Author | Wang Xiaojuan

In today's weather is good. Today's weather is good.

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

On August 10th, Nongfu Spring's founder and chairman, Zhong Shanshan, who has always been relatively low-key, appeared on the CCTV finance and economics program "Dialogue" for the first time in 20 years, responding to this year's public opinion storms.

On the other hand, as an old rival of Nongfu Spring, there has been new progress in the IPO of Yibao's parent company, China Resources Beverage.

Capital market insiders revealed that China Resources Beverage has recently received approval from the Hong Kong Stock Exchange for its IPO, with a maximum fundraising amount of 1 billion US dollars, and is expected to go public in late August.

Previously, these two companies, ranked first and second in China's bottled water market, had already engaged in a fierce price war.

In April, Nongfu Spring launched a new green bottled pure water. When sold by the case, the average price per bottle was less than 70 cents, while Yibao'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 bottled water market in the past 20 years, after each round of price wars, the industry's seating arrangement was reshuffled. From Wahaha and Kangshifu to Nongfu Spring, players sitting at the top of the bottled water industry have been constantly changing, and the number of losers is countless.

Today, China Resources Beverage, which relies more on bottled water, is about to go public. With the help of capital, can it successfully rise to the top? Perhaps the new pattern of the bottled water market will gradually take shape with this new round of ranking competition.

Big Brother.

When it comes to China Resources Beverage, perhaps many people are still unfamiliar. But when it comes to its flagship product, Yibao, everyone is very familiar with it.

China Resources Beverage is the parent company of Yibao, and 90% of the company's revenue comes from bottled drinking water, including Yibao.

According to the prospectus, China Resources Beverage's revenue in 2021, 2022, and 2023 was RMB 11.34 billion, 12.623 billion, and 13.515 billion respectively, of which nearly 90% of revenue came from the bottled water business.

Last year, Yibao sold 1.46 million bottles, with sales reaching 39.5 billion yuan. It can be said that Yibao single-handedly supported China Resources Beverage's tens of billions of revenue.

If we count it carefully, China Resources 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 China Resources Beverage, Shekou Longhuan, was established. At that time, Zhong Shanshan had not yet started his own business and was a reporter for Zhejiang Daily. At the time, there were still three years before Zong Qinghou founded Wahaha.

By 1990, Shekou Longhuan began to enter the bottled pure water market, and the brand name launched at that time was "Yibao", which became China's first enterprise specializing in packaging drinking water.

In the following years, Yibao followed the company and changed hands several times, first controlled by Vanke, and then brought under China Resources.

After entering China Resources, the Yibao brand was not abandoned. Even the logo and green theme color were retained, but the bottle design changed to become the Yibao we know today.

In the more than 20 years since then, China Resources Beverage has, along with Yibao and Nongfu Spring, expanded the bottled water market share, and has engaged in several rounds of "water wars".

In recent years, the market pattern for drinking water has been relatively stable. Nongfu Spring is the industry leader, China Resources Beverage is second, and together they account for more than 40% of the total market share.

Previously, Nongfu Spring was engaged in the business of transporting natural water, while CR Beverage focused on the purified water track. The two did not interfere with each other, each made money, and both maintained relatively strong earning capabilities. On the product structure, the operating income of products with a value of 10-30 billion yuan was 401/1288/60 million yuan respectively.

Packaged drinking water has always been higher in profit margin than baijiu. In the past three years, CR Beverage's gross profits were 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 not considered low among various companies.

For CR Beverage itself, the timing of its IPO was when all its dimensions performed well. With more than 13 billion yuan in revenue, more than 40% gross profit margin, and cooperation with more than 1,000 dealers and more than 2 million retail outlets nationwide.

From the perspective of the basic market, CR Beverage's 18th IPO seems to be no problem. But the direction of the market has changed this year.

War was ignited.

Before the price war this year, the bottled water market had not seen such a big wave for a long time.

The reason why it can remain calm for a long time is that with the relatively stable market pattern after multiple rounds of competition, the market has become increasingly concentrated towards the head. The top two shares, Nongfu Spring and CR Beverage, have always been ‘nothing wrong with the well water does not interfere with river water.’

This year, Nongfu Spring launched green packaged purified water and entered the territory of Yibao, which also has green packaging.

New entrants always try to mix up the market and then find their own position. After Nongfu Spring's green bottled water was listed, the price war began with large-scale distribution in May.

The price war is mainly reflected in combination packaging.

Nongfu Spring's 550ml green bottled purified water in a pack of 12 is sold at 9.9 yuan in many convenience stores, and even some supermarkets can do it for 8.9 yuan. On some online platforms, with the addition of coupons, the price can even be less than 8 yuan, which is only 0.66 yuan per unit price.

Under the relentless pressure from Nongfu Spring, many bottled water companies have made some concessions in terms of price.

In Beijing, Xioang supermarket sells various pure water from various brands, with 555ml Yibao pure water in a pack of 12 sold at 10.9 yuan and 596ml Wahaha pure water sold at 11.9 yuan. Compared with the previous 13.9 yuan, there is a decrease.

Even convenience stores, which rarely have discount activities on 2 yuan bottled water, have the words 'second one 1 yuan' on Nongfu Spring's green bottled water.

The competition in the market is always simple. The essence of the price war is the competition of products.

Galaxy Securities analyst Liu Guangyi pointed out that Nongfu Spring actively laid out the sinking market and the development opportunities of other categories, cultivated new products through cost investment to achieve expansion, and then triggered a new round of competition with the loosening of the competitive pattern. The public opinion event in early 2024 is just a catalyst.

With the listing of Nongfu Spring, Zhong Shanshan has always been the richest man in China. Last year, Nongfu Spring achieved operating income of 42.667 billion yuan, with a gross profit of about 25.407 billion yuan, a gross profit margin of nearly 60%, and a net profit of up to 12.079 billion yuan.

All of the above achievements are several times that of CR Beverage. This is also because Nongfu Spring has made good breakthroughs in product diversification, including products such as Dongfang Shuye, which have contributed huge revenue. Only Dongfang Shuye had a revenue of 12.66 billion yuan last year.

To be fair, CR Beverage has been supported by Yibao all the time. Although the revenue brought by beverages such as chrysanthemum tea has also increased synchronously, the proportion is less than 10% and there is no super product like Dongfang Shuye.

This also makes Nongfu Spring's green bottled purified water launch and the subsequent price war have a significant impact on CR Beverage.

Some institutional insiders believe that Nongfu Spring stock price has fallen by more than 32% so far this year, which has to some extent affected investors' expectations for the beverage market. Coupled with the escalating price war, investors also need to fully consider the profit situation of the players in the market, which will also affect the valuation of CR Beverage to some extent.

Currently, CR 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 in order to break away from the current intense competition.

The good news is that many brands are gradually withdrawing from the purified water market. If they can seize this round of competition opportunities, market share can be further gathered to head players like CR Beverage. For example, Coca-Cola said at the earnings conference that the priority of packaging water will be reduced, and Nongfu Spring Water has also been removed from online platforms.

For CR Beverage, this listing is obviously a more difficult start. They need to stock up on ammunition for the upcoming competition.

CR Beverage stated that the funds raised from the listing will be used for strategic expansion and optimization of production capacity, accelerating the expansion of sales channels and improving channel efficiency, and more.

With CR Beverage’s listing imminent, the bottled water market will also usher in more fierce business wars.