 140 billion RMB, expected to exceed 150 billion in 2017. The top market share holder was C'estbon (under China Resources Enterprise), followed by Nongfu Spring. The market is dominated by products priced at 1-2 RMB.
Retail sales growth of bottled water in China in recent years. Image source: China Business Industry Research Institute
Mintel data shows that from 2011 to 2016, retail sales volume of bottled water in China grew at a CAGR of 8.3%, with overall market growth slowing. In contrast, Nielsen data indicates the premium water market grew about 50% in 2017.
Comparing these figures, the premium water market is growing, and many companies are positioning themselves in this segment due to higher margins and growth potential. Even if premium water accounts for only about 10% of the total market, it represents a market worth tens of billions of RMB.
- Who are the current players in China's premium bottled water market?
Players in China's premium bottled water market can be divided into two types:
Foreign-sourced water, bottled abroad and imported into China. This category includes multinational food companies (e.g., Danone, Nestlé) and domestic companies (e.g., VOSS, Otakiri, soon to enter China). These are typically ultra-premium, with retail prices above 10 RMB.
Domestic-sourced water, such as 5100 Tibet Glacier Water, Nongfu Spring Moyaquan, Kunlunshan, Evergrande Spring, and VOSS domestic production. These are mainly domestic companies, with retail prices around 5 RMB.
KonaDeep, an ultra-premium Hawaiian water brand invested by Danone
When Danone invested in KonaDeep, we briefly analyzed Danone's water business. Besides Evian, the world's top premium water brand, Danone also owns Badoit and Volvic, both global premium brands, all of which have been introduced to China.
Currently, Evian, leveraging its international brand recognition and premium water source, holds a leading position in China's premium bottled water market, especially in the imported segment. It has strong distribution in retail channels, as well as in upscale hotels, restaurants, and bakeries.
Promotional poster for AORAKI's entry into China
As mentioned, Danone introduced AORAKI from New Zealand last year. It launched with extensive promotion and deep cooperation with convenience store chains like FamilyMart. However, the product is no longer available in FamilyMart stores, and its presence on Tmall Supermarket is minimal, with poor sales.
Besides Danone, Nestlé is another major player in the premium imported water segment. Its brands Perrier and San Pellegrino are well-known in China. San Pellegrino focuses on the high-end restaurant market, positioning itself as an accompaniment to fine dining. It annually organizes brand events and even publishes lists of top restaurants to demonstrate its influence in the upscale dining sector.
San Pellegrino's annual list of the World's 50 Best Restaurants
San Pellegrino and Perrier are both sparkling mineral waters from premium sources. Unlike San Pellegrino's focus on food pairing, Perrier is more dynamic, offering various packaging (glass and PET) and flavors. Glass bottles are positioned as ultra-premium, while PET bottles are slightly lower priced.
Perrier offers multiple flavors, adding fruit essences to naturally sparkling mineral water, such as lemon, grapefruit, and lime. Compared to San Pellegrino, Perrier has broader distribution, including convenience stores, restaurants, bakeries, and especially e-commerce. For example, on Tmall Supermarket, San Pellegrino's best-selling 250ml×6 pack has sold 13,800 units, while Perrier's multi-pack options have sold 30,000-40,000 units, with the top seller exceeding 60,000.
FIJI Water is another imported premium brand with good traction in China, also positioned as ultra-premium with prices above 10 RMB. It is known for its water source and packaging design, and is available in retail, restaurants, bakeries, and coffee shops.
Compared to imported premium waters, domestic premium bottled waters are more affordable. Ordinary bottled water typically sells for 1-2 RMB, while premium domestic waters are around 5 RMB. For example, Kunlunshan, 5100 Tibet Glacier Water, Evergrande Spring, and Ganten are priced around 3 RMB, while 5100 is 7-8 RMB. This shows significant price variation among domestic premium waters.
For instance, COFCO Coca-Cola's private label Zhongke Kamchatka retails at 7-8 RMB per bottle. According to Jiemian News, they plan to launch a 3-4 RMB bottled water later. Although Zhongke Kamchatka is primarily sold through COFCO Coca-Cola's extensive offline channels, it is barely visible online; on JD.com, where it was launched, it has only about 20 reviews.
Additionally, companies like Wahaha and Ganten have introduced higher-end bottled water products, such as Ganten's Blairquhan Benlaiwang and Wahaha's glass-bottled premium water.
With Huabin Group localizing VOSS production, a batch of domestic premium waters priced around 5 RMB is emerging. Compared to imported premium waters, these brands may lack the story of foreign sources, so adjusting retail prices to differentiate is a prudent strategy.
- What kind of business is premium bottled water, and are there opportunities?
In the ordinary bottled water market, distribution channels are more important than water source and brand. However, in recent years, Nongfu Spring has invested heavily in water quality promotion and brand building, gaining significant market share. The ordinary market is divided into purified water and natural mineral water, with prices mostly at 1-2 RMB, making it a red ocean.
Unlike the ordinary market, premium bottled water places great emphasis on water quality, which is synonymous with the water source. This is why imported premium waters can command ultra-high prices; the story of the source conveys scarcity. Currently, domestic premium water sources are mainly in Tibet, Changbai Mountain, and other regions. For example, Kunlunshan promotes snowmelt water, 5100 promotes glacier water, and Evergrande Spring and Nongfu Spring highlight Changbai Mountain sources.
Second, brand building is crucial. San Pellegrino spends significant time cultivating the high-end restaurant market, while Evian invests heavily in brand marketing in Europe, producing classic advertisements annually. The choice of channels and occasions is also deliberate: premium imported waters are primarily found in upscale hotels, restaurants, high-end supermarkets, or import stores, using distribution to reinforce the premium image. This is vital for brand building.
Building a premium water brand requires deep consumer resonance. Establishing a high-end image is not achieved overnight but through sustained effort, including consistent marketing investment and targeted campaigns for affluent consumers.
Finally, distribution is key. High-end restaurants, hotels, and supermarkets are essential channels, along with corresponding retail resources. Tibet Water Resources' Zhuomaquan brand, in partnership with Sinopec's Yijie convenience stores (nearly 10,000 outlets), benefits from extensive channel access and effective in-store promotion and sales operations.
LIFEWTR, PepsiCo's premium water brand with artistic labels
While premium water brands emphasize water source, it's not the only path to success. PepsiCo's LIFEWTR, launched in 2016, is an exception. It promotes good water quality but does not heavily market its source. Instead, it focuses on brand building through artistic packaging and collaborations with artists, establishing a premium, artistic image. LIFEWTR has become a growth driver for PepsiCo in the U.S. market.
Take Nongfu Spring as another example. When it discovered the Moyaquan spring in Changbai Mountain, it launched three premium products. Besides the glass bottle, the other two achieved good market response and sales. The baby water targets a specific demographic, while the student water emphasizes quality and value, retailing at around 3 RMB.
After acquiring Otakiri, Nongfu Spring may leverage its distribution advantages and the story of a foreign premium source when entering China. However, how the brand will be shaped and promoted remains unknown. The imported premium water market already has many players, so differentiation is crucial for effectively entering the market and gaining consumer acceptance.
The premium bottled water market is not one where distribution alone guarantees success. Factors such as water source, brand, and price must be considered together to identify opportunities. Strategies must be adapted to local conditions; for example, LIFEWTR's approach may not suit the Chinese market.
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