There are no winners in the drinking water price war

This summer, Nongfu Spring ignited a price war in the drinking water industry, triggering a fierce market competition. This price war not only caused the price of drinking water products to drop to the "1 yuan era", but also exposed the cruel reality of competition in the drinking water industry.

This summer, a price war has erupted over drinking water.

It was Nongfu Spring that ignited the powder keg. On April 23, Nongfu Spring launched a new green bottle of pure water, entering the core product track of Wahaha and Yilibao, and rolled out the new product to offline terminals across the country within 10 days. A brutal price war followed, and even made mainstream drinking water products return to the "1 yuan era".

In the official live broadcast room of "Nongfu Spring Water Delivery to Your Home", the price of 24 bottles of 550ml Nongfu Spring purified water was as low as 20.9 yuan, an average of 0.87 yuan per bottle; in a chain supermarket in Beijing, 12 bottles of Nongfu Spring purified water of the same specification were sold for only 8.9 yuan, 0.74 yuan per bottle;

In the Yonghui Supermarket mini program, 12 bottles of Nongfu Spring purified water are priced as low as 7.92 yuan after adding coupons, with a unit price of only 0.66 yuan.

Nongfu Spring fired the starting gun, and the competition in the field became more and more inward-looking, and other drinking water brands had to follow suit. In a chain supermarket in Sichuan, the discount price of 12 bottles of 596 ml Wahaha pure water was 16.8 yuan, and the unit price was about 1.4 yuan; on the Xiaoxiang Supermarket APP, the promotional price of 12 bottles of 550 ml Jinmailang blue label packaged drinking water was 6.9 yuan, about 0.57 yuan per bottle...

"Summer is the peak season for drinking water, and every brand will have promotions, but this year the promotions are more powerful and wider in scope," an industry insider analyzed.

A drinking water price war initiated by Nongfu Spring is still going on.

Nongfu Spring new drinking pure water‍‍‍‍‍

Of course, Nongfu Spring’s price war is not without reason. This year, Nongfu Spring has been in trouble. First, the death of Wahaha founder Zong Qinghou triggered a huge public opinion debate, and then the recent "blunder" of the Hong Kong Consumer Council in water quality testing. Each controversial incident has profoundly affected the development of Nongfu Spring.

Jiuqian's data shows that due to the public opinion incident in the first half of the year, Nongfu Spring's sales in the first half of the year did not reach its sales target. After March this year, some Nongfu Spring water stations replaced the bottled water brand with Wahaha, and this has continued to this day.

In July, Macquarie Bank predicted that Nongfu Spring's sales growth will slow to 7.6% in the first half of 2024; a research report by Jefferies pointed out that Nongfu Spring's bottled water sales are expected to fall by 18% in the first half of the year.

Nongfu Spring's share price has been fluctuating downward since March, reaching its highest point of the year at HK$47.924 per share on May 3, but then continued to decline, hitting a new low of HK$32.4 per share on July 8. Its market value evaporated by nearly HK$170 billion in two months.

Amid internal and external troubles, Nongfu Spring began to "fight back", using pure water products to "anchor" the largest market segment in the domestic packaged drinking water industry. After the mainstream drinking water products stabilized in the "2 yuan era", it used price wars to compete for the market share that was already close to saturation.

Nongfu Spring's price war is not only happening on the product side. On the channel side, a convenience store operator revealed to the media that the terminal purchase price of a box (24 bottles) of Nongfu Spring's "green bottle water" is 4-5 yuan cheaper than the red bottle water, and each bottle is 0.2-0.5 yuan cheaper.

Convenience stores in some areas are even required to use Nongfu Spring freezers, which can only contain Nongfu Spring products.

The competition has been refined to the "nerve endings" of the retail channels, which also reflects the nature of competition in drinking water, namely, a consumer product field with no product threshold but rigid demand. What brands ultimately compete for is marketing volume and location density. The logic of channel being king is greater than "product being king."

Drinking water is more in demand than functional drinks and fruit juice drinks, and is hardly affected by consumption trends. Although Nongfu Spring has always claimed that "natural water contains more trace elements than purified water", the actual impact is minimal.

Even in the supply chain, Nongfu Spring owns twelve major water sources, but the water sources, mining rights and supporting logistics facilities do not constitute business barriers.

Taking Changbai Mountain in Jilin as an example, according to the "Notice of the General Office of the People's Government of Jilin Province on Issuing the Changbai Mountain Regional Mineral Water Resources Protection and Development and Utilization Plan (2021-2025)", 114 mineral water sources have been discovered in the Changbai Mountain planning area, with an annual permitted total mining volume of 110 million tons;

According to the information disclosed by the People's Government of Jingyu County, Baishan City, Jilin Province in 2022, the newly built natural mineral water production line of Nongfu Spring Jilin Changbai Mountain Co., Ltd. has an annual production capacity of 730,000 tons.

Although mineral water is a fluid mineral resource stipulated by the state, my country is not a water-scarce country, and most water sources have been commercially developed. Enterprises do not have scarcity competitiveness in terms of water sources and supporting infrastructure.

Compared with the supply chain, the competitive barrier of drinking water brands should be operational efficiency, including marketing promotion, channel layout, etc.

In terms of channels, distributors of leading drinking water brands such as Nongfu Spring, Wahaha, and Yilibao have long been spread across the country, and the number of retail terminals covered has reached millions. There is no obvious gap between the leading companies in terms of channels.

In terms of marketing, Nongfu Spring is "far ahead". From the early "natural water and pure water" dispute to the popular slogan "We don't produce water, we are just nature's porters", Nongfu Spring invests heavily in marketing every year, and at the same time fully occupies the brand mind of consumers.

According to the financial report for the first half of 2023, Nongfu Spring's sales and distribution expenses reached 4.695 billion yuan, accounting for 81% of the net profit in the same period (5.775 billion yuan).

Nongfu Spring's classic advertising slogan

At present, packaged drinking water has become a fully developed and nearly saturated market, and the market structure of "concentrated leading brands and numerous local brands" is also highly stable. Although new brands such as Oriental Selection and Pang Donglai have joined the battle, they are more to supplement their own brand product matrix and it is basically impossible for them to expand outward.

This round of price war among drinking water brands may be a response to the general trend of consumption downgrade, or it may be a short-term strategy of Nongfu Spring to quickly launch its flagship product. Nongfu Spring, which has the most drastic price cuts, may also be able to use the price war to regain some market share occupied by Wahaha, Yilibao and others.

But in the long run, the drinking water price war will not only make the industry more inward-looking, but will also fail to change the industry structure, because mature brands can basically withstand the impact of price fluctuations, and the overall market will not return to the era of ultra-low prices; it is even more impossible to determine the winner through a protracted war of attrition, because companies also need to manage capital market expectations and need sustainable development.

Nongfu Spring, which initiated the price war, does not look like a "disruptor" but more like a "troublemaker".

Author: Jiang Yue

Source public account: IT Friends