Chen Xiaojing, have you noticed that there are more and more bottled water products on store shelves, with traditional brands holding steady and new brands emerging constantly. Especially as the summer drinking water peak season approaches, the battle for shelf space in major supermarkets is about to erupt. The bottled water business is characterized by high gross margins and high-frequency demand, attracting terminal merchants, distributors, and bottled water companies to come and go with satisfaction each year. The success of bottled water sales is closely related to a company's control over water sources. Major brands are locked in intense competition upstream for water sources, with frequent reports of land grabs. China's four major high-quality water source regions—the southwest, Changbai Mountain, the Pearl River Delta, and the Yangtze River Delta—are already crowded with mainstream bottled water companies. In some scarce and high-quality water source locations, a situation of multiple brands and companies coexisting has formed.

Water Source Land Grabs

Just as dairy companies extend their reach to upstream pastures, bottled water companies, once they have accumulated a certain level of strength, show a stronger interest in high-quality upstream water sources than in expanding markets. In January of this year, Nongfu Spring invested in a second production base in Dujiangyan, Sichuan, which is only about 200 kilometers in a straight line from its Emeishan production base that has been operating for 15 years. Given that bottled water plants typically have a sales radius of 300-500 kilometers, the scientific rationale for choosing Dujiangyan is debatable. However, if you consider that Dujiangyan is rich in snow mountain spring water resources from the Min River and is also the first provincial-level longevity town in China, the question is easily resolved. Since transitioning to natural water in 2000, Nongfu Spring has never ceased its search for high-quality water sources.

The stories of water source discovery accumulated during this process have been turned into advertising documentaries and widely disseminated. Through these, Nongfu Spring has unveiled the mystery of water sources to the outside world and showcased product differentiation through them. With Nongfu Spring as a pioneer, many have followed suit. Bottled water companies such as Yingjia Gongquan, Genki Forest, and Ganten have particularly compelling stories about their search for water sources. As the bottled water industry accelerates its internal competition, securing high-quality water sources has become a golden signboard. Water companies have extended their competition from natural water bodies to mountain springs, rock springs, snow mountain water, glacier water, and even water from rock fractures. To meet the demands of a diversified product structure, major bottled water companies must also rely on abundant water sources. For example, although Nongfu Spring is already the dominant player in natural water, it has also entered the natural mineral water segment.

In fact, the number of mineral water sources in China is vast. According to data from Haitou Investment Research, there are over 4,000 certified mineral water sources in China, with an allowable annual extraction capacity 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, obtaining a mining permit for a mineral water source takes at least five years. For non-industry capital, such as the real estate and pharmaceutical companies that have recently flooded in, the time cost to obtain qualifications is even greater, and the review threshold is higher. Water is the foundation of a bottled water company; the more water sources you secure and the earlier you act, the higher your competitive barriers.

In 2022, Nongfu Spring entered Huangshan for the first time and also invested in a natural drinking water base in Heyuan, Guangdong, with an annual production capacity of 300,000 tons. Ganten, which has deep roots in South China, established a production base in Meizhou, Guangdong, last year. China Resources C'estbon invested 4 billion yuan in Heyuan in March of this year to start construction on a drinking water production base, and is also planning four more 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 China's four major high-quality water source regions—the southwest, Changbai Mountain, the Yangtze River Delta, and the Pearl River Delta—almost all mainstream bottled water brands have gathered.

Creating Concepts

Land grabbing 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 indicates how much added value can be extracted 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 highlighted selling points of bottled water, which can be roughly divided into three categories: functionality, drinking scenarios, and place of origin.

When it comes to functionality, the more frequently used phrases 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 boosts immunity, and weak alkaline water regulates the body's acid-base balance. 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 is mellow and fresh. The place of origin is even more scarce, such as Bama Liliang and the canned strontium-rich mineral water (Bu Lao Quan) under Taiji Group, which are produced in Guangxi's Bama County and Chongqing's Pengshui County, both known as longevity towns. Once concepts and high-quality water sources are added, product prices naturally rise.

Bama Liliang drinking natural weak alkaline mineral water, 4 barrels (4.6 liters each), is priced at 108 yuan on e-commerce platforms, equivalent to about 5.87 yuan per liter. Bu Lao Quan is 468 yuan for 120 cans (310 ml per can), equivalent to about 6.29 yuan per liter. Nongfu Spring also has a natural water product targeting infant drinking scenarios, produced from Moya Spring No. 2 in Changbai Mountain, with a terminal retail price of 8 yuan per liter. In the current market, the terminal retail prices of mainstream natural water and purified water products are maintained below 4 yuan per liter. Looking back at the era of 1-yuan and 2-yuan water, water companies would at most claim concepts like 27-layer purification or "nature's porter." Today's bottled water selling points have continuously upgraded and evolved in terms of contained elements and highlighting origin. In 2015, China introduced a new national standard for packaged drinking water, stipulating that products cannot be named with terms like activated water, functional water, or small molecule cluster water. It was confirmed that water is just water. Under the new national standard, bottled water products can only use prominent words and emphasize water sources to skirt the rules.

Evergrande Spring Water is an outlier. Its selling points keep changing, from early health and longevity, cooking rice, to the current "one source supplies the world," but it has never been able to find its rhythm, falling into an awkward market position. After years of market reshuffling in China's bottled water industry, Nongfu Spring has become the dominant player in natural water, China Resources C'estbon is a giant in purified water, and Jingtian and Ganten are recognized as the top brands in natural mineral water. According to public data, by sales revenue, the top three domestic bottled water brands 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 involving mice drinking natural and purified water, stirring up the bottled water market. A coalition of 69 companies, including Wahaha and Robust, publicly condemned the move. Nongfu Spring decisively abandoned purified water products and switched to natural water, and within a few years, it became the dominant player in natural water. With its 2-yuan natural water products, it stirred up the entire bottled water market. Looking back at the commercial truth of this century's water war, besides innovating in water sources, an important factor was that Nongfu Spring wanted to establish a firm foothold in the 2-yuan price range. With the 2-yuan water sweeping the market, 1-yuan water products like Master Kong and Ice Dew basically disappeared from the market around 2015, and the bottled water industry as a whole entered the 2-yuan water era. The 2-yuan water absorbed a large number of 1-yuan users, and some 2-yuan water users moved up to 3-yuan water. The price structure of bottled water products has gradually evolved from the early pyramid shape 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 high-end mineral water at 4 yuan and above 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 at the 5-yuan price point, represented by Evian, Perrier, and Tibet 5100. The second camp is natural mineral water brands like Ganten, mainly priced at 3 to 5 yuan. The third is brands mainly at 2 to 3 yuan, such as purified water and natural water, including C'estbon, Nongfu Spring, and Wahaha. The fourth is 1-yuan water products scattered in third-, fourth-, and fifth-tier markets. Six major brands—Nongfu Spring, C'estbon, Ganten, Master Kong, Ice Dew, and Wahaha—focus on the mass consumer market and together hold 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 costs of materials like PET, bottled water companies are facing cost pressures. Last year, Nongfu Spring adjusted the price of its 19-liter barrel water in the Hangzhou market, which was widely interpreted by the market as the "nature's porter" being unable to bear the pressure. Zhou Zhenhua, the company's executive director and financial officer, publicly stated that the cost pressure has exceeded the level that the company can unilaterally digest. However, in the 2-yuan water product segment, the two giants, Nongfu and C'estbon, dare not raise prices first. Their almost unanimous action is to expand the 3-yuan price band. This considers transferring cost pressure, but more likely it is the temptation of profit. According to data from China Investment Consulting, the average profit margin for ordinary water is about 3.85%, while the profit margin for high-end mineral water is 6 to 7 times that. Therefore, whether new players or old brands, they all want to carve a piece of the high-end water cake themselves.