NONGFU SPRING's biggest competitor is also going public

Author | Wang Xiaojuan

Editor | Zhou Zhiyu

The bottled water market this year is destined to be anything but calm.

On August 10th, NONGFU SPRING's founder and chairman, Zhong Shandeng, who has always been relatively low-key, appeared on the CCTV financial program "Dialogue" again after 20 years, responding to this year's public opinion storm in a rare move.

On the other hand, as a long-time rival of NONGFU SPRING, the parent company of Yi Bao, CR Beverage's IPO has made new progress.

Capital market sources revealed that CR Beverage has recently obtained approval from the Hong Kong Stock Exchange to conduct an IPO, with a maximum fundraising of $1 billion, and is expected to be officially listed in late August.

Previously, the top two bottled water companies in China, NONGFU SPRING and Yi Bao, had already engaged in a fierce price war.

In April, NONGFU SPRING launched a new green bottled pure water. During the promotion, the average price of a bottle was less than 70 cents, while Yi Bao's 550ml pure water was priced at a minimum of about 0.9 yuan per bottle, previously averaging 1.3 yuan per bottle.

Looking back at the ups and downs of the bottled water market over the past 20 years, after each round of price wars, the industry's rankings have been reshuffled. From Wahaha, Master Kong to NONGFU SPRING, players sitting in the position of "bottled water leader" have been constantly changing, with numerous eliminations.

Now, with the upcoming IPO of CR Beverage, which relies more on bottled water, and with the support of capital, can it successfully rise to the top? Perhaps with this new round of positioning matches in the bottled water market, a new landscape will gradually take shape.

Big Brother

When it comes to CR Beverage, many people may still be unfamiliar. But when it comes to its flagship product Yi Bao, everyone is probably very familiar.

CR Beverage is the parent company of Yi Bao, with 90% of the company's revenue coming from bottled drinking water, including Yi Bao.

The prospectus shows that CR Beverage's revenue in 2021, 2022, and 2023 is expected to be 11.34 billion yuan, 12.623 billion yuan, and 13.515 billion yuan respectively, with nearly 90% of the revenue coming from the bottled water business.

Last year, Yi Bao sold 1.46 million bottles, with sales reaching 39.5 billion yuan. It can be said that Yi Bao's single product has supported CR Beverage's billion-dollar revenue.

Calculating carefully, CR Beverage is the big brother of the drinking water market, as well as the predecessor of NONGFU SPRING and Wahaha.

As early as 1984, the predecessor of CR Beverage, Shekou Long Huan, was established. At that time, Zhong Shandeng had not yet started his entrepreneurial journey and was a journalist for "Zhejiang Daily"; at that time, it was still 3 years before Zong Qinghou founded Wahaha.

By 1990, Shekou Long Huan entered the bottled pure water market and launched the brand name "Yi Bao", becoming the first company in China to focus on packaged drinking water.

In the following years, Yi Bao followed the company through several changes in ownership, first controlled by Vanke, and then brought under CR's umbrella as Vanke divested its core business.

After entering CR, the Yi Bao brand was not abandoned. Even the logo and green theme colors were retained, but the bottle design changed, becoming the familiar Yi Bao we know today.

Over the next twenty years, CR Beverage, with Yi Bao, along with Wahaha and NONGFU SPRING, expanded the bottled water market and competed for market share, experiencing several "water wars" back and forth In recent years, the bottled water market has been relatively stable. NONGFU SPRING ranks first in the industry, while CR Beverage ranks second. Together, they account for over 40% of the total market share.

Previously, NONGFU SPRING focused on natural water business, while CR Beverage focused on purified water. The two did not interfere with each other, each making money and maintaining relatively strong profitability.

Packaged drinking water has always had higher profit margins than white wine. In the past three years, CR Beverage's gross profit was 4.971 billion yuan, 5.259 billion yuan, and 6.035 billion yuan respectively, with a gross profit margin of about 45%. This gross profit margin is considered high among various companies.

For CR Beverage itself, the time of planning for an IPO was when its performance in various dimensions was good. With over 13 billion in revenue, over 40% gross profit margin, and cooperation with over 1,000 distributors and over 2 million retail outlets nationwide.

From a fundamental perspective, CR Beverage's 18th IPO seems to be on track to challenge CR. However, the market direction has changed this year.

The Battle Begins

Before this year's price war, the bottled water market had not seen such turbulence for a long time.

The reason it has been able to remain calm for a long time is that after multiple rounds of competition, the market structure has become relatively stable and increasingly concentrated towards the top players. The top two, NONGFU SPRING and CR Beverage, have long been "not interfering with each other".

However, this year, NONGFU SPRING launched green-packaged purified water, directly entering the territory of CR Beverage's green-packaged Yi Bao.

New entrants always try to stir up the water and find their own position. After the launch of NONGFU SPRING's green bottled purified water, the first thing was a price war. Starting from large-scale distribution in May, the price war in the bottled water market began.

The price war mainly manifested in bundled packaging.

NONGFU SPRING's 550ml 12-bottle pack of green bottled purified water is priced at 9.9 yuan in many convenience stores, and some supermarkets can even do 8.9 yuan. On some online platforms, with additional coupons, it can even be less than 8 yuan, with a unit price of only 0.66 yuan.

Under the pressure from NONGFU SPRING, many bottled water brands have made concessions in terms of pricing.

In Beijing, the online platform XiaoXiang Supermarket sells various brands of purified water. Yi Bao's 555ml 12-bottle pack is priced at 10.9 yuan, Wahaha's 596ml 12-bottle pack is priced at 11.9 yuan, both lower than the previous 13.9 yuan and 14.9 yuan.

Even convenience stores that rarely have discounts on 2 yuan bottled water have the NONGFU SPRING green bottle labeled with "second item for 1 yuan".

Competition in the market is always straightforward. The essence of a price war is a product competition.

Galaxy Securities analyst Liu Guangyi pointed out that NONGFU SPRING actively laid out the sinking market and other category development opportunities, cultivated new products through cost investment to achieve expansion, thereby triggering a new round of loosening competition landscape, with the 2024 public opinion incident just being a catalyst.

Relying on NONGFU SPRING's IPO, Zhong Shengsheng has always maintained the position of China's richest person. Last year, NONGFU SPRING achieved operating income of 42.667 billion yuan, gross profit of approximately 25.407 billion yuan, a gross profit margin of nearly 60%, and a net profit as high as 12.079 billion yuan The above achievements are all several times that of NONGFU SPRING. Behind this, it is also because NONGFU SPRING has made good breakthroughs in product diversification, including products like Dongfang Shuye, which have contributed huge revenue. Just Dongfang Shuye alone, the revenue reached 12.66 billion yuan last year.

On the other hand, the main support for China Resources Beverage has always been C'estbon. Although the revenue from beverages such as chrysanthemum tea is also increasing, it accounts for less than 10%, still lacking a super product like Dongfang Shuye.

This has also led to NONGFU SPRING launching Green Bottle Purified Water and initiating a price war, which has had a significant impact on China Resources Beverage.

Some industry insiders believe that since the beginning of this year, NONGFU SPRING's stock price has fallen by more than 32%, to some extent affecting investors' expectations for the beverage market. Coupled with the escalating price war, investors also need to fully consider the profitability of players in the market, which will to some extent affect the valuation of China Resources Beverage.

Currently, China Resources Beverage not only needs to work hard to maintain its position in the purified water market but also needs to seek greater breakthroughs in the beverage market to break out of the current battle.

The good news is that many brands are gradually exiting the purified water market. If they can seize this round of competitive opportunities, market share can further gather towards leading players like China Resources Beverage. For example, Coca-Cola stated at the performance meeting that it would lower the priority of packaged water, and Yiqi Senlin also removed purified water from online platforms.

For China Resources Beverage, this listing is clearly a more difficult start. Ammunition must be stockpiled for the upcoming competition.

China Resources Beverage stated that the funds raised from the listing will be used for strategic expansion, optimizing production capacity, accelerating sales channel expansion, and improving channel efficiency.

With China Resources Beverage's listing approaching, the bottled water market will also face a more intense commercial battle