In September 2019, Yili launched a mineral water project in Antu County, while Nongfu Spring was preparing to introduce a plant-based yogurt. As early as the era of Coca-Cola's Goizueta, it was defined that competition in beverages is not just within the same category, but for the share of consumers' stomachs. By 2019, Yili's liquid milk had achieved a market penetration of nearly 84% and a market share of nearly 37%; Nongfu Spring held a 26.4% market share in bottled water. Although both are leaders in their respective fields, Yili has Mengniu close behind, and Nongfu Spring has C'estbon (Yibao) close behind, both within reach, and any misstep could cost them their position. This is like playing Monopoly: once you join, you can't stop; you either win or get eliminated. Accumulating advantages in just one area doesn't increase your chances of winning. Only by developing new territories and creating a chain reaction can you seize real opportunities. This is what we care most about: In already saturated fields, they are stepping into each other's territory. Can they really find gaps in each other's home turf and leverage new market share?
-01-
Foundations
After decades of refinement, the two companies are almost on par in terms of internal management, brand building, and product R&D capabilities. Especially in channel construction, both have networks that reach the capillary level. So beyond that, whether Yili's advantages can empower their bottled water venture, and whether Nongfu Spring's advantages can empower their plant-based yogurt venture, is the focus of our discussion. 1. Packaging Advantages of Yili and Nongfu Yili's packaging advantage lies in bargaining power over packaging materials. When Mengniu and Yili became top 10 dairy companies globally, it meant that resources for their main packaging material, Tetra Pak, were tilted in their favor. In a sense, for any product using Tetra Pak packaging, Mengniu and Yili can influence the output of other products through their leverage in packaging materials. Think about why Wanglaoji's green box paper packaging never sells well during the Spring Festival; you might understand. So when Nongfu Spring makes yogurt packaging, they will definitely avoid Tetra Pak. Nongfu Spring's packaging advantage is their accurate understanding of packaging design. From their early products, like the water bottle with a suction spout, we can see Nongfu's deep understanding of packaging. To stand out in the beverage industry, packaging appeal is the first core. To stand out, there are usually three methods:
1) Different packaging forms;
2) Different visual designs;
3) Different packaging materials. Starting with Nongfu's Oriental Leaf, Nongfu used cultural elements in packaging, which at the time was more avant-garde than the "national trend" (guochao), but it was a bit ahead of the national aesthetic then. Later, the packaging of baby water caused a wave in the market. What was impressive was not just Nongfu's deeper insight into consumer needs, but their ability to express that insight through packaging. When everyone thought the water market should move upscale, Nongfu Spring obtained the designation as G20 designated water. The striking glass bottle instantly outshone all previous designated water images. Later, some complained that this product didn't sell well, but you know, Nongfu never intended to sell it well. At the moment the packaging debuted at G20, their high-end brand image was established; sales didn't matter. Nongfu Spring's understanding of packaging is their greatest accumulated advantage. 2. Brand Advantages of Yili and Nongfu Yili's brand advantage is the richness of brand resources. Milk is a category where consumers desperately need a sense of security, so "trust certificates" are the foundation of marketing in the dairy industry. This foundation brings the brand stories consumers see: organic pastures, New Zealand milk sources, Jersey cows, traceability technology, and even cow ownership rights... Nongfu Spring's brand advantage is knowing how to communicate with consumers. From "Nongfu Spring is a little sweet" to "We don't produce water; we are just nature's porters," they have been doing a strategic-level thing: redefining standards. To become the industry leader is not about "emphasizing being number one" as positioning theory suggests, but about giving everyone a reason why you are number one. This is what Nongfu Spring excels at, and it's something we can't learn. You see, both companies spend over ten billion yuan annually on advertising, but what Yili spends builds consumer recognition of the brand, increasing trust, while Nongfu Spring's spending builds consumer empathy with the brand, which is a completely different outcome. Moreover, Yili's packaging advantages largely cannot be transferred to bottled water, but using packaging strategies to cleverly avoid other yogurt categories is exactly what Nongfu Spring does best. So, the marketing-savvy Nongfu has a higher probability of success in plant-based yogurt than Yili does in water.
-02-
Differences Between Water and Milk
Nongfu Spring's marketing prowess does not mean Yili's marketing is poor. To determine who has a higher chance of success, we must look at the specific industry and category. The biggest difference between water and milk is that water has limited space to enhance perceived value compared to milk. We said earlier that the core of FMCG is marketing. So what is easy to market? Of course, products with high perceived value and large value space. We can categorize water's value space into three types: 1) The functionality of water itself, such as minerals, pH level, and safety of distilled water; 2) The added value of water, such as its origin; 3) The taste of water, such as sparkling water or floral combinations. Clearly, C'estbon, Coca-Cola, and Nongfu Spring dominate the affordable water segment (around 2 yuan), so there's no room for Yili. Thus, Yili can only enter from the high-end water segment. But look at the value space of water; almost all aspects are occupied or explored by other brands. From a consumer perspective, it's hard to come up with novel product concepts to attract attention. Moreover, consumers' demand for high-end water is not a rigid need. I might occasionally try Evian or Perrier for the experience, but in daily consumption, consumers will likely return to affordable products like Nongfu Spring. But milk is different; its value space is vast: 1) Milk is highly inclusive, a category that can perfectly pair with many elements in taste and flavor. 2) Milk has diverse forms, which can create more space in packaging forms. For example, Mengniu's acquisition of Miaokelan cheese sticks shows that the dairy market is moving towards higher-end categories through form. Additionally, after a dairy industry incident, consumers' desire to buy better milk has become a daily need. From a category comparison, milk has more advantages than water.
-03-
Real Opportunities
The two companies' forays into each other's fields are far from a "showdown." An investment of nearly 800 million yuan in bottled water is trivial for Yili, which had revenue of nearly 90 billion yuan in 2019; even a small category like milk tablets can bring in nearly 700 million yuan in revenue. Nongfu Spring chose plant-based yogurt over cow's milk yogurt partly because it doesn't require large-scale investment in upstream supply chains, and partly because the raw material cost of plant-based yogurt is 30%–50% lower than cow's milk yogurt. So for both, these investments are exploratory and strategic. But in terms of category development, plant-based yogurt has much more opportunity than water. 1. The Trend of Plant-Based Yogurt Let's look at a statistic: Innova Market Insights data shows that global demand for plant-based foods grew by 62% between 2013 and 2017. In fact, plant-based foods based on soy protein, including plant-based meat, have quietly begun exponential growth globally. Behind this data is the fact that animal protein sources like meat and dairy require large-scale farming, consuming significant energy. Plant protein can solve this fundamental problem. Soy protein, with a protein content of up to 38%, can perfectly replace most animal proteins and meet human needs. So the trend and development of plant-based foods indicate that the plant-based yogurt market will be a blue ocean. 2. Nongfu Spring's Opportunity Although the prospects for plant-based yogurt are promising, trends do not equal real product opportunities. I cannot predict what selling points Nongfu Spring will emphasize for its plant-based yogurt, but at least among the proven hit strategies in other food industries, Nongfu's plant-based yogurt can achieve at least four "mores":
1) More extreme taste;
2) Higher quality;
3) Healthier concept;
4) More novel functions. Nongfu Spring can transfer its core marketing capability of "redefining standards" here, and with first-mover advantage, redefine new standards for plant-based yogurt that differ from animal-based yogurt. In contrast, Yili's bottled water venture can only seek breakthroughs in the high-end water market. There is no new trend, no first-mover advantage, and it's hard to find new entry points in the four dimensions of hit products. The cost of redefining standards and educating the market will be very high. This is why Nongfu's opportunity in plant-based yogurt is much greater than Yili's in water. If your tip is adopted, you will be paid 400-2000 yuan.