---
title: "Nestlé Exits, Nongfu Spring Lists: Is the Bottled Water Business Still Profitable?"
description: "Recently, China's drinking water market has seen significant moves: Nestlé sold its bottled water business in China, while Nongfu Spring launched a successful IPO in Hong Kong. This contrast raises questions about the profitability of the water business and the reasons behind the divergent strategies of these two giants."
author: "江瀚视野观察"
publisher: "New Distribution"
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published: "2020-09-13"
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# Nestlé Exits, Nongfu Spring Lists: Is the Bottled Water Business Still Profitable?

> Recently, China's drinking water market has seen significant moves: Nestlé sold its bottled water business in China, while Nongfu Spring launched a successful IPO in Hong Kong. This contrast raises questions about the profitability of the water business and the reasons behind the divergent strategies of these two giants.

Recently, China's drinking water market has been turbulent. **On one hand, Nestlé, a renowned giant, has completely divested its bottled water business; on the other, Nongfu Spring, a major Chinese bottled water company, has launched a full IPO.** This push and pull has left many wondering: is the water business profitable or not? Why is there such a big difference between the two giants? What's the real story behind it?

**-01-**
**Nestlé Exits, Nongfu Spring Lists**

**On August 28, Nestlé and Tsingtao Brewery Group reached a strategic cooperation agreement, with the latter taking over Nestlé's drinking water business that has been developed in China for many years, including the local brands "Dashan" and "Yunnan Spring" and three factories. Nestlé's own brand "Nestlé Pure Life" will also continue to be operated by Tsingtao Brewery. Nestlé added to our reporter that this also means Nestlé has cleared its physical drinking water business in China, leaving only the operation of three imported brands.**

What remains of Nestlé's water business in China? Nestlé told our reporter that in the future, the company will focus on three international water brands: Perrier, San Pellegrino, and Acqua Panna. These three waters are high-end categories in the market and are all imported products.

It is reported that in 2019, Nestlé's global water business sales totaled 7.8 billion Swiss francs, approximately RMB 60 billion, including 48 water brands and 1 tea brand, with internationally renowned brands including Perrier, San Pellegrino, and Acqua Panna.

As Nestlé exited the market, many wondered if such a world-class giant giving up on China's bottled water market meant that bottled water is really not profitable. However, before we could finish, another giant answered with its own listing: Nongfu Spring, listed on the Hong Kong Stock Exchange. **On September 8, Nongfu Spring listed on the Hong Kong Stock Exchange, opening up 85.12% at HKD 39.8 per share, with a total market value of HKD 440 billion.**

Zhong Shanshan's wealth also soared, briefly making him China's richest man. Since Nongfu Spring initiated its IPO, the capital market's enthusiasm has not stopped. The number of new stock subscribers reached 700,000, exceeding the subscription quota by 1,000 times, and the frozen funds for new stock subscriptions alone exceeded 600 billion, making it the true "frozen capital king" of the Hong Kong Stock Exchange and the hardest new stock to subscribe to.

Nongfu Spring's founder, Zhong Shanshan, has established two listed companies within a year: one is Wantai Biological, with a current total market value exceeding 90 billion, of which Zhong holds 75%, representing 70 billion in wealth.

**As a giant in the domestic beverage industry, Nongfu Spring has maintained steady growth in recent years. In 2019, Nongfu Spring's annual revenue was 24.021 billion yuan, with the unremarkable bottled water contributing nearly 60% of annual revenue, while the remaining 40% came from tea drinks, functional drinks, juices, and other products.** It has also maintained the top market share in packaged drinking water for 8 consecutive years.

Whether it's bottled water or other beverages, the prices themselves are not high, but with annual sales of 33 billion bottles, Nongfu Spring's profit in 2019 could reach nearly 5 billion. In 2019, the gross margins of Nongfu Spring's four main products were 60.2%, 59.7%, 50.9%, and 34.7% respectively—in other words, for the most familiar Nongfu Spring mineral water, every 1 yuan of sales revenue brings 6 mao of gross profit.

Nestlé's bottled water seems like a hot potato that needs to be thrown away quickly, while Nongfu Spring's bottled water is a money tree. What's behind this huge difference?

**-02-**
**Is Bottled Water a Profitable Business?**

In supermarkets, convenience stores, grocery stores, and vending machines, the most inconspicuous items are various bottled waters. Compared to carbonated drinks, tea drinks, coffee drinks, and other tasty beverages, bottled water is too low-key, often placed on the lowest shelf or in the most inconspicuous corner. However, this bottled water has a huge market.

**According to a Frost & Sullivan report, by retail sales, the packaged drinking water market size in 2019 was 201.7 billion yuan.** So, what's the problem with bottled water?

**First, bottled water is indeed profitable, but the logic is different from what one might imagine.** As a very large beverage market in China, the bottled water market has enormous space and elasticity. From purified drinking water at 1 yuan per bottle to high-end mineral water priced at tens or hundreds of yuan, the price range is surprisingly wide. China's bottled drinking water national market can be traced back to 1995.

At that time, Wahaha, a giant in China's beverage market, launched Wahaha purified water, gradually turning scattered bottled water into a big national business. After that, various mineral waters, drinking waters, mineral waters, and even boiled water were launched, opening the era of China's bottled water wars.

At that time, whether it was Wahaha, Master Kong, Robust, or Nestlé, Danone, they all entered the market, along with Nongfu Spring, C'estbon, etc. It was a scene of one after another. But friends familiar with industrial economics know that **any industry actually goes through a transition from a growth period of free competition to a mature period of gradual development, and the bottled water market has gone through these years of wars.**

Eventually, a market order has gradually formed. **In such a situation, market concentration will gradually increase. The more head market participants earn more, the more tail market participants suffer.** According to the Frost & Sullivan report, China's packaged drinking water market is relatively concentrated. By 2019 retail sales, the top five participants accounted for 56.2% of the market share. They are Nongfu Spring, China Resources C'estbon, Wahaha, Master Kong, and Ganten, plus Coca-Cola's Ice Dew, basically forming the six giants of China's bottled water market.

In this context, the head player Nongfu Spring is making a fortune, while the tail player Nestlé is quite desolate, which is understandable.

**Second, market competition and elimination are actually very fierce.** Looking at the bottled water market, there is intense competition. Over the years, we have seen how many bottled water companies have "watched their towers rise, watched their banquets, and watched their towers collapse."

Among them, besides Ganten, which leveraged its high-end mineral water advantage and the slogan "aristocrat in water" to join the six giants, other bottled water brands have passed like meteors. These include Kunlun Mountain, known for its water source, which gradually declined due to the war between its parent company JDB; and Tibet 5100, which rose with the high-speed rail development but gradually lost its advantage, with its parent company transforming into a beer company and its water business weakening; and the famous Evergrande Spring, which is still doing quite well, but compared to its high price at the time of launch, it has gradually become a common player in the market.

We can see that **the entire market is in a state of intense competition. Since the entry barrier for bottled water is low, anyone with a bit of money can enter, but it's a business that is easy to enter but hard to master. Market education requires significant market costs, so bottled water needs massive marketing resources to form market impressions. After marketing wars and price wars, many brands gradually lose the ability and capital to continue investing and eventually become marginalized.**

In recent years, besides the six giants, the only bottled water brand still investing heavily in marketing might be Jinmailang's boiled water. So Nestlé's exit from the civilian bottled water market is logical.

**Third, while the civilian market is already solidified, the high-end market is just beginning.** We see that Nestlé's strategy is to exit the civilian market and focus on the high-end market. Indeed, for the平价 bottled water market that has gradually matured and concentrated, the high-end bottled water market war is just beginning.

In recent years, Nestlé's Perrier, San Pellegrino, and Acqua Panna, Danone's Evian, Master Kong's Hanyang water, etc., are all continuously entering the high-end market, and market segmentation is deepening. Recently, whether it's high-end water focusing on water source advantages, or functional waters like baby water and maternal water, these scenario-based waters have begun to form their own market groups. These groups may not be numerous, but they have relatively stable consumption habits, providing high profit levels for these high-end water companies. It can be said that the high-end water war is actually beginning.

From the current perspective, the bottled water market is still a profitable large market, but new market entrants should avoid the平价 water market and focus on vertical segments.

Source: Jianghan Vision Observation (ID: jianghanview), Author: Jianghan Vision Observation


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