Click image for details Chinese and foreign giants are increasingly competing in the domestic premium water market. Following Yili's announcement of a major investment in natural mineral water at the end of 2018, Danone, a veteran in the water industry, has also chosen to bet on premium products. Recently, Danone confirmed to reporters that Danone Yili (Huizhou) Beverage Co., Ltd. will adjust its business, halting production and sales of its low-priced Yili bottled water. It is understood that with the premium water market share increasing year by year and its broad market prospects, more and more companies are increasing their presence in this field, hoping to create a new engine for bottled water sales. However, experts interviewed noted that despite the rapid development of the premium water market, it will still take time to move from "niche" to "mainstream." Danone Halts Low-Priced Water to Bet on Premium Recently, a notice circulating online from Danone Yili (Huizhou) Beverage Co., Ltd. stated that the company would adjust its business, stopping production and sales of Yili bottled water, and the Yili Longmen factory would also officially cease production. Subsequently, reporters confirmed this with Danone's relevant person in charge. It is understood that Danone Yili mineral water has been produced since 1986 and has been on the market for 33 years, making it a true "veteran" in the water industry. A search on JD.com showed that Danone Yili mineral water 370ml*24 bottles per box is priced at 39.9 yuan, equivalent to 1.7 yuan per bottle, placing it in the low-to-mid-end segment of the drinking water industry. Regarding the reason for halting production, Danone responded that this move is to adapt to the rapid changes in the local market and achieve sustainable development. Danone China evaluated its business development strategy and decided to make business adjustments, stopping production and sales of Yili bottled water, while the Yili large-barrel water business and other brands under Danone China remain unaffected. Industry insiders point out that Danone's halt of low-priced water may be a strategy for the Chinese drinking water market, and in the future, it will focus more on developing its premium water business. In addition to owning two well-known natural mineral water brands, Evian and Volvic, the company also has well-known packaged water brands in multiple markets worldwide, including Auqa in Indonesia and Bonafont in Mexico. In 2017, Danone launched a new high-end imported drinking water brand, Lanjue (Extreme Land), in China. Danone has previously stated that in the packaged drinking water market, demand for high-end natural drinking water and imported water is growing. A New Engine for Bottled Water Sales? According to Tmall's 2018 "Water Category Consumption Trend White Paper," China's bottled water industry annual output has ranked first in the world, with at least three times more room for per capita consumption. Drinking water consumption is showing a trend toward premiumization, with domestic premium water online sales growing by 27%, far higher than the 5% for mid-to-low-end water, making it a powerful engine driving overall bottled water sales growth. A report by China Commercial Industry Research Institute, "2018-2023 China Bottled Water Industry Market Prospects and Investment Opportunities Research Report," also shows that the future Chinese bottled water industry will undergo a second round of reshuffling. Based on the current strategic layout of domestic bottled water companies, premium brands such as Jiantian Baishuishan and Kunlunshan are seeing rapid sales growth, thereby driving up market share and concentrating efforts on attacking the premium water market. Compared to Danone's bet on premium water at this time, companies such as Nongfu Spring, Reignwood Group, and COFCO Coca-Cola have also entered the premium water market in 2018. In June last year, Nongfu Spring's wholly-owned New Zealand subsidiary Creswell NZ Ltd purchased the "Otakiri Springs" bottled water factory, a high-end bottled water plant near Whakatane on New Zealand's North Island; Reignwood Group also introduced the Norwegian premium water brand Voss to the Chinese market. In mid-August last year, COFCO Coca-Cola, together with JD.com, launched the new premium water product "COFCO Baikal," bottled at the source, bringing the high-quality water source of Lake Baikal to the Chinese market. The company stated that it hopes to enter more consumption scenarios through diversified water and beverage products, elevate the consumption level of the bottled water market, and guide the industry toward premiumization and health-oriented development amid increasingly clear structural differentiation. Additionally, Yili, primarily known for dairy and food products, has also entered the field. On December 14, 2018, Yili Co., Ltd. announced that it would build a new Changbai Mountain natural mineral water beverage project with an investment of 744 million yuan. The project is located in the Changbai Mountain Natural Mineral Water Industrial Park in Antu, Jilin, with an expected construction period of 31 months. Liao Lei, Secretary-General of the China Mining Federation's Natural Mineral Water Committee, pointed out that with rising consumption levels and increasing health awareness, consumers are gradually upgrading to mass natural mineral water and premium water. Due to relatively high profit margins for premium water and the extension of product lines, some companies are rushing to compete in the premium water market. From "Niche" to "Mainstream" Still Takes Time Industry insider Liu Xiangxiong stated that against the backdrop of rising incomes and consumption upgrades, factors such as brand, water source, packaging, and marketing have all driven changes in the bottled water market landscape. In recent years, the market share of low-end purified water, represented by Wahaha and Master Kong, has declined significantly, especially in first- and second-tier cities, while high-quality natural mineral water is gradually being accepted by the market, with the market share of natural mineral water priced above 3 yuan continuously increasing. Despite this, the premium water market is still in its growth stage, and the main products in the bottled water market remain predominantly mid-to-low-priced. Nielsen data shows that in 2018, Nongfu Spring, China Resources C'estbon, and Baishuishan together held a 60.1% share of the bottled water market. This figure only accounts for the three major drinking water giants. Marketing expert Lu Shengzhen pointed out that currently, high-end bottled water brands such as Evian, Perrier, Fiji Water, and Tibet 5100 collectively hold about 15% of the market share. The current competitive landscape is that the market for high-end bottled water priced around 10 yuan is stable, and despite rapid growth, brand share and sales volume are relatively small. This means that it will still take time for premium water to move from "niche" to "mainstream." Zhu Danpeng, a senior food industry analyst and researcher at the China Brand Research Institute, noted that China's high-end bottled water market is currently in a transition phase from introduction to growth, with competition not yet fierce. Overall, consumers are relatively rational about premium water consumption. Before 2016, many operators blindly introduced premium water brands; although these brands had high profit margins, they were gradually eliminated from the market due to a lack of brand and service systems. Currently, consumers of high-end bottled water pay more attention to dimensions such as brand, quality, water source, and service systems. "Doing premium water requires perseverance and patience, like water dripping through stone. All companies initially lose money when entering the premium water market; they need to gradually achieve profitability through resource front-loading. The idea of quick profits or harvesting is not realistic. Many companies that blindly push high-end bottled water are not doing well. In fact, large companies with strong brand power are filling in the top of the pyramid on the basis of the base and middle, which can be gradually cultivated, but many companies without brand power that only push premium water without supporting product portfolios will find it difficult to sustain themselves," Zhu Danpeng said. Layout in the Premium Water Field
New Entrants:
Yili
Investing 744 million yuan to build a Changbai Mountain natural mineral water beverage project
Veterans:
Nongfu Spring
Purchased the high-end bottled water factory "Otakiri Springs" in New Zealand
Reignwood Group
Introduced the Norwegian premium water brand Voss to the Chinese market
COFCO Coca-Cola
Launched the new premium water product "COFCO Baikal" with JD.com, bottled at the source
Danone
Made business adjustments, halting production and sales of Yili bottled water, to focus more on developing premium water business
Source: Information Times New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 16 to March 18. This conference will focus on the topic of "Breaking the Game" , engaging in in-depth discussions with numerous brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics such as channel innovation, city distribution logistics, and distributor transformation , it will also add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail . Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor will be able to learn the latest business models, expert insights, and practical methods, finding new tools and approaches to break the game in 2019 and return to a track of rapid growth. Review of Previous Conferences -END-