"China will definitely give birth to its own luxury brands." A few years ago, many investors said similar things. This represents a sentiment: most investors and consumer brands believed in the logic of consumption upgrading. Guided by this belief, most consumer goods followed a premiumization route. Even bottled water almost entirely entered the 2-yuan era, and the once-ubiquitous 1-yuan water nearly disappeared. But recently, the vanished 1-yuan water has returned. After promotions in supermarkets, Jingtian, C'estbon, and Nongfu Spring's green bottle are all priced around 1 yuan. The return of bottled water to the 1-yuan era signals a change in industry logic, as consumption falls into the quagmire of low-price competition. This article holds the following views:

  1. Nongfu Spring's unexpected market share decline is the trigger. Affected by public opinion and competitor offensives, Nongfu Spring's natural water share in the entire bottled water market fell from 39.7% in Q1 to 25%-27%. To recover share, Nongfu Spring launched a price war, and other brands followed.
  2. More and more "barbarians at the gate" are entering bottled water. After consumer companies' main businesses hit growth bottlenecks, water, as a high-margin, long-lifecycle category, has been targeted by multiple consumer giants, increasing the number of brands. But the pie is limited, and with consumption declining, this has also contributed to the return of 1-yuan water.
  3. The consumer industry has entered the quagmire of low-price competition. With a weak consumption environment, Pinduoduo and Mixue Bingcheng have proven that value for money wins the market. The entire consumer industry is forced into low-price competition. Apart from bottled water, most consumer goods such as dairy, health products, and edible oil also face price reductions.

Bottled Water Returns to the 1-Yuan Era Two years ago, "Who Killed 1-Yuan Water?" went viral on social media. At that time, among the top six manufacturers by market share, only Binglu maintained a retail price of 1 yuan per bottle. For other brands, 1-yuan water was hard to find. The main factors killing 1-yuan water were a series of supply-side changes. Packaging is the largest cost for bottled water, accounting for 60%. In the first few months of 2022, the price of PET, the raw material for plastic bottles, increased by 30%-40% compared to 2021. With costs rising so much, brands focused on pricing, launching higher-priced mineral waters, emphasizing selling points like water source and purity, hoping for consumer upgrading. But now, it seems bottled water miscalculated. Less than two years after leaving the 1-yuan era, prices have collectively dropped back. According to reports from the self-media "Daily People," in offline supermarkets, a pack of 12 bottles of 560ml Jingtian drinking natural spring water is priced at 10.8 yuan for members, equivalent to 0.9 yuan per bottle. A pack of 12 bottles of 555ml C'estbon purified water is 10.5 yuan, equivalent to 0.83 yuan per bottle. A pack of 12 bottles of 550ml Nongfu Spring drinking natural water is only 11.9 yuan, equivalent to 0.99 yuan per bottle. A pack of 12 bottles of 550ml Nongfu Spring drinking purified water even sells for 9.9 yuan, equivalent to 0.83 yuan per bottle. Online bottled water has also basically returned to the 1-yuan era. In Nongfu Spring's official flagship store, two packs totaling 24 bottles of 550ml purified water cost only 21.65 yuan, with a single bottle price of 1.1 yuan. Nongfu Spring customer service stated that they have not received any notice of when the promotion will end. In other words, in the coming period, an average price of around 1 yuan may become the norm for the brand's bottled purified water. The return to the 1-yuan era is also reflected in the performance of listed companies. In the first half of the year, Nongfu Spring's gross margin rarely declined by 1.4 percentage points. The company stated that the main influencing factor was the promotional launch of purified water. Why has the bottled drinking water market, which just two years ago was loudly entering the 2-yuan era, collectively and quietly returned to the 1-yuan era?

A Battle for Market Share In Q2, Nongfu Spring founder Zhong Shanshan internally demanded that the entire packaged water department make a "military pledge": "If we cannot win back market share through the red-bottle natural water and the newly launched green-bottle purified water, the entire packaged water department will be dismissed." This military pledge is the trigger for the return of bottled water to the 1-yuan era. The background of the pledge is that, affected by Q1 public opinion and competitor offensives, Nongfu Spring's most critical basic business, "red-bottle natural water," saw its market share decline. According to Huxiu reports, in early January, Nongfu Spring's red-bottle natural water held a share of over 39.7% in the entire bottled water market. During the peak of Q1, its share once exceeded 50%. But by mid-March, the share (mainly red-bottle natural water) had dropped to the 25%-27% range. Therefore, Nongfu Spring proactively launched a price war. To recover lost share, the price of Nongfu Spring drinking purified water (green label) 550ml12 pack once reached 8.9 yuan, equivalent to about 0.74 yuan per bottle. Other brands had to respond to defend their share. Wahaha purified water 596ml12 pack is only 11.99 yuan, equivalent to less than 1 yuan per bottle; even Baishuishan, usually retailing at 3 yuan, has reduced its price to 1.8 yuan. Nongfu Spring's unexpected loss of share only accelerated the return of 1-yuan water. In the long run, changes in the competitive landscape also make the return of 1-yuan water an inevitable trend. In the past year or two, new bottled drinking water brands have emerged one after another. Traditional consumer companies like Mixue Bingcheng, Tsingtao Beer, and Genki Forest have successively launched purified water and mineral water new products. Cross-industry players like East Buy and Pangdonglai have also launched bottled mineral water products, and even "soy sauce leader" Haitian has entered the field. It's not hard to understand why so many players are doing "water": after almost all consumer companies' main businesses hit growth bottlenecks, water is the best new business. Selling water is a great business: strong rigid demand, almost infinite lifecycle, and ultra-high gross margin cost structure. Take gross margin: Nongfu Spring's gross margin is around 60%, beating most consumer companies. But the pie is limited, and with so many companies entering in the short term, especially during a consumption downturn, the outbreak of a "price war" is only a matter of time.

Consumption Falls into the Quagmire of Low-Price Competition Changes in the consumption environment often have a more decisive impact on corporate development. Over the past 20 years, the thriving consumption environment provided consumer companies with space for volume and price increases through consumption upgrading, and premiumization became the biggest development dividend, with the liquor industry being a representative case. But now, a weak consumption environment is occurring. With declining resident income growth, since the second half of 2023, China's CPI has seen negative growth or slight year-on-year increases for several consecutive months, indicating a decline in residents' purchasing power to some extent. Relevant survey reports also reflect weak consumer spending. According to the "2024 Interesting Lifestyle Report," this year, among the main factors consumers consider when purchasing food and beverages, price ranks second at 49.1%, second only to ingredient health (such as sugar control and salt reduction). The consumption downturn has also profoundly changed corporate development logic. Companies pursuing differentiation and consumption upgrading are not performing well, such as Naixue and Feihe, whose revenue and profits have declined or stagnated. Value for money has almost become the only growth path for consumer companies in the past two years. Typical examples include Pinduoduo, Mixue Bingcheng, and Luckin Coffee, which have achieved counter-trend growth in a weak consumption environment due to their strong value-for-money labels. Even bulk consumption is no exception. BYD, with its "increased features and reduced prices" killer move, is approaching the annual sales target of 3 million vehicles, leaving NIO, Xpeng, and Li Auto further behind. The logic is clear: high-end only wins vanity, but value for money wins growth. The entire consumer industry is forced into the quagmire of low-price competition. This is the underlying logic for the return of bottled water to the 1-yuan era. In fact, apart from bottled water, most consumer goods such as dairy, health products, and edible oil also face price reductions. A typical example is Yihai Kerry, which has rigid demand attributes. Affected by weak consumption, competition, and falling upstream raw material prices, product prices have declined. In the first half of the year, Yihai Kerry's price per ton fell 10.6% year-on-year. Undoubtedly, low prices are not the only logic for corporate development, but given the environment, consumer companies need to survive first through homogeneous low-price competition.