The per capita consumption of the packaged water market in China is lower than in countries such as the US and Japan, and the increase in demand for healthy water and large packaged water is expected to drive further growth in the size of the Chinese packaged water market.
The Zhitong Finance App learned that Guolian Securities released a research report saying that China's packaged water market is large and growing rapidly. CR2 has improved in recent years, and consumption scenarios are gradually diversifying. The growth in demand for healthy water and large packaged water is expected to drive further growth in the packaged water market. The industry still has great market potential, and leading companies are expected to continue to lead the growth. In the short term, increased price competition in the packaged water industry has affected the revenue growth and profit levels of leading companies. In the long run, with channel efficiency and cost leadership, leading companies are expected to seize more packaged water market share in the medium term through the launch of green water and further increase industry concentration.
The main views of Guolian Securities are as follows:
China's packaged water market is large, and CR2 has improved
Packaged water is the largest and fastest growing segment in the Chinese ready-to-drink soft drink market. The market size in 2023 was 215 billion yuan, accounting for 23.65% of soft drinks, and a 5-year revenue CAGR of 7.10%. The per capita consumption of the packaged water market in China is lower than in countries such as the US and Japan, and the increase in demand for healthy water and large packaged water is expected to drive further growth in the size of the Chinese packaged water market. Looking at the competitive pattern, the CR5 of the packaged water industry increased from 56.2% in 2019 to 58.6% in 2023. Among them, the total market share of the two leading companies, Nongfu Spring and China Resources Beverage, increased from 33.58% in 2019 to 42% in 2023, and the market concentration of the industry gradually increased.
Intensive cultivation through China Resources channels, leading farmers' costs
In 2023, Nongfu Spring and China Resources Beverage's revenue of packaged water was 20.262/12.447 billion yuan, up 10.95%/4.54% year on year respectively. Packaged water revenue accounted for 47.49%/92.10%, respectively, accounting for 7.46/2.22pct year-on-year decrease, respectively. Leaders use differentiated strategies to drive growth. On the marketing side, Nongfu Spring focuses on linking hot spots to enhance brand power, while China Resources drinks focus on consolidating the brand image with sports marketing. China Resources drinks have a higher sales cost rate than farmers. The bank judges the main reason for advertising and employee cost impact; on the channel side, Nongfu Spring dominates the market with dealers, while China Resources drinks focus on refined operation; on the cost side, farmers have a cost advantage. The cost per ton in 2019 was 685.4 yuan, while China Resources Drink's own production cost in 2023 was 1208.5 yuan.
Farmers launch green water, industry competition intensifies in the short term
The industry was affected by multiple events in 2024, and competition intensified in the short term. Farmer launched Green Water in April, and water drink brands such as Wahaha, Jingtian, and Yibao quickly followed suit. Sam, Oriental Selection, and Fat Donglai also launched cost-effective aquatic products one after another. Since the launch of Green Water, Farmer's market share has rapidly rebounded. According to JD, Nongfu Pure Aquatic Products achieved No. 1 in JD's new water drink product ranking on the 618th. According to Imaway Win Brand CT data, as of mid-October, Nongfu Spring's total sales share of red water and green water exceeded 30%, ranking first in the bottled water market. Among them, the green water market share increased from 0 to about 9% at the end of the second quarter.
The diversified beverage business is expected to become the second leading growth curve
While consolidating the dominant position of packaged water, the two major players in packaged water are gradually shifting to multiple categories to drive growth together. Nongfu Spring has launched diverse packaged water categories for different consumers. There are many innovations in product packaging design. At the same time, it has also initially formed a rapid development pattern of multiple categories. In 2023, packaged water/ready-to-drink tea/energy drinks/juice drinks accounted for 47.49%/29.67%/11.49%/8.28% of revenue, respectively. Currently, China Resources Drinks still accounts for more than 90% of packaged water revenue. Based on Yibao, the company has accelerated the beverage layout. It has become number one in the industry in the chrysanthemum tea market, gradually consolidating the “one super, many strengths” multi-category development strategy pattern.
Investment advice: I recommend Nongfu Spring, it is recommended to pay attention to Huarun Drinks (02460)
We recommend Nongfu Spring, which has a cost advantage, the market share of packaged water is expected to increase steadily, and unsweetened tea is expected to contribute to the increase. It is recommended to pay attention to China Resources Drink.
Risk warning: macroeconomic failure to meet expectations, increased industry competition, water quality safety issues, risk of speculation and actual errors
