Click the image above for details Nongfu Spring: Not Just Nature's Porter, But Nature's Money Printer There is a company whose business model is to put water, which is everywhere in nature, into plastic bottles and sell it to consumers at two yuan per bottle. When oil prices plummeted, some calculated that this water's actual selling price was higher than oil. It has an annual net profit of 5 billion yuan. On July 31, Nongfu Spring was approved for listing on the Hong Kong Stock Exchange, revealing more information about this leading Chinese bottled water giant and lifting its mysterious veil. Bottled water is a cheap product with essentially no technical content; it doesn't even have the gimmick of a "Coca-Cola secret formula" like carbonated drinks. Yet, relying on hundreds of millions of consumers, it supports a market of over 200 billion yuan and sustains hundreds of manufacturers. In China, for every five people who go to a store to buy water, one is likely to buy Nongfu Spring. The other four will choose from dozens of remaining brands. Every Chinese person, even if they haven't drunk Nongfu Spring, has certainly heard its name. Nongfu Spring calls itself "nature's porter," but from a business perspective, it is truly "nature's money printer." **-01- How Impressive Is Nongfu Spring? Nongfu Spring's title as "nature's money printer" is well-deserved. First is brand awareness. ▲ Nongfu Spring's Baidu Index Its popularity is significantly higher than competitors. In most cases, we can easily distinguish between Coke and Sprite, but few can tell the difference between "Nongfu Spring" and "C'estbon." The differences between bottled waters are hard to judge by taste alone, meaning product differences are minimal and similarities high. To win in such a situation, manufacturers must make consumers aware of their brand. That's why we can understand why Guangdong's "Ganten" ads are often confusing. When it comes to planting ideas in consumers' minds, Nongfu Spring is second to none. After all, when you think of "Nongfu Spring," almost everyone knows what comes next. The reward for building awareness is that when a consumer walks into a store to buy water, faced with a dizzying array of products and cramped shelves, "Nongfu Spring" is the first brand they think of, and they grab it and go. ▲ Ordinary shelves are the fiercest battleground for FMCG brands. Next is operational capability. ▲ Market share of bottled water in China In 2019, Nongfu Spring's revenue was 24 billion yuan, a year-on-year increase of 17.3%, roughly equivalent to every Chinese person buying 17 bottles of 2-yuan Nongfu Spring mineral water in 2019. Even in the tea beverage sector, where it is less strong, it holds a 7.9% share, and with "Oriental Leaf" (one of the "Top Ten Hard-to-Drink Beverages") (don't laugh; even a bad reputation is reputation; one man's poison is another's honey), it firmly occupies a place in consumers' minds. As everyone knows, FMCG products like bottled water, instant noodles, snacks, and drinks have low selling prices. After deducting costs, the profit margin per product is even smaller. FMCG manufacturers must find more space in this narrow gap. Gross margin = (Revenue - Cost) / Cost For FMCG manufacturers, achieving a relatively high gross margin indicates at least one of two capabilities: A. Good marketing: maintaining costs while charging higher prices to increase profit (making the numerator larger). B. Strong cost control: ensuring profit margins even at low selling prices (making the denominator smaller). ▲ Nongfu Spring's astonishing gross margin Generally, large companies have high expenses and find it difficult to reduce costs. The industry's largest, "Master Kong," has a gross margin of 33.7%, and the second-largest, "Uni-President," has 39.9%. Nongfu Spring, although the top player in the domestic bottled water market, has a gross margin of 59%. More frighteningly, as a company much smaller than Master Kong and Uni-President, its profits exceed the combined profits of both. Calling it a money printer is not an exaggeration. **-02- The Landscape of China's Bottled Water Market A bottle of "bottled water" is essentially: bottle + water. The biggest cost is the bottle, but the marketing focus is on the water. Bottles in the beverage industry typically use PET plastic, which is made from petroleum. So, from a cost perspective, water sellers are most concerned about oil prices. This year, due to the pandemic, oil prices have fallen to an outrageous level. A barrel of crude oil is $44, which translates to about 2 yuan per liter. A 2-yuan bottle of Nongfu Spring contains only half a liter, so oil is cheaper than water. This year, many beverage manufacturers likely stocked up on PET plastic to make bottles. ▲ In this industry, water isn't expensive; the bottle is. Although the bottle accounts for the cost, water marketing is the industry's main event. Here, we need to explain some "water" knowledge. The water we see in the market typically has labels like: purified water, mineralized water, mineral water, and natural water. Purified water and mineralized water are both artificial. Factories purify tap water to remove various unsuitable chemical substances, resulting in purified water. Mineralized water is purified water with small amounts of magnesium sulfate and potassium chloride added, offering more nutritional value than pure water. The purest water available in the market is Master Kong's 1-yuan water. How pure is it? It reaches industrial-grade purity, and many universities even use Master Kong water for experiments. ▲ Wahaha, which meets laboratory purity standards, ultimately lost market position. Natural water and mineral water are truly natural, though they undergo some processing, they retain the original taste of natural water. But there are differences: water from Qiandao Lake is natural water, but as surface water from a lake, it is not mineral water. Nongfu Spring's Changbai Mountain base water is genuine mineral water, as the Changbai Mountain region in China is one of the three internationally recognized high-quality drinking water source areas, the other two being the Alps in Switzerland and the Caucasus in Russia. Changbai Mountain mineral water, a volcanic rock cold spring (distinct from hot springs), is rich in beneficial trace elements, making its taste and quality comparable to world-class mineral water brands. In the bottled water market, although water is nearly free, the water source is the core production link. To produce natural mineral water, you must pay water resource taxes and obtain a license. Additionally, early exploration, development, and utilization of mineral water require a "mining license." In a sense, Nongfu Spring could be renamed "Miner Spring." In May 2014, the exploration right for Baijiang Spring in Jingyu County, Changbai Mountain, started at 50,000 yuan and eventually sold for 150 million yuan, the highest price ever paid for a mineral water exploration right in China. High-quality water sources are absolutely scarce resources, directly discouraging many capitalists from entering this market. Every industry has its own business secrets; money alone isn't enough. Jingyu County has many small mineral water factories, and several major brands have their own plants there. However, Nongfu Spring contributes over 70% of the county's mineral water industry taxes. ▲ Nongfu Spring's Fusong Plant in Changbai Mountain, Jilin Additionally, the bottled water industry has a famous "500-kilometer rule": if the water source is within 500 kilometers of the final market, 1-2 yuan water can still be profitable; beyond 500 kilometers, prices must rise to 2.5 yuan or more, or you'll lose your shirt. When it comes to "laying out water sources," Nongfu Spring smiles. Across the country, from the forests of the Greater Khingan Range to Manas at the foot of the Tianshan Mountains, from Danjiangkou in central China to Qiandao Lake in the east, Nongfu Spring has successfully established ten high-quality water sources since 1996. As everyone knows, most of China's population is concentrated in the east, and Nongfu Spring's long-term layout allows it to operate comfortably within the "500-kilometer rule." After years of fierce competition, China's bottled water market has left only eight major brands and countless small ones. These seven industry leaders are the ones we see in supermarkets, convenience stores, and small shops: Nongfu Spring, C'estbon, Ice Dew, Wahaha, Evergrande Spring, Kunlun Mountain, and Ganten (Jingtian). Among these, Ice Dew, Wahaha, and C'estbon mainly produce purified water, while Evergrande Spring, Kunlun Mountain, Ganten (Jingtian), and Nongfu Spring produce natural and mineral water. As for imported mineral waters like Evian, VOSS, and Perrier... when have you ever seen them in a neighborhood convenience store? Besides branding, another key battleground for manufacturers is distribution channels. Especially in the years before the internet and logistics were well-developed, channel management determined sales volume. Nongfu Spring's large share is because, when others could only reach the county level, it extended its channels to villages and towns. China's FMCG channel development has gone through roughly three stages over the years. Before 2008 was the first stage. With underdeveloped network technology and delayed information management, manufacturers' sales representatives might genuinely need to drive small trucks to visit rural and township distributors. If orders were successful, agreements were signed, and paper documents were filled out. This model was like seeing flowers in a fog for manufacturers, feeling something was in the way. Paper-based data feedback lagged, and transactions between distributors and lower-level sub-distributors were a black hole for manufacturers. It was like playing "Red Alert" online with a laggy computer: besides war fog everywhere, when you tried to move troops, the computer froze. For Nongfu Spring, since its founding in 1996, early expansion relied mainly on brand effects from advertising and concepts, but growth after 2004 became extremely slow, largely due to this backward channel management. ▲ During the pandemic, Nongfu Spring's unmanned sales points. After 2008, with network development, more companies moved management online. FMCG manufacturers began to sense subtle market changes in real time—the full map was revealed, and the network was no longer laggy. With continuous technological upgrades, manufacturers gained access to more real-time information: each distributor's sales volume, geographic location, warehouse storage status, and even competitor information. So, we see that Nongfu Spring began deploying its online mobile information system in 2008, initially even using SMS for communication. Even so, it made significant progress, achieving an astonishing growth rate of 30%-50% in the years after 2008. ▲ The only survivor of the unmanned vending machine concept war. However, the channel system of this era still followed the old logic: to achieve higher sales, you had to expand the distributor network, extend reach to every village, and build a huge sales team. As channels expanded, channel costs rose sharply. Around 2013, Nongfu Spring's development stalled again. At that point, Nongfu Spring initiated another transformation, directly overturning its original distributor system and implementing a key account system. Nongfu Spring manages channels using a first-tier distribution model. Nongfu Spring sells water to first-tier distributors, who then resell it to supermarkets, convenience stores, small shops, restaurants, e-commerce stores, and other endpoints. According to past data, Nongfu Spring has over 3,800 first-tier distributors, and in the last three years, annual revenue from distributors accounted for over 94% of total revenue. For distributors with large purchase volumes and good credit, Nongfu Spring adopts a direct sales model. These distributors eligible for direct sales are mostly national or regional chain supermarkets, convenience stores, e-commerce platforms, restaurants, airlines, or certain group clients. By the end of 2019, Nongfu Spring had about 200 direct sales clients nationwide. Since 2016, Nongfu Spring has firmly held the top market share position. **-03- Zhong Shanshan and Nongfu Spring's Marketing Art Nongfu Spring's founder is Zhong Shanshan, born in 1954 in Zhejiang. ▲ Nongfu Spring founder Zhong Shanshan Zhong Shanshan's early life was not comfortable. Growing up in that special era, his family was falsely labeled as rightists, and the hardships he faced were unimaginable. Zhong Shanshan started working odd jobs from a young age, as a carpenter and bricklayer. His first formal job was at the Zhejiang Provincial Federation of Literary and Art Circles, and later he worked as a journalist for Zhejiang Daily for several years. It seemed he had no connection to business. A standard literatus creating a commercial empire that dominated China's bottled water market for over two decades is indeed a legend. In 1988, Zhong Shanshan responded to the national call to "build Hainan" and went south to Hainan Island. With his journalist experience, he dreamed of founding a newspaper—the Pacific Post. However, this dream was immediately extinguished on Hainan's sunny beaches. Undeterred, Zhong Shanshan tried growing mushrooms, but failed miserably, losing his entire fortune. It wasn't until 1991 that he finally entered his current industry—he became an agent for the then-booming "Wahaha," responsible for the Guangxi and Hainan markets. The 1990s marked the real warming of China's market economy. After over a decade of development, people finally had some money and began pursuing higher-end consumption. Various health products emerged, such as Naobaijin, Life No. 1, and Chinese Soft-Shelled Turtle Essence, all brands born in the 1990s. ▲ Turtle pill, once dominating TV stations across the country, an early work by Zhong Shanshan. Zhong Shanshan seized this opportunity. In 1993, he left Wahaha and founded "Yang Sheng Tang," officially entering the health products industry, quickly launching his first product, "Turtle Pill." After achieving success, in 1996, Zhong Shanshan entered the beverage industry, establishing Xin'anjiang Yangshengtang Drinking Water Co., Ltd. (the predecessor of Nongfu Spring) in Zhejiang. His explanation: The popularity of health products reflects people's pursuit of health. If we can cater to this demand in a larger market, there is greater potential. As it turned out, his understanding was at the enterprise level. From this point, the health product company boss Zhong Shanshan disappeared, and the marketing genius and concept master Zhong Shanshan officially took the stage. ▲ Nongfu Spring, a bit sweet—where the dream began. In 1998, accompanied by the French World Cup's "Go Go Go Ale Ale Ale" song, Nongfu Spring's ads aired on major TV stations. I bet everyone has forgotten the visuals, but everyone knows the slogan "Nongfu Spring, a bit sweet." A slogan so simple it made everyone remember Nongfu Spring. And this slogan was designed by Zhong Shanshan himself. ▲ Nongfu Spring's product categories. Then Nongfu Spring, like a cheat code, moved forward. Zhong Shanshan's "creative path" also moved forward. In the following years, many impressive, god-level slogans were born from Zhong Shanshan's pen: Nongfu Orchard, shake before drinking. Qingzui, want to know the taste of Qingzui? So happy, eating Growth Joy again! We don't produce water; we're just nature's porters. Every drop of water has its source. What does this show? It shows that Zhong Shanshan has an extraordinary, precise grasp of consumer psychology. A beverage company founder casually takes over the work of a PR and advertising agency. As we mentioned earlier, the differences between bottled waters are minimal, often requiring professional instruments to detect. The marketing focus is on occupying consumers' minds. In other words, it's a race to implant concepts, competing to leave the deepest impression. Recently, the internet has labeled Nongfu Spring as "an advertising company delayed by selling water." This means Nongfu Spring's ads are very sophisticated, unlike those that rely on brainless slogans and repeated brainwashing. Nongfu Spring's ads are quiet, cool, and full of premium feel. Based on water quality alone, Nongfu Spring might only tie with other manufacturers. But when it comes to marketing and promotion, Nongfu Spring can beat others hands down. ▲ Nongfu Spring ad: The Last Kilometer. In 2015, Nongfu Spring placed its pre-roll ad on Youku. Typically, unless you're a paying user, you must watch dozens of seconds of ads before your video, even if the video is only a few seconds long. This time, Nongfu Spring's ad was completely different. As soon as the ad started, a magnetic baritone voice told you: This ad can be closed at any time. ▲ Reverse operation. Nongfu Spring certainly paid Youku a large advertising fee, but it was "considerate" and gave all users the option to skip the ad for free. This "clean stream" operation immediately distinguished Nongfu Spring from those "profiteers" who force viewers to watch ads. When you give someone a choice, they might genuinely choose you. Under coercion, there is no true love. I think that's the logic behind Nongfu Spring's reverse operation. Background data showed that only 30% of viewers chose to exit the ad, while 70% watched at least 30 seconds, and some even watched specifically for the ad—because it didn't seem like an ad at all; if it exceeded 30 minutes, it could be considered a high-level documentary. ▲ To be fair, Nongfu Spring's ad composition is really good. Besides ads, Nongfu Spring had another move that made competitors exclaim "insider." Earlier, we mentioned that the bottle accounts for the bulk of the cost. The usual approach is to reduce costs, but Zhong Shanshan did the opposite: I'll use the most premium bottles; as long as the selling price is high enough, the bottle cost won't catch up. Thus, Nongfu Spring's Changbai Mountain glass bottle "concept water" was born. The specially made glass bottle, which won international design awards, looks a thousand times more premium than plastic bottles. Of course, the price is also touching: 40 yuan per bottle. At the foot of Changbai Mountain, with world-class volcanic spring water and a tall, curved, aesthetically pleasing bottle, an ordinary bottle of water was turned into something resembling a 1982 Lafite. This level of domestic mineral water naturally appeared at the G20 summit before heads of state. ▲ Nongfu Spring's high-end product: Changbai Mountain sparkling natural mineral water. As for the Forbidden City series, Onmyoji series, NetEase Cloud Music comments series, student water, and baby water series... these are just routine operations. Oh, by the way, the concept of "weakly alkaline water" that everyone talks about now was also first proposed by Nongfu Spring. **-04- Epilogue Many things in the world can be classified based on "whether they are understood" and "whether they succeed": those that are neither successful nor understood are often seen as reckless "stone-egging" fools, while successes understood by all are often the privilege of top students. Most of us fall into the category of being not so successful but recognized by the majority—ordinary people. In Nongfu Spring's two decades, it has often been placed in the last category—"ununderstood success." Promoting "natural water" over "purified water" offended countless peers; proposing "weakly alkaline water" was criticized as pseudoscience... Nongfu Spring always seems to make incomprehensible moves. In fact, it is these confusing behaviors that ultimately created today's "nature's money printer." Because Nongfu Spring made the right decisions at the right time, and behind these decisions lies the cornerstone of modern commercial society—consumerism. With increased productivity, modern productivity can already meet the basic needs of most people. But if everyone drank plain water, ate plain bread, took buses, and went to bed at 9:30, economic development would be empty talk. So, companies need to use one concept after another to create differences and build identity. Thus, every influencer wants a Hermès, every programmer uses a mechanical keyboard, and in the end, everyone wants health. Nongfu Spring's story tells us that in any niche field of Made in China, even in a seemingly low-tech field like bottled water, as long as you do it with heart and persistence, there is enormous space. Source: Xinghai Intelligence Bureau (ID: junwu2333), Author: Old Director This article is authorized for reprint by Xinghai Intelligence Bureau (WeChat ID: junwu2333). We focus on the starry sea path of "Made in China." For reprints, contact (ID: junwu2333) for authorization.