The mediocre bottled water has stirred up waves of wealth creation.
In a program, Zong Qinghou, the founder of Wahaha, and Cao Dewang, the founder of Fuyao, had a very explosive dialogue. Zong Qinghou on the stage said that mineral water is not profitable and does not make money at all. Cao Dewang, who was in the audience, said, "It's an empty-handed wolf to make mineral water. If you want to make a profit, the only cost is the bottle." Zong Qinghou smiled helplessly.
Zong Qinghou and Zhong Suisui, the founder of Nongfu Spring, are the two richest men who have the most say in whether water makes money or not. In 2012, Zong Qinghou once again became the richest man in mainland China by selling water, overpowering a large number of Internet tycoons. Ten years later, on last year's Forbes Rich List in Mainland China, Zhong Suisui continued to top the list with a wealth value of US$62.3 billion, followed by Zhang Yiming of Byte and Zeng Yuqun of Ningde era.
A new generation replaced the old ones, the richest man changed again and again, and in the end it was still from the water market. And in this fertile land for nuggets, Nongfu Spring’s market share has already surpassed that of its “predecessor” Wahaha.
The situation of being left behind made Wawaha feel more crisis. At the Wahaha Group’s 2023 National Distributor Conference not long ago, Zong Qinghou said, “From now on, it is necessary to distribute the goods in an all-round way, and distribute the goods according to the principle of small quantity and wide coverage. Actively mobilize customers who originally sold pure water to sell soda water, Oxygen World and other 3 yuan water", bluntly said to "restore the water market".
It seems that this year Wahaha wants to make a comeback in the water market.
However, the market has long since changed. On the one hand, the role of brands in promoting competition has begun to outweigh that of channels. In addition, rookies and veterans have started a melee: Jinmailang recently announced that he will launch high-end bottled water, Yuanqi Forest has hatched the first new natural water product, and Michelle Ice City has launched "Snow King Loves Drinking Water" bottled water..... .The hand-to-hand combat on the track became more intense.
How can those veterans who have fallen behind make a comeback? How should the novices who entered the game race to break through?
High frequency and high profit: the gold nuggets of bottled water
Zong Qinghou once said that the beverage industry is not outdated and will always be a sunrise industry.
When entering a cycle of uncertainty, many industries will fluctuate with the ups and downs of the economy, but the beverage industry is almost inelastic due to its strong rigid demand characteristics, and relatively large fluctuations rarely occur.
In the beverage industry, water is a product with a high demand and a high repurchase rate. The bottled water industry is regarded as a "sun never sets" industry that is "always in demand". Between 2007 and 2017, consumption of bottled water increased by 92%, while consumption of all soft drinks increased by only 24% during the same period.
More importantly, bottled water not only has high demand, but also has strong profitability. The financial report of the head player Nongfu Spring in the first half of 2022 shows that its gross profit margin is as high as 59%, which is almost inferior to alcohol in the food and beverage industry.
It is not only high-frequency rigid demand, but also strong profit, which has given birth to a huge water market. According to data from the China Research Industry Research Institute, the scale of my country's bottled water market has reached 234.9 billion yuan in 2021, and is expected to exceed 300 billion yuan in 2025. According to market research firm Zenith Global, bottled water will become the largest category in the beverage sector, displacing all other soft drinks globally.
Driven by the huge market space, Wahaha proposed to restore the water market as expected.
In this gold-digging field, Wahaha used to be the unshakable king, but now it is constantly overtaken by latecomers. According to data from Euromonitor International, from 2017 to 2022, if the market share of bottled water is ranked according to sales volume, the top five are Nongfu Spring (12.2%), Yibao (8.3%), Jingtian (5.3%), and Master Kong (3.2%). %), Wahaha (2.2%).
Judging from the trend of market share, Nongfu Spring and Jingtian are all growing, while C’estbon, Master Kong, and Wahaha are all declining. Among them, Wahaha's decline is relatively large. It is no wonder that Zong Qinghou called for the restoration of the water market.
How to restore the water market? As far as specific product actions are concerned, Wahaha has shifted its focus from relatively cheap purified water to soda water and oxygen world with a price of 3 yuan, and is attacking high-end products.
High-end is not only a common phenomenon in the industry, but also an important way for Wahaha to turn around.
Although the bottled water industry itself is divided into three categories: mineral water, natural water and purified water, most consumers are divided according to price. Ries Consulting said in the report that the pattern of China's bottled water consumption market is evolving from a pyramid to a spindle. To put it bluntly, it turns out that the entire bottled water is pyramid-shaped, and the market for 1 yuan water is the largest, and the market decreases as the price increases. In the future, 1 yuan water will gradually shrink, 2 yuan water and 3 yuan water will become the largest market in the middle, and 4 yuan water is still in its infancy.
In fact, from the intuitive experience of our consumers, we can also find that bottled water at 1 yuan was still the mainstream ten years ago, but now it is generally 2 yuan or 3 yuan. The price of bottled water of high-end brands such as Baisui Mountain and Kunlun Mountain began to drop from 4 to 10 yuan per bottle, and the spindle-shaped industry structure gradually emerged. Judging from the overall market situation, there are already brands such as Wahaha, Nongfu Spring, Yuanqi Forest, and Baisui Mountain in the "3 Yuan Water" melee.
Why is there such an evolution in the industry landscape?
The first is the cost reason.
From the perspective of production, various costs are now rising. If you continue to maintain the low price of 1 yuan water, the profit margin will be continuously compressed, and it will be difficult to maintain it. According to the prospectus of Nongfu Spring, it can be found that the sales cost of bottled water is mainly composed of raw materials and packaging materials, of which raw materials account for the largest proportion. In the cost of raw materials, it is mainly the PET cost of producing the bottle body. In 2021, the cost of PET will be 30%-40% higher than that of the previous year.
The ever-increasing costs have pushed bottled water manufacturers to high-end, tapping more profit margins and growth engines. Dongxing Securities pointed out that with high pricing, the gross profit margin of high-end bottled water is six to seven times that of ordinary bottled water.
The second is the rise of the wave of consumption upgrading.
In recent years, the wave of consumption upgrades has already flocked to many consumer fields. Now some bottled water consumers are very concerned about the concept of health such as "pure natural" or the delicacy of the outer packaging, and some low-priced purified water is no longer accepted by them. This means that bottled water manufacturers must introduce new functions through high-end to meet consumer needs in the wave of upgrades and prevent them from being abandoned by consumers.
For Wahaha, it has fallen behind in the bottled water market. Going to high prices is not only following the trend, but also looking for new market space.
The Secret Key to Premiumization: Brand or Channel?
Although the high-priced mountain has a pleasant scenery, it is not so easy to attack.
Although high-priced bottled water has high gross profit, the profit per bottle is still relatively low. To obtain greater profit margins, we have to rely on economies of scale.
To generate economies of scale, there are two paths. The first is channel first, which is to spread the channels as much as possible so that the products can cover more areas and form a large scale. At this time, the marginal benefit increases, the marginal cost decreases, and the speed of making money will become faster and faster.
The second brand comes first. Through the brand strategy, firstly develop the popularity and popularity value, continuously attract new consumers, and further stabilize the flow through the channel network. This strategy can truly turn short-lived explosives into sustainable ones.
Which path did Wahaha take? Its official statement is "comprehensive distribution of goods, and distribution of goods according to the principle of small quantity and wide area". It is reported that Wahaha plans to launch another 22,000 freezers in 2023, further expanding the channel scale.
That is to say, this year Wahaha is trying to use the channel-first strategy to start the "turnaround" of the water. In fact, channels have always been Wahaha's advantage. Previously, the "Joint Sales Organization" it created weaved a super network covering nearly 10,000 dealers, hundreds of thousands of wholesalers, and millions of sales terminals, densely connecting all regions of the country.
But does channel really work in the world of high-priced bottled water?
Nongfu Spring's past combat experience told the outside world that it might not work. In 2015, Nongfu Spring launched three high-end aquatic products in its huge channel network, including glass bottled high-end water, baby water and student high-end water, among which glass bottled high-end water sold for an astonishing 30 yuan.
However, the performance of these three high-end aquatic products was not outstanding. The core reason is that the ordinary customer group of Nongfu Spring’s own 2 yuan water is price-sensitive consumers, and it does not overlap with the target customer group of high-end water, and the channel has not been able to give full play to its advantages.
Recently, Nongfu Spring seems to have adopted another way to raise prices. In February this year, it was rumored in the industry that Nongfu Spring planned to raise the price of 19L bottled water in Hangzhou from RMB 20/barrel to RMB 22/barrel, an increase of 10%. Bottled water is one of the categories with the strongest consumer stickiness, and manufacturers have greater bargaining power. Raising prices in this category can reduce customer loss, which is a relatively safe approach.
In fact, the key to the high-end of bottled water is the brand first, the core of which is experience cognition.
When it comes to high-end, most consumers will think of Baisui Mountain, and the slogan "Hundreds of Water Noble Mountain" has been deeply rooted in the hearts of the people. Baisui Mountain is a new entry after Wahaha and Nongfu Spring, and the response was mediocre at the beginning. Later, it aimed at the gap in the mid-to-high-end bottled water market, avoided the main battlefield of homogeneous competition, and made a way to break through. Then it locked consumers' minds through the slogan "Hundred Years of Nobility in the Water", and through multiple A textured advertisement deepens the impression of consumers.
On the whole, Baisui Mountain uses culture to strengthen consumer stickiness, making them feel that the products they buy are worth their money or even more than their money. As Zhou Jingliang, the brand trader behind Baisui Mountain, said: "We sell not only water, but also culture!"
If you just increase the price instead of improving the brand tone, not only will you not make a profit, but you will also eat yourself back. Master Kong once pushed packaged water from 1 yuan to 2 yuan in 2018. As a result, in the first half of 2019, Master Kong’s packaged water revenue fell sharply by 34.79%, and its sales market share was only 5.4%. This is because in the minds of consumers, Master Kong is in the echelon of 1 yuan water. The sudden price increase is difficult for consumers to accept.
Similarly, Wahaha has been obsessed with diversification in recent years, but has blurred the positioning in consumers' minds. Moreover, most of these diversifications are based on people-friendly styles, and have not improved the high-end tonality and consumer experience of the brand. If high-priced products are launched rashly, consumers may not be able to pay the bill.
Manufacturers of bottled water should keep in mind such a law of competition:
Those below three yuan pay attention to price, and those above three yuan pay attention to experience.
Coca-Cola: The Value Model of Bottled Water
There is a maverick existence in bottled water, which is ice dew.
Others are raising prices one after another to enter the high-end market. It has not raised prices for 20 years and always sells for 1 yuan. What is even more magical is that in such fierce competition, Binglu can stand upright. Although the market share is not as high as that of Nongfu Spring, Wahaha and other brands, it can still sell billions of bottles a year, and life is considered nourishing.
This really embarrasses other bottled water manufacturers who are trying to gain a firm foothold in the high-end industry, but they are backlashing themselves. In fact, Binglu can be "anti-high-end" because it is escorted by two magic weapons.
The first is cost control. It makes mineral water instead of natural mineral water, so there is no need to spend huge costs to find mineral water sources. In addition, it uses fewer raw materials and a thinner bottle body in the production of water bottles, which compresses the bulk of the cost.
More importantly, it has a good "backer", that is, Coca-Cola.
There are not a few manufacturers of 1 yuan bottled water, and the cost is well controlled, but many of them cannot withstand the pressure of survival like ice dew, and can only go to high-end. The main reason is that Ice Dew is a bottled water brand under Coca-Cola, and its channel and brand advantages are very obvious, especially the brand has printed a natural endorsement for Ice Dew.
When Baisui Mountain and Nongfu Spring launched various high-end advertisements to deepen consumers' trust, Binglu only showed the golden signboard of Coca-Cola to achieve its goal, even if it was only a low-priced water of 1 yuan.
Thinking further, why can low-priced ice dew sell well under the brand blessing of Coca-Cola? What did Coca-Cola do right with the brand? This has value implications for bottled water manufacturers that are actively or forced to enter the high-end market.
"There is no commodity that has established such a solid position in satisfying public preferences." In his letter to shareholders in 1996, Buffett introduced his favorite investment, Coca-Cola.
Coca-Cola, as an over-100-year-old and everlasting beverage brand, has always satisfied the public's preferences on this long track. In different eras, Coca-Cola's brand image, product taste, outer packaging, bottle material and shape have always been in line with and leading the public's preferences, especially the tastes of young people.
In fact, brand strategy is the process of fighting forgetting. Coca-Cola has never been forgotten by young consumers through iterative brand strategies. Even if it does not go high-end, it can still make the lower-dimensional sub-brand Ice Dew have a strong sense of brand trust and stand firm.
This is also a lesson that Wahaha is eager to make up for. Zong Qinghou once mentioned Wahaha's problems positively, saying that Wahaha's existing packaging and taste are not suitable for market needs. "Young people's consumption concept is as long as they like it. Beautiful packaging and healthy concept will attract them to buy, but in the end it is still It depends on the quality to become our consumers. Now we have made great efforts to improve and win the favor of consumers."
Most of the new actions of bottled water manufacturers now focus on the "high-end" track, raising prices to form "high prices", and finally tap "high profits". In a short period of time, the "three highs" are a magic weapon to deal with intensified competition and industry pressure.
But in the long run, as the market balance favors consumers, manufacturers should not only consider profits, but also have to learn from Coca-Cola, the grandfather of beverage brands, and build a strong awareness in consumers' minds through brand building and iteration, in order to compete in the competition. occupy an active position. In this way, the "three highs" can really play a role, so as to deal with industry fluctuations and cross cycles.
From high price to high-end, there is still a long way to go.