In the golden autumn of September, Nongfu Spring listed on the Hong Kong Stock Exchange. Founder & Chairman Mr. Zhong Shanshan stated in his speech: "Listing is just a new beginning. All Nongfu Spring employees will work with even greater enthusiasm to repay investors and consumers for their support."

This listing not only made the entire FMCG industry re-recognize the company's comprehensive strength, but also made consumers realize that a bottle of water can generate such high profits and market value. But I want to say that "it's lonely at the top." Wahaha fell from its pedestal in just a few years. Becoming a benchmark can lead the industry, but it also makes you a target for many smaller players to nibble away.

A company's success is often the crystallization of product, model, and team. Next, we will discuss the opportunities and challenges Nongfu Spring will face.

-01- Product Quality and Price Upgrade

The 2013 "standard gate" incident, looking back now, was a phoenix-like rebirth for Nongfu Spring.

The bottled water market has developed rapidly, but the state had not issued relevant national standards. Various concepts emerged in the market: mineral water, mineralized water, purified water, distilled water, oxygen-rich water... Most consumers don't know the differences.

For example, mineral water and mineralized water: the former is naturally emerging from deep groundwater or collected from wells, containing certain amounts of calcium, magnesium, sodium, potassium, etc., naturally present in the source, not added later; the latter is purified water with artificially added mineral salts. They are easily confused but fundamentally different.

Another example is the difference between natural water and purified water. It is difficult for a single company like Nongfu Spring to educate consumers and clarify the truth.

The "standard gate" incident eventually led to the birth of the "National Food Safety Standard for Packaged Drinking Water." According to the new national standard, bottled water is clearly divided into three categories: natural mineral water, drinking purified water, and other drinking water. Previously common names like distilled water, glacier water, ion water, small molecule water, and functional water all exited the market. That is, if it's not mineral water or purified water, it falls under other drinking water.

Although Nongfu Spring is classified as drinking water, with the earlier slogans "Nongfu Spring is a little sweet" and "We don't produce water; we are nature's porters," the concept of natural + drinking water = natural drinking water is deeply rooted, so it will surely thrive.

China has more water illiterates than illiterates, but the new national standard also gave consumers a high-level literacy lesson. It made consumers clearly realize that, apart from specific products, judging only by water type, the quality ranking of bottled water is: natural mineral water > natural water > purified water and mineralized water > distilled water.

Consumers' understanding of bottled water is continuously forming and becoming entrenched, which means the future belongs to natural mineral water.

So what is mineral water? Mineral water is essentially natural water, but natural water is not necessarily mineral water. Natural water that is not mineral water is classified as other drinking water.

The nine boundary indicators specified in the national standard include lithium, strontium, zinc, selenium, bromide, iodide, metasilicic acid, free carbon dioxide, and total dissolved solids. Mineral water must meet at least one of these indicators (contents in mg/L: lithium, strontium, zinc, iodide all ≥0.2; selenium ≥0.1; bromide ≥0.1; metasilicic acid ≥25; free carbon dioxide ≥250; total dissolved solids ≥1000).

In summary, within the category of natural water, mineral water has higher standards for targeted beneficial elements and mineral content.

So the path for Nongfu Spring's quality upgrade seems clear: upgrade from natural drinking water to natural mineral water. There are two difficulties:

First, for consumers, the mindshare for natural mineral water is firmly occupied by Ganten. Nongfu Spring's previously established sales scenarios and proud source concepts have become representative of natural water. To change, it must find a new path and enter the mineral water subcategory. The recent launch of senior water and lithium water are typical natural mineral water subcategories, but this process will inevitably be long.

Fortunately, as long as the direction is right, distance is not a problem. This is Nongfu Spring's product philosophy: accumulate bit by bit, then burst forth.

Second, whether all eight of Nongfu Spring's water sources are qualified to produce natural mineral water. They need to obtain mining permits from the Ministry of Land and Resources. If one source fails to meet requirements, it will affect the overall upgrade strategy.

Price upgrade also seems urgent. The ultimate goal for manufacturers is healthy profitability. Everyone knows Nongfu Spring's main competitor is C'estbon. Due to high costs of building factories at water sources and long-distance transportation, its comprehensive cost is much higher than purified water.

In some markets during peak season, price wars erode not only company profits but also threaten dealers' lifelines. Fortunately, Nongfu Spring's high-margin beverages can compensate. Dealers have also formed a consensus: water is for breaking even and driving channel traffic; beverages are for targeted distribution and profit.

But the market is always changing. Relying on beverages is short-term. As the main product, natural water must be the primary source of profit for both manufacturer and dealers, so price upgrade is necessary.

Speaking of price upgrades, let's first talk about Master Kong. Since bottled water appeared, Master Kong held the top position for over a decade until the end of 2011 when Nongfu Spring dethroned it. In subsequent years, Master Kong's 1-yuan water was in an awkward position. With consumption upgrades, buyers of 1-yuan water seem to no longer care about the brand. That is, they don't picky about 1-yuan water; drinking Master Kong, Ice Dew, Jinmailang, or local small brands makes no difference.

At this point, Master Kong's 1-yuan water relies less on brand to win market share, making sales growth difficult. This directly leads to dealers of Master Kong bottled water struggling to profit, treating water as a chicken rib product. So they tried multiple price upgrades from 1 yuan to 1.5 yuan, using methods like original product upgrade, packaging change, concept change, etc., all ending in failure.

The reason is simple: they didn't follow consumer iteration and upgrade well. Consumers who always liked Master Kong water have the mindset that Master Kong retails at 1 yuan, and they won't accept other prices. Also, these consumers have new knowledge about water; spending more for an old brand feels not worth it.

Nongfu Spring faces the same problem. With consumption upgrades, 1-yuan water will gradually exit the mainstream stage, and 2-yuan water will completely replace it as the lowest tier. Similarly, buyers of 2-yuan water seem to no longer care about the brand. Once the brand advantage within the 2-yuan price band is lost, manufacturer profits will drop sharply, leading to the same consequences as Master Kong.

At the same time, Nongfu Spring's next price increase won't be like 2012's 0.5 yuan increase, but a one-step jump to 3 yuan per bottle, which faces considerable pressure.

In summary, Nongfu Spring must make reasonable plans for quality and price upgrades. It's both a challenge and an opportunity.

-02- Dealer Model Upgrade

The dealer models of Nongfu Spring and Jinmailang both originate from the relationship between Chinese farmers and land. Nongfu Spring's current dealer model evolved from Chairman Zhong's long-term study of famous economist Steven Cheung's "The Theory of Share Tenancy" combined with the company's current situation. It was promoted nationwide in 2014, breaking through growth bottlenecks and achieving significant results.

Let's first understand its core idea: "The Theory of Share Tenancy" uses modern new institutional economics to reinterpret the share tenancy system, overturning traditional theories and establishing the "new theory of share tenancy." The essence is that through changes in certain factors, whether sharecropping, fixed rent, or self-cultivation, land use efficiency is the same.

If property rights are weakened, or the government over-intervenes in resource allocation, it leads to inefficient resource allocation. If land is defined as private property, with clear property rights and free transfer, that is the best way to maximize the efficiency of production factors and land.

In this book, Cheung deeply studies the nature of contracts and transaction costs under market economy conditions. Institutions play a decisive role in economic development, and institutional issues are about rights definition and transaction costs.

Next, let's briefly understand Nongfu Spring's exclusive dealer model. The core idea is: the company fully authorizes dealers and provides timely assistance and services. This includes but is not limited to:

1. Expense lump sum: Based on city tier, modern channel share, university and scenic spot share, etc., dealers receive market expenses of 7%-10% of annual sales. This portion can be used flexibly.

2. Expense verification: Dealer expenses are proportional to cumulative task completion. If completion is below 80%, no expense support. Dealers can apply for an advance of 2 months' expenses based on market needs, and later make up when tasks are met. The company arranges inspectors to verify actual use of expenses to ensure effectiveness.

3. Business model: Sales staff compensation is set by dealers based on their market conditions. After monthly setting, photos are kept by the office and region. Comprehensive income for sales staff is shared by the company and dealers.

4. Grassroots managers deeply involved in dealer management: Nongfu's grassroots managers are called customer managers, managing 4-7 sales staff. They work inside dealer operations, participating in dealer morning meetings, discussing market strategies, participating in market activities, personnel assessment, order delivery, warehouse management, and other daily operations.

From the above, it's clear that Nongfu Spring clearly defines the authority of the company and dealers, each performing their own duties. At the same time, it clarifies profit-sharing models to maximize market benefits.

I have served Nongfu Spring and Jinmailang. During market visits, I found an interesting phenomenon: some dealers simultaneously operate Jinmailang instant noodles and Nongfu Spring. As long as the market is a true four-in-one market, Jinmailang's small bosses start work about 30 minutes earlier and end about 1 hour later than Nongfu Spring's sales staff on average.

The root cause is that small bosses work for themselves, and working has costs (vehicle wear, fuel), while Nongfu's sales staff work for dealers without such costs, leading to different motivations among grassroots workers.

The core of Nongfu Spring's 2014 dealer model reform was redefining rights, redefining responsibilities and profit distribution between manufacturer and dealers. The main purpose was to return market operation rights to dealers, delegate distribution rights to the dealer level, and fully leverage dealers' local advantages and initiative.

Secondly, grassroots sales staff are jointly managed, supported by digital professional systems. As for the true value creators—route sales staff—distribution rights are only guided, with dealers leading. There is no strong control over the distribution process, and results may vary due to dealers' differing abilities in market, management, assessment, and execution, leading to reduced market efficiency.

Currently, it's okay because strong brand and product strength can compensate. But as the market reshuffles, competitive barriers from surviving companies' information, quality, scale, etc., are shrinking. Labor costs keep rising, business models keep iterating, and eventually the "employment model" will be replaced by the "cooperation model." The path for Nongfu Spring seems to be only one:

How to further delegate distribution rights, stimulate the original motivation of grassroots workers, and make them genuinely treat Nongfu Spring's business and dealers' business as their own.

Final Thoughts:

Regarding Nongfu Spring's marketing team structure: Marketing Center — Regional General Manager (several provinces) — Region (usually one province) — Area (usually several prefecture-level cities) — Office (usually one prefecture-level city) — Workstation (usually several counties) — Route sales staff.

Overall, there are many levels, and the structure is quite lengthy, not conducive to flat management. How to stimulate initiative at all levels, making managers both landlords and tenants, is the long-term solution. As for other team issues, I won't show off here.

Finally, returning to the essence of business, in the current Chinese economic environment and capital market, there are not many brands like Nongfu Spring. We look forward to FMCG companies represented by Nongfu Spring, with steady management and investment over thirty years, obtaining value returns through the capital market while injecting lasting development momentum into becoming true century-old brands!

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