---
title: "The Future of Nongfu Spring Is Definitely a Tech Retail Company"
description: "As the overall economic growth enters a stage of stock, through technological upgrading, internationalization, and retail terminal layout, a new growth curve is opened. With the help of capital, the new story of long-termism is just beginning. After the news of Nongfu Spring's listing was made public, almost everyone turned their attention to this well-known domestic beverage company, eager to get a first glimpse of its true face. Of course, before this, there had been multiple reports that had obtained some real data about Nongfu Spring through indirect means."
author: "曹玥"
publisher: "New Distribution"
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published: "2020-04-05"
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# The Future of Nongfu Spring Is Definitely a Tech Retail Company

> As the overall economic growth enters a stage of stock, through technological upgrading, internationalization, and retail terminal layout, a new growth curve is opened. With the help of capital, the new story of long-termism is just beginning. After the news of Nongfu Spring's listing was made public, almost everyone turned their attention to this well-known domestic beverage company, eager to get a first glimpse of its true face. Of course, before this, there had been multiple reports that had obtained some real data about Nongfu Spring through indirect means.

**As the overall economic growth enters a stage of stock, through technological upgrading, internationalization, and retail terminal layout, a new growth curve is opened. With the help of capital, the new story of long-termism is just beginning.**
After the news of Nongfu Spring's listing was made public, almost everyone turned their attention to this well-known domestic beverage company, eager to get a first glimpse of its true face.
Of course, before this, there had been multiple reports that had obtained some real data about Nongfu Spring through indirect means.
In June last year, Beijing Wantai Biological Pharmacy Enterprise Co., Ltd. (hereinafter referred to as "Beijing Wantai Biological"), a subsidiary of Yangshengtang, the parent company of Nongfu Spring, disclosed its IPO prospectus, and the core operating data of Nongfu Spring, also under Yangshengtang, was subsequently exposed. In 2018, the net assets of Nongfu Spring Co., Ltd. were 14.411 billion yuan, with unaudited net profit reaching 3.616 billion yuan.
The news that a bottle of purified water earns 3.6 billion yuan a year spread quickly. **This profitability has surpassed that of Mengniu Dairy in the same period (with a net profit of 3 billion yuan in 2018).** **Nongfu Spring's scale is enough to rank among the top domestic FMCG giants.**
Zhong Shanshan, the founder of Nongfu Spring and Yangshengtang, rarely appears publicly, and his name has never appeared on major rich lists. External evaluations of him are even more dramatic, describing him as a "lone wolf" who is unruly and unconventional, as well as a hands-on philanthropist.
This founder's style adds a layer of mystery to Nongfu Spring. Despite being profitable for many years, it never went public. Now that the IPO is about to be launched, the reasons behind it are even more intriguing.
**-01-
### **Beverage Business Growth Slows Down**
### **Rapidly Counterattacking New-Style Tea Drinks**
In 1990, Zhong Shanshan, founder of Nongfu Spring, became the Hainan regional agent for Wahaha. After leaving the company in 1993, he founded Hainan Yangshengtang Pharmaceutical. The "Yangshengtang Turtle and Turtle Pill" launched by Yangshengtang earned Zhong Shanshan his first pot of gold. In 1996, Nongfu Spring Zhejiang Qiandao Lake Yangshengtang Drinking Water Co., Ltd. was established, which was the predecessor of Nongfu Spring.
After more than two decades of development, Nongfu Spring has become the top-selling water beverage brand in China. According to Nielsen data, in 2018, Nongfu Spring ranked first in the industry with a 26.5% market share. In addition, it also includes other beverage businesses such as "Nongfu Orchard," "Scream," "Aqua C100," "Oriental Leaf," and other beverage brands.
According to iyiou's research through Tianyancha, Zhong Shanshan serves as an independent legal person in as many as 94 enterprises, with business scope covering aquaculture, agriculture, nutritional health product production, supply chain, packaging, as well as related investment and technology companies.
If we divide Nongfu Spring's development from its establishment to the present into three stages, then before 2000 was the period of Yangshengtang's initial capital accumulation. From 1996 to 2006, it was the era of strong channels for domestic FMCG, and it was during this period that Nongfu Spring entered thousands of households.
After 2007, it was the era of diversified operations for Nongfu Spring. At this time, Nongfu Spring's product range began to expand from single purified water to multi-category beverages. **The business scope also expanded from drinking water and health products to cosmetics, and the business scope extended to the upstream and downstream of the industry chain, involving supply chain, investment, technology development, etc.**
The brand attributes and cost attributes of the water beverage business are extremely strong. Coca-Cola's brand and cost control under scale benefits have become an industry benchmark. In China, Nongfu Spring has leveraged these two advantages to create a benchmark for domestic water beverages.
At the beginning of its establishment, Nongfu Spring built its brand moat with high-quality water sources. "Only selling natural water, only being the porter of nature" became a household brand slogan. However, from the growth data of Nongfu Spring in recent years, it is an indisputable fact that the growth of the water business has slowed down.
From the "2019 China Top 500 Private Enterprises List" previously released by the All-China Federation of Industry and Commerce, it can be found that in the past three years, Nongfu Spring's growth rate has been slowing down.
**As channel costs continue to increase, Nongfu Spring's profits are getting thinner.** iyiou learned that in the water beverage FMCG field, distributors and retailers share 60% of the retail price of bottled water as channel costs. For Nongfu Spring, as an upstream producer, the downstream channel costs are increasing. **If Nongfu Spring wants to maintain a relatively stable retail price, it urgently needs channel innovation.**
In addition, there is another consideration in the production cost. Currently, there is a "500-kilometer" empirical theory in the purified water industry, which means that if the market is within 500 kilometers from the water source, a bottle of mineral water priced at 1-2 yuan may still be profitable. However, once the transportation radius exceeds 500 kilometers, transportation costs such as fuel, tolls, and losses will rise sharply, and it is impossible to make a profit if the terminal price is below 2.5 yuan.
In China, most high-quality purified water sources are located in the northeast, northwest, and southwest regions. Nongfu Spring has eight major water sources: Qiandao Lake in Zhejiang, Changbai Mountain in Jilin, Taibai Mountain in Shaanxi, Emei Mountain in Sichuan, and other eight high-quality water source bases. Except for Qiandao Lake in Zhejiang, the other water sources are all located in remote areas.
However, the main consumers of purified water are located in the southeastern region of China. The distance between water sources and the main consumer markets requires a huge and cost-effective logistics network.
Especially for natural mineral water production enterprises, they must be bottled at the place of origin. If they need to deliver nationwide, the high logistics costs will inevitably lead to "income cannot cover expenditure." Due to brand positioning considerations, Nongfu Spring will definitely not make any changes to the water sources. To maintain the retail price of 2 yuan for many years, Nongfu Spring needs more strategies.
Therefore, in recent years, Nongfu Spring has been quite intensive in channel diversification and new product development. In addition to expanding the huge catering channel, unmanned retail, vending machines, and convenience stores are all within Nongfu Spring's layout.
In terms of new product development, Nongfu Spring has rapidly counterattacked new-style tea drinks. In 2019 alone, new products launched included plant-based yogurt, ready-to-drink coffee brand Tanbing, freshly ground coffee, and cola coffee.
**-02-**
### **Nongfu Spring's Growth Password**
In the FMCG field, the entry barrier is low, and the competitive environment is fierce. With demand growth, there are not a few enterprises that have unstable moats but still achieve good growth. **Nongfu Spring's approach is to build high walls in brand marketing, supply chain management, and channel optimization management simultaneously.**
**In terms of using informatization to optimize the supply chain, Nongfu Spring has tasted the sweetness before.** Hu Jian, CIO of Nongfu Spring, once recalled in an interview that from 2004 to 2007, Nongfu Spring's sales remained at 2 billion yuan, with extremely slow growth. However, since 2008, Nongfu Spring has grown at a rate of 30%-50% per year.
The growth password behind this comes from the online mobile informatization system. According to Hu Jian, when Nongfu Spring's mobile informatization system was first launched, 3G had not yet been popularized, so SMS was used initially, and the data received was mainly text.
With the continuous development of 3G technology, Nongfu Spring continuously iterated its mobile business solutions. The headquarters can grasp in a timely manner the sales volume, geographical location, inventory status, and even competitor sales information of each store.
**At the same time, to support product and channel expansion, in supply chain management, Nongfu Spring introduced the JDA supply chain planning system as early as 2011, which was rarely used by domestic private enterprises at that time, to manage business informatization such as demand forecasting, collaborative planning, master production planning, and replenishment planning.**
After using network planning tools, Nongfu Spring reduced urban warehouses, further improving warehousing and distribution efficiency. The traditional model of reporting 1+3 month sales forecasts from offices across the country was changed to having the production management department make statistical forecasts based on historical data, with offices making adjustments, and using the adjusted 12-month consensus forecast to drive supply chain planning.
The application of informatization has brought actual efficiency improvements to Nongfu Spring, but it has also brought difficulties in commercial competition.
In the aforementioned article, iyiou divided Nongfu Spring's development into three periods. In the first development period, like most FMCG enterprises, Nongfu Spring's business focus was on seizing distributor warehouses and funds, and developing new channels including catering, hotels, and e-commerce to achieve high-speed growth. At this time, Nongfu Spring harvested the first wave of dividends in the era of TV media advertising with the slogan "A Little Sweet."
After entering the second stage, Nongfu Spring grew rapidly, with market share increasing from 19.63% in 2000 to 27.65% in 2013, second only to Master Kong, with Wahaha and C'estbon ranking behind. At this time, competition in the water industry further intensified, and Nongfu Spring successively encountered the "standard gate incident" and a war of words with C'estbon.
Zhong Shanshan once admitted in a university lecture that after the public relations war of words, Nongfu Spring was "bruised all over." After experiencing rapid development from 2010 to 2012, Nongfu Spring's revenue growth began to slow down from 2013.
In 2014, Nongfu Spring entered a defensive stage, with revenue growth of only 0.3%. In a situation where the overall economy was growing strongly, no growth was equivalent to regression.
It was also in this year that Nongfu Spring carried out a drastic reform from the marketing end to the distributor system. From public information, in this year, Nongfu Spring aired a micro-documentary of about three minutes on CCTV's Focus Report (which would be called a short video in today's terms), telling the story of how Nongfu Spring spent twelve years searching for water sources and building factories in Changbai Mountain. This was also the first time Nongfu Spring attempted to convey its brand story in a serious program.
On the channel side, Nongfu Spring's reform was even more radical, once proposing the slogan "Red Movement China" to reform the distributor system. Before this, the traditional distributor system mainly relied on the operation model of "channel sinking, market cultivation, and expanding sales teams." In this reform, Nongfu Spring began to focus on the big and let go of the small, streamlining customers.
The distributor system was streamlined into three major systems: special appointment, regional contract, and traditional distributors. This model, which is more closely integrated with the distribution channel, allows distributors to maximize their capabilities.
According to Nielsen survey data over the years, during 2013-2015, the competition between C'estbon and Nongfu Spring was very close, with both sides competing in market share. However, since 2016, Nongfu Spring's market share has consistently ranked first in China. In March 2017, Nongfu Spring's market share led C'estbon by two percentage points.
**-03-**
### **Self-Built Supply Chain and Retail Channels, Strong Control of Goods**
Fast forward to 2020, the news that Nongfu Spring is about to go public spread throughout the FMCG circle. Based on Tianyancha data, iyiou found that the subsidiaries newly established by Nongfu Spring in recent years cover the entire industry chain, from agricultural farming to cosmetics research and development, supply chain, and smart living. Industrial and commercial information shows that in 2019, Nongfu Spring invested 50 million yuan to establish a supply chain technology company in Shanghai.
From the latest recruitment positions released by Nongfu Spring, its subsidiary Rainbow Fish Technology focuses on the informatization industry, with about 221 pure IT personnel in 2019. According to the introduction, the company is committed to driving enterprise growth with technology, with business scope involving unmanned retail, innovation of blockchain technology in traditional fields, business middle platform system construction, intelligent manufacturing, big data architecture, devops platform, etc.
From the retail terminal perspective, Nongfu Spring has been particularly radical in channel reform. Last year, it successively placed freshly ground coffee machines in Wumart convenience stores, Wumart supermarkets, and other Wumart retail stores, indicating its entry into the ready-to-drink coffee track.
But in fact, as early as 2015, Nongfu Spring attempted to enter the vending machine field. At that time, the concept of unmanned retail was surging, attracting FMCG giants such as Wahaha and Uni-President to continuously increase investment in vending machines, but only Nongfu Spring survived among the unmanned retail projects.
In 2018, Nongfu Spring moved vending machines to underground parking lots of residential communities. Relying on the nationwide distributor ground promotion army, Nongfu Spring occupied the underground parking lots of multiple communities in Beijing, Tianjin, Wuhan, and other places in just half a year.
After entering 2019, Nongfu Spring's new retail plan began to accelerate, upgrading the "underground parking lot vending machines" to "Nongfu Spring Sesame Stores." Each machine is paid 3,000 yuan per year by Nongfu Spring (including site rent and electricity fees), and Nongfu Spring itself operates and maintains the vending machines. According to reports from the self-media New Distribution, in 2019, Nongfu Spring laid out more than 30,000 Sesame stores nationwide.
Currently, Nongfu Spring has signed contracts with community property management across the country, rapidly seizing communities. By intercepting consumer traffic from underground garages for car owners and community residents, it further segments the target consumer group and accelerates the expansion of the vending machine business.
Currently, the products sold at Nongfu Spring Sesame stores are all its own products, mainly including Nongfu Spring drinking natural water, Nongfu Spring 17.5° navel oranges, Nongfu Spring 100% NFC juice, and Nongfu Spring Northeast fragrant rice. In addition, there are also products such as Nongfu Spring facial masks and instant hot water machines, and more new products will be added in the future.
It is obvious that **opening up retail channels has become an important strategic goal for Nongfu Spring in the future. There have even been rumors that Nongfu Spring is prepared to lose 200 million yuan per year for five consecutive years.**
FMCG cross-border new retail, directly connecting with consumers to obtain data, is backed by the construction of a complete retail digital system and the upgrade of security technology. Correspondingly, it is a heavy investment, a huge project that is long-term and cannot see results in the short term. Nongfu Spring, which had long been rumored to go public but had no real action, has finally come to the day of public stock issuance. Seeking the help of capital is indeed a new strategy.
**For most Chinese entrepreneurs who started from scratch, especially in the industrial sector, the attitude towards capital has always been to stay away. However, as the overall economic growth enters a stage of stock, through technological upgrading, internationalization, and retail terminal layout, a new growth curve is opened. With the help of capital, the new story of long-termism is just beginning.**
Source: iyiou.com
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