How Selling Water Can Make You China's Richest Person
China briefly had a new richest person last week. He wasn't at the helm of a tech giant, hadn't developed a vaccine for Covid-19, and hadn't saved the planet with an environmental innovation – quite the opposite, he founded a company most famous for selling hundreds of billions of plastic bottles of water.
Zhong Shanshan is the founder and majority-owner of Hangzhou-based Nongfu Spring, which had a sparkling IPO in Hong Kong on 9 September, seeing his net worth climb to almost $59 billion for a spell. Nongfu Spring is China's largest bottled water producer and a top-3 producer of bottled tea and juice, with profit margins more than double China's industry average at 21%.
In most cities in China, you would be hard pressed to walk into a supermarket, convenience store, mom & pop retailer or corporate office without seeing Nongfu's red labels in the chiller or shelves. That can be attributable to much of the success of Nongfu - they have incredible distribution networks which provides consumers with assurance that they'll be able find their beverages almost anywhere they are. For many Chinese, memories of contaminated and counterfeited bottled water in recent years means that they are more likely to take the safe bet with a brand they recognise. Although there are thousands of bottled water brands in China, only a small handful of those have national coverage - and as with many categories in China - consumers are more likely to trust the biggest brands for safety.
Some would argue that Nongfu doesn't quite deserve its trusted reputation. Back in 2011, the toxic chemical phenol leaked into the Xin'an River in Zhejiang in what is considered one of the worst water pollution disasters in China over the last decade. Nongfu Spring's unique selling proposition is that its water is 'natural' as opposed to filtered tap water, yet that natural source happened to be the Xin'an River. Then again in 2013, Nongfu's quality was labelled "worse than tap water," with looser criteria than the national tap water standards for a number of factors including arsenic and cadmium. Nevertheless, Nongfu Spring bottles continued to be sold everywhere, highlighting the value of effective crisis management and the often-short memories of China's hardened consumers as we've seen with the many geopolitical spats.
In addition to its near-universal China presence and 'natural' source, Nongfu Spring's success can be attributed to smart placement. Back in 2016, when many Chinese were basking in pride that a tier-2 city, Hangzhou, was hosting the G20 Leaders' Communiqué, Nongfu Spring was the official water of the summit. For less than $0.30, consumers too could be sipping the water presumed to be consumed by President Xi, Obama, Abe, Merkel, Modi, May, Putin, Trudeau and Turnbull, among others. Nongfu also read China's fledging hip hop culture trend, appealing to the lucrative youth segment, shelling out ¥120 million ($18 million) to be the title sponsor of the first season of Rap of China in 2017 while incorporating some clever integrated marketing. In addition, Nongfu jumped on China's nascent corporate social responsibility early, giving a small portion from each sale to poor areas.
Nongfu has delivered on basic China trends that other FMCG brands have missed. It recognised that some Chinese consumers prefer products that meet their specific needs rather than generic, and branded water for segments such as toddlers and students. It has tapped into China's premiumisation trend producing high-end glass bottles following 50 drafts and 300 designs, and is controversially building its first factory outside of China in the tiny New Zealand settlement of Otakiri to export premium pure New Zealand water. As a beneficiary of China's health trend, it has aligned its natural and healthy positioning by engaging a pricey documentary team to shoot a National Geographicesque 'mini film', generating much buzz in the market. Nongfu was also one of the early adopters of plant-based alternatives, launching China's first mainstream plant-based yoghurt in March last year.
Like many brands in China, Nongfu Spring hasn't always had a smooth run, but it has read the trends and ensured it did the basics well. You'd be surprised at how many brands don't. Get in touch with China Skinny to ensure that you're not one of them!
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