Standing at the tail of summer, let's talk about bottled water again. First, let's look at a timeline: In 2008, 1-yuan Master Kong was the leader in bottled water with a market share of 20.8%; in 2011, 2-yuan Nongfu Spring took the top spot, and four years later, 2-yuan C'estbon claimed second place; in 2018, 3-yuan Ganten stepped onto the podium as third, while Master Kong, having fallen out of the top three, announced a price increase.
Players in the bottled water market (Image source: Master Kong, Nongfu Spring, Ganten JD flagship stores)
Interestingly, Nongfu Spring, C'estbon, and Ganten have all grown into billion-yuan mega-products, which is rare in other categories, where typically only one or two such products emerge. Zhang Yun from Ries Consulting proposed at the release of the "Bottled Water Industry Analysis and Outlook Report" (hereinafter referred to as the Report) last month that the future Chinese bottled water market still has room for 2-3 more billion-yuan brands. The opportunity is here—are you ready?
China's bottled water market will exceed 200 billion yuan within 2 years
How big is the bottled water market? Let's put it this way: 70% of the human body is water, so the demand is evident. In terms of share, bottled water is the largest category in soft drinks. Euromonitor data shows that in 2018, China's bottled water sales reached 43.4 billion liters, nearly half of the entire soft drink market, with sales of 174.3 billion yuan, accounting for 30% of the soft drink market. (Image source: Ries Consulting)
Not only is bottled water's share increasing, but it also maintains a very high growth rate. Over the past five years, bottled water sales volume has grown at 8% to 10%, and while sales value growth has slowed, it remains above 10%, more than double the overall soft drink growth rate. We can see that from 2015 to 2018, other soft drinks saw stagnant or declining sales, while the overall soft drink market growth was, in a sense, driven by bottled water. (Image source: Ries Consulting)
Ries Consulting believes that in 2019, bottled water will remain the largest category in soft drinks, with sales volume exceeding the total of all other soft drinks combined, and its proportion will continue to increase year by year. There are two important reasons for the continued expansion of bottled water's market share:
First, under the trend of returning to nature and health, tasteless and colorless bottled water is returning to the mainstream. The beverage industry often mentions the trend of near-water beverages, which are light and close to water. Previously, high-sugar, high-calorie, high-color, and high-additive drinks are being rejected by more consumers, and the most extreme form of this health trend is water, which is zero-calorie, zero-fat, zero-added sugar, and zero-added color. This factor drives people to shift from soft drinks to water.
Second, due to concerns about water quality, bottled water is increasingly used in daily life. Due to environmental pollution and the education of bottled water, such as the slogan "The quality of water determines the quality of life," more and more consumers are using bottled water as their daily drinking water. At the same time, the demand for cooking, tea brewing, facial steaming, and other uses is also increasing, driving the growth of high-quality bottled water.
Zhang Yun stated that China's bottled water market will exceed 200 billion yuan within two years, and after Nongfu Spring, C'estbon, and Ganten, there will be 2-3 more billion-yuan brands. In today's soft drink market, each category typically has one or two brands exceeding 10 billion yuan, such as Wanglaoji and JDB in herbal tea, Red Bull in energy drinks, and Mizone in vitamin water. However, bottled water is different; there are already three billion-yuan brands. "We judge that the bottled water market will produce the most billion-yuan brands in China's soft drink industry, predicting 4 to 5 in the future."
1-yuan water shrinks, 2- and 3-yuan water dominate, 4-yuan water begins
After looking at the overall picture, let's examine the sub-categories. Typically, we divide bottled water into mineral water, natural water, and purified water. In terms of growth, mineral water and natural water maintain good growth at 13% and 11%, respectively, while purified water maintains a relatively stable growth rate of 8%, which is actually below the average. Purified water is slowing down, while the growth of natural water and mineral water, which are higher-grade, is accelerating. This data reflects the trend of consumption upgrading—as more consumers choose bottled water, they also opt for higher quality water based on health considerations. (Image source: Ries Consulting)
From a market perspective, how do consumers identify the quality of bottled water? Ries Consulting conducted a survey, and 70%-80% of consumers believe that all bottled water is mineral water, especially in third- and fourth-tier cities. For most consumers, the most direct standard for distinguishing good from bad is price: 1-yuan water is drinkable, 2-yuan is better, and 3-yuan is high-end. Interestingly, the general public cannot distinguish between mineral water, natural water, and purified water, but 60%-70% of consumers of water priced above 3 yuan are knowledgeable about bottled water categories. Thus, there is a divergence: those below 3 yuan focus on price, while those above 3 yuan emphasize category.
Ries stated that the structure of China's bottled water consumption market is evolving from a pyramid to a spindle shape. In the original pyramid, 1-yuan water was the most abundant, but in the future, the 1-yuan water market will gradually shrink, 2-yuan and 3-yuan water will become the largest segments, and 4-yuan water is in its infancy. The main trends are as follows:
- 1-yuan water is gradually shrinking due to issues with water sources, additives, and channels;
- 2-yuan water is attracting many 1-yuan water consumers, while losing some to 3-yuan water;
- 3-yuan water is maturing and expanding, entering a breakthrough phase;
- 4-yuan and above high-end water is just starting.
Bottled water structure shifting to a spindle shape (Image source: Ries Consulting)
In the development of China's bottled water, a unique category emerged—mineralized water, which is groundwater or even urban tap water that has been filtered and purified, with manufacturers adding minerals like magnesium oxide to mask taste deficiencies. This is the majority of 1-yuan water. As the market develops, more and more consumers are becoming aware of the issues with 1-yuan water regarding water sources and additives, and the 1-yuan water market will gradually shrink. On the other hand, labor and channel costs are rising, significantly reducing the profit margins for 1-yuan water. To cut costs, brands will minimize other expenses, such as packaging, and we see that many 1-yuan water plastic bottles are relatively thin, offering a poor visual and tactile experience.
Consequently, quality-upgraded 2-yuan water is attracting a large number of 1-yuan water consumers and becoming the main battlefield for bottled water. 2-yuan water is mainly divided into two types: one is natural water, such as Nongfu Spring, sourced from natural springs and containing natural minerals; the other is mid-to-high-end purified water, such as C'estbon, which uses secondary reverse osmosis technology to produce purified water without minerals. (Image source: JD)
While 2-yuan water gradually becomes the mainstream, consumers seeking above-average quality will move up, and some 2-yuan water consumers will shift to the 3-yuan market. 3-yuan water is mainly natural mineral water, which retains existing consumers while attracting new ones, gradually expanding and entering a breakthrough phase. The 4-yuan and above high-end mineral water market is currently in its infancy, with major players including Evian, Tibet 5100, Kunlun Mountain, and others. Nongfu Spring has also launched a high-end line of natural mineral water in recent years and acquired New Zealand's high-end water brand Otakiri Springs last year. This tier is characterized by small scale but rapid growth.
The "Tmall High-end Water Trend Report" shows that from July 2018 to June 2019, the average monthly transaction growth rate for high-end water on Tmall was 130%, with an average monthly consumer growth rate of 180%. The main consumer group is families with children aged 25-34, and second-tier regions account for the highest consumption share at 40%[1].
Price War: The Success and Failure Behind One Yuan
Price differentiation is the main battlefield for bottled water competition. Some brands fail due to low prices, while others stumble on price increases. The knowledge behind this one yuan is not simple.
1. Consumption Upgrade: Nongfu Spring Reaches the Top, Master Kong Retreats
Master Kong upgraded its original mineralized water to Youyue purified water in 2015 and announced a price increase for drinking water in 2018, but judging from the first half of this year's annual report, entering the 2-yuan water era did not save Master Kong's water business. (Image source: JD)
In the first half of 2019, Master Kong's packaged water revenue plummeted by 34.79%, and its market share by sales volume was only 5.4%. In the public's perception, Master Kong, which has long adhered to the 1-yuan water market, has become synonymous with 1-yuan water, and even a price increase cannot change its fate.
However, it cannot be said that 1-yuan water has no way out. In fact, there is still a large consumer base for the 1-yuan price point, especially in third- and fourth-tier cities. The opportunity for brands lies in extreme cost control, compressing labor and transportation costs as much as possible to increase profit margins. Zhang Yun shared the case of Jinmailang: Jinmailang leveraged equipment advantages to create highly efficient production lines, significantly saving labor costs and speeding up production, while also expanding factory locations to achieve "water not touching the ground," saving handling costs. However, this model requires strong infrastructure and is more suitable for large brands with ample resources, presenting a certain barrier.
In the overall declining trend, the 1-yuan water track is clearly not suitable for creating a new billion-yuan brand. In contrast, Nongfu Spring, which chose the 2-yuan water track, has taken the top spot in bottled water. But the knowledge behind this one yuan is not just about raising the price; let's start with the birth of Nongfu Spring.
In 1996, Nongfu Spring was founded, initially entering with 4L bottled purified water, avoiding the main battlefields of 500ml and 18L, and quickly established a foothold in East China. After the initial success, Nongfu Spring used 330ml sports-cap small bottles as a springboard to enter the mainstream market. The small bottles and sports caps created a high-end, differentiated image for Nongfu Spring. Subsequently, in 1998, Nongfu Spring coined the catchphrase "Nongfu Spring is a bit sweet," and the 550ml sports-cap bottled water quickly spread nationwide.
The most critical turning point was the "Century Water War" in 2000—Nongfu Spring announced it would no longer produce purified water. Purified water is strong in purity, being pollution-free and impurity-free, but it is also weak in purity, as it easily evokes a lack of essential trace elements for the human body. Seizing on this consumer psychology, Nongfu Spring shifted to the natural water category. (Image source: Tmall)
Currently, Nongfu Spring has eight major water source bases, including Qiandao Lake in Zhejiang, Changbai Mountain in Jilin, Taibai Mountain in Shaanxi, and Emei Mountain in Sichuan, and insists on building factories and bottling at the water sources to ensure the entire production process is completed at the source, guaranteeing water quality safety and health.
All bottled water produced by Nongfu Spring is natural weak alkaline water, with its core product firmly positioned in the 2-yuan price band, targeting mid-range mass consumption. The perception of "higher quality" is deeply rooted in consumers' minds, gradually widening the gap with Wahaha's purified water and Master Kong's mineralized water.
Since 2015, Nongfu Spring has launched several new products, including glass-bottled water for the high-end market, large-capacity baby water with unique packaging design, and sports-cap bottled water. These designs also earned Nongfu Spring five awards in 2015, including the D&AD Wood Pencil Award, The Dieline International Packaging Design Award for the first place in the soft drinks category, and the Pentawards Best Beverage Packaging Award. (Image source: Tmall, Nongfu Spring)
Additionally, from "Nongfu Spring is a bit sweet" to "We don't produce water; we are just nature's porters," Nongfu Spring's advertising and marketing have always been classic cases in the advertising industry, helping the brand occupy consumers' minds.
The most acclaimed should be Nongfu Spring's "Four Seasons of Changbai Mountain" commercial, known as the "most beautiful commercial," with every frame exquisite, flowing streams, and all living things... Two commercials, just 60 seconds, capture the beauty of Changbai Mountain's four seasons with a camera, resembling a documentary more than an advertisement. (Image source: Nongfu Spring)
There are also Nongfu Spring's series of commercials such as "The Last Kilometer," "A Day's Vacation," and "A Person's Island," which state at the beginning that they are advertisements and users can choose to skip. Those who don't skip will see the green mountains and clear waters of the water source and hear the personal stories of employees, which are authentic and intimate.
It can be seen that there is a world within one yuan, including not only water source quality, packaging design, and advertising marketing, but also the brand's insight into the market and its own positioning. On this basis, brands also need to grasp the ladder of category growth and find the right entry time. In this regard, Ganten is a good case.
2. Finding the Entry Point: Ganten's Sunshine, Kunlun Mountain's Rain
With the vigorous promotion by Nongfu Spring and C'estbon, 2-yuan water gradually became the mainstream market. At this time, Ganten targeted the gap in the domestic mid-to-high-end bottled water market and chose to enter from the 3-yuan price point.
In terms of water source, Ganten natural mineral water is sourced from the rock fracture zone underground in Luofu Mountain; in terms of packaging, Ganten broke the traditional slanted-shoulder bottle design and adopted a flat-shoulder bottle with four concave grooves around the body, representing the fracture zone of rock layers. These conditions laid the foundation for Ganten's brand development. (Image source: JD)
After launching its first incomprehensible advertisement in 2013, Ganten began to build the brand impression of "noble in water" in consumers' minds. Through continuous education, it successfully established itself in the market as a high-end bottled water brand. In recent years, with consumption upgrading, Ganten has become the fastest-growing brand and is now a billion-yuan product.
In the bottled water market, besides Ganten, another "mountain" also used the strategy of being one yuan more expensive. Kunlun Mountain, positioned as glacier water, entered the bottled water market at a 4-yuan price point in 2010. After ten years, Ganten has surpassed 10 billion yuan, while Kunlun Mountain is still around 1 billion yuan, because it entered the 4-yuan market too early. (Image source: JD)
When Kunlun Mountain entered the 4-yuan market, 3-yuan water had not yet been widely promoted, creating a price gap that kept Kunlun Mountain confined to a relatively niche consumer market for a long time.
However, Kunlun Mountain, which has adhered to the high-end market, has now become the leader in the domestic high-end water category, which is not a bad strategy. In June this year, Kunlun Mountain's sales increased by 37.5% month-on-month, and during the 618 e-commerce festival, it ranked first in sales in the domestic high-end water category, with current prices ranging from 5 to 8 yuan[2].
By capturing its core consumer group and adhering to its brand positioning, Kunlun Mountain, despite its relatively small scale, has carved out a place in the market and is expected to achieve sustained growth in the future.
3. Recognizing Positioning: Evergrande Spring Water, Which Lost 4 Billion in 2 Years
Another brand that entered with 4-yuan water has a different story. Evergrande Spring Water entered the 4-yuan market in 2013, investing huge resources in promotion, but sales began to decline in the second year, and by 2015, it had lost nearly 4 billion yuan. (Image source: Tmall)
Evergrande Spring Water's problems are more complex. Like Kunlun Mountain, it skipped a price tier, limiting its consumer base, but unlike Kunlun Mountain, it failed to capture its core consumer group.
In terms of packaging, Evergrande Spring Water's packaging quality was severely lacking, even inferior to C'estbon and Ganten. In terms of brand strategy, Evergrande Spring Water's selling points kept changing—"healthy longevity," "cooking rice," "one water source, supply the world"... Evergrande Spring Water never found its core competitiveness. In contrast, "nature's porter" Nongfu Spring and "noble in water" Ganten consistently carried their core selling points throughout their brand communication, forming a strong brand impression. (Image source: Evergrande Spring Water official website)
In terms of channel design and distribution, Evergrande Spring Water appeared somewhat "greedy for comprehensiveness," distributing a large number of products to third- and fourth-tier cities and even rural markets, causing severe unsold inventory at the terminal. Subsequently, the dominoes fell—dealers lost confidence, urgently needed to clear inventory to recover funds, leading to low-price disposal and cross-regional selling, ultimately causing the entire price system to collapse.
In September 2015, Evergrande Spring Water announced a price cut across its products, with the previously 4-yuan flagship product reduced to 2.5 yuan, and in August 2016, it was further reduced to 2 yuan, but consumers still did not buy it. In September 2016, China Evergrande gave up on Evergrande Spring Water.
Zhang Yun believes that from the successes and failures of past bottled water brands, category growth follows a ladder; if you step on the right rung, you can grow, but if you step on the wrong one, you may go from pioneer to martyr. The seemingly simple price differentiation in bottled water actually involves "timing, location, and harmony"—does the entry angle match the current timing? Is the water source layout conducive to expanding the brand's coverage? What are the unmet rigid needs of consumers at present?
Category War: Mature Water Needs More Segmentation, Carbonated Water Needs to Be More Mainstream
In addition to price differentiation, bottled water brands can also find new tracks through category differentiation. The Ries Consulting report highlighted two categories with great development potential: mature water and carbonated mineral water.
1. Down-to-earth "Mature Water" Has a Broad Consumer Base in China
Jinmailang launched "mature water" (Liangbaikai) in 2016, creating a new category of "mature water." Using UHT 125°C above-boiling-point sterilization technology, it is cooled and filled in ultra-clean conditions. In just three years, it became a 2-billion-yuan mega-product. In July this year, Want Want also announced it would soon launch a Liangbaikai product. (Image source: Tmall)
First, from a process perspective, mature water is a significant innovation. Common bottled water is "raw water," which uses ozone and other chemical sterilization methods, posing a risk of bromate residue. Mature water, also known as "cooled boiled water," uses safe and reliable membrane filtration technology, processed only through physical heating sterilization at no less than 100°C, to produce packaged drinking water, with no residue and greater safety.
Secondly, compared to process innovation, the greater potential of the mature water category lies in its consumer base. Unlike the European and American cold-food culture, China has traditionally advocated a cooked-food culture. The cognition accumulated over thousands of years makes Chinese consumers more resonant with mature water—in Chinese dietary culture, mature water is more thirst-quenching and gentler on the stomach.
Zhang Yun believes that "mature water" is a disruptive change to the classification of mineral water. As more companies educate the market and promote mature water, this category will gradually grow, and its prospects are worth looking forward to. In the future, within the mature water category, new sub-categories may emerge, potentially forming mature mineral water, natural water, and purified water, which together with raw mineral water, natural water, and purified water will constitute the entire bottled water category.
2. Carbonated Mineral Water Expected to Reach 10 Billion in 5 Years, Opportunity Lies in Mass-Market Prices
Another category Ries focuses on is carbonated mineral water. It originated in Europe, where affluent continental Europeans used to bathe in or drink carbonated spring water for health benefits. By the twentieth century, this carbonated spring water was bottled and sold.
In the past three years, carbonated mineral water has grown at about 50% annually in China, with sales volume reaching 6.1 million liters in 2018 and sales of 300 million yuan, both six times the figures from 2014. Currently, imported brands such as Perrier, San Pellegrino, and Badoit hold an absolute leading position, with a market share exceeding 70%. (Image source: Tmall)
Carbonated mineral water is zero-calorie and zero-sugar, and when consumed with meals, it helps cut through grease. It also has effects such as suppressing appetite, eliminating constipation, blocking the absorption of sugars and fats, and neutralizing body acidity. It already has a health-conscious perception among consumers, who consider it superior to other bottled water categories.
Looking at the growth of carbonated mineral water's share, Germany has a relatively high share at 31%, while the US has 9% but a growth rate of 16%. In China's bottled water market, carbonated mineral water accounts for only 1%, with a growth rate of 46%, indicating a market opportunity of more than 10 times in the future. (Image source: Ries Consulting)
Currently, carbonated mineral water is showing signs of starting in first- and second-tier markets. Zhang Yun believes that in the next five years, these cities will remain the origin markets for high growth. At the same time, consumption scenarios will continue to expand, from initially being concentrated in restaurants and bars to daily life scenarios. For example, Wanglaoji herbal tea and Korean Jinro soju were initially consumed in dining channels; consumers found them good and bought some for home consumption. Therefore, restaurants and bars are excellent leading channels.
As for brand strategic opportunities, Zhang Yun suggests that companies should focus on the mass-market price segment. Currently, the market for carbonated mineral water below 5 yuan is still blank, and by launching mass-market carbonated mineral water, the category can be rapidly popularized and expanded.
Conclusion
Finally, let's summarize:
- Bottled water is expected to exceed the total sales of other soft drinks in 2019, and its proportion will continue to rise; after Nongfu Spring, C'estbon, and Ganten, there will be 2 to 3 more billion-yuan brands.
- The bottled water market is evolving from a pyramid to a spindle shape. After the education by 2-yuan water brands like Nongfu Spring, consumers need better water, and 3-yuan water is entering an explosive period, with corresponding brands enjoying a category dividend.
- Mature water is a major innovation in bottled water, more in line with China's cooked-food culture. If more companies educate this category, its prospects are worth looking forward to.
- Carbonated mineral water has enormous potential and is on the eve of an explosion. It is predicted that if a strong brand enters the mass-market price segment within five years, this category could reach a billion-yuan scale.
Source: FBIF Food & Beverage Innovation (ID: FoodInnovation)
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