According to Nielsen data, the premium water market has maintained an annual growth rate of around 50% in recent years, with gross margins generally exceeding 30%. Attracted by this high growth and high margins, the premium water market is no longer the niche market once dominated by foreign imports.
In recent years, with established water companies like C'estbon, Nongfu Spring, and Uni-President, as well as newcomers such as Evergrande, Tianjin TEDA, and Taiji Group, successively launching premium water products, and giants like PetroChina and Sinopec entering through mergers and acquisitions, the premium water market now presents a phenomenon: on one hand, it appears vibrant with boundless business opportunities; on the other, companies can only hand in loss-making report cards.
Why do the market and enterprises present completely different situations?
While the premium water market abroad has been quite mature, China's premium water market has long been dominated by foreign brands like Evian, with domestic mainstays like Nongfu Spring and Master Kong lingering in the mid-to-low-end market. Meanwhile, data shows that when the entire bottled water market in China reached 150 billion yuan in sales, premium water accounted for less than 15%.
The absence of domestic brands and the unlimited potential of the domestic market have driven wave after wave of domestic water companies to enter the premium segment. For a time, whether old water companies or new entrants, even giants from other industries, launched their own premium water products, such as Nongfu Spring, C'estbon, Uni-President Bama Spring, JDB Kunlun Mountain, Tibet 5100, Evergrande Spring, Ganten Baishuishan, Aershan, Yue Longquan, Taiji Water, and so on. Over a few years, the mid-to-high-end water market transformed from a few foreign brands dominating to a lively situation with domestic brands leading and multiple players flourishing.
Mature foreign markets show that premium water can become the main force in the bottled water market. With the continuous influx and reinforcement of various domestic brands, the domestic mid-to-high-end water market has also ushered in a period of explosive growth. According to Nielsen data, in 2014, the premium water market grew by 46%–50%, with the market size exceeding 10 billion yuan.
However, due to the low entry barrier for mineral water and the influx of numerous and varied companies, the premium water market has generated a series of problems. The once blue ocean has turned into an endless red ocean.
Everyone has heard the story of Evergrande Spring. It entered with a premium mindset and adopted a premium posture to deal with the market, but on September 9, 2015, all products were uniformly reduced in price, from the mid-to-high-end 4 yuan to a nationwide unified price of 2.5 yuan, losing its premium drinking water status. Besides this well-known example, the sale and change of ownership of Aershan and the recent promotional price cuts of Kunlun Mountain provide further evidence of the fierce competition in the premium market and the unsustainability of premium prices.
So why is the market full of vitality while the companies within it are suffering and struggling to sustain? Why is the premium water business so difficult?
In fact, the mid-to-high-end water currently on the market has selling points that boil down to two aspects: healthy, high-quality, scarce water sources; and functional, connotative, and personalized concepts. One is the visible water source; currently, regions such as Changbai Mountain, Kunlun Mountain, Bama, and Tibet have been recognized by many consumers as "high-quality water sources." The other is the invisible concept; concepts like "low sodium," "rich in strontium," and "small molecule cluster water" emerge endlessly. But is it too narrow and lacking in innovation to attribute selling points to just these two? If these two selling points ever have problems, wouldn't premium water be completely defeated? The fact is that these two selling points have indeed already encountered problems.
On January 1, 2016, the "National Food Safety Standard for Packaged Drinking Water" came into effect, clearly requiring that, except for natural mineral water which has its own national standard, packaged water on the market is only divided into two categories: purified drinking water and other drinking water. This standard directly blocked the path of premium water heavily relying on concepts. According to the new standard, all conceptual names such as "distilled water," "mineral water," and "electrolyzed water" are classified as other drinking water, and the packaging must clearly indicate the nature of the water. So, without concepts to boast about, and all water tasting the same, why should yours be considered premium?
At this point, some might say there is still the water source! Yes, the water source is indeed a powerful weapon to make consumers believe that premium is worth the price. But now there are only a few water sources, and they are already saturated. Only a few water source owners can play the water source card. For newcomers, without the water source gimmick and now without the concept gimmick, isn't the premium water business difficult?
Besides over-reliance on these two selling points, over-reliance on relationship marketing and the lack of consumer awareness of premium water are also reasons for poor performance in the premium water sector.
Over-reliance on relationship marketing is easy to understand; the previous cooperation between Tibet 5100 and China Railway Express is a typical example. However, with the introduction of government policies, premium water lost its stable backing and ultimately had to rely on itself like baijiu.
Domestic consumers' awareness of premium water is at a low stage. They have always been unable to understand where the premium lies in premium water. When faced with water at the same price as tea or coffee, they are more willing to accept tea and coffee, which offer tangible value. However, with increasing exposure to mature foreign premium water consumption markets, more and more consumers now understand how to appreciate premium water, and they are willing to pay for health and enjoyment. From this perspective, consumer awareness factors are gradually improving.
The premium water market is complex and cruel, and a combination of multiple factors has led to the current awkward situation. However, the market situation is now favorable, and consumer attitudes have improved. The rest depends on corporate actions. Only by integrating a brand's personality into product packaging, marketing language, marketing activities, and other aspects, conveying the brand value contained in premium water products, and expressing the brand culture, will consumers naturally buy in, the market naturally recognize, and this awkwardness naturally disappear. These are the urgent problems that domestic premium water brands need to solve as they grow.
This article was first published by Food Business Network.
At the request of our distributor friends, the fourth B-end e-commerce inspection class of this public platform will go to Nanjing and Hangzhou from August 15 to 18 to inspect two platforms: Qianmi.com and Alibaba 1688 Retail Link. Distributors interested in transformation can join us for on-site inspections:
Activity schedule: Time: August 15-18
15th: Check in at designated hotel in Nanjing; 16th: On-site inspection of Qianmi.com, then high-speed rail to Hangzhou in the afternoon; 17th: Participate in the "FMCG Distributor B2B Transformation Exchange Summit"; 18th: On-site inspection of Alibaba 1688 Retail Link in Hangzhou;
Distributors interested in transformation are welcome to join us to learn and inspect on-site:
Organization format
- Company visit
- Actual market case visit
- On-site explanation
- One-on-one communication
Participating distributors only need to pay a registration fee of 200 yuan. Other expenses are self-covered. Note: This inspection is limited to distributors.
Interested distributors can register by long-pressing the QR code below. When adding, please note: "Fourth Registration".
Non-participants, please do not disturb.
Group photos from previous inspections: 3rd B-end e-commerce inspection group photo, from top to bottom: Yunbao Shangmeng, Weijie City Distribution, Wanshang Yizhan. 2nd B-end e-commerce inspection group photo, from top to bottom: Jinhuobao, Caiba, Yishang. 1st B-end e-commerce inspection group photo, from top to bottom: Piduoduo, Beiquan, Yishang.
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