The bottled water market in China continues to post impressive growth numbers, with off-trade sales increasing 10% in 2019 to RMB169 billion (approx. $25 billion). Growth is expected to continue with the market expected to be worth RMB228 billion ($34 billion) by 2024, an increase of 34.7% from 2019.
Per capita annual bottled water consumption increased from 41 litres in 2014 to 59 litres in 2019, which is still small compared to the 141 litres per person consumed in America. Considering that tap water is mostly potable in America and not in China, that suggests there is still considerable room for growth in this category in China.
Undrinkable Tap Water
The major reason behind this explosive growth in the bottled water category is lack of consumer trust in the local water supply with the Ministry of Water Resources having previously declared four-fifths of the country’s groundwater to be contaminated. There have also been massive infamous incidents that have confirmed public distrust in the water supply, like when thousands of rotten pig carcasses were found in the Huangpu river that provides Shanghai with most of its tap water.
Unsurprisingly bottled water is not just seen as a healthy alternative to other soft drinks, but a basic necessity by many Chinese people. Where previously many Chinese would have boiled tap water for drinking, now most people who can afford to will primarily use bottled water and this is true across all age groups and income groups in China.
Whilst only accounting for a small proportion of the overall market, there has also been a large increase in the amount of imported bottled water sold in China in recent years with the value of imported water sales estimated to have more than doubled between 2013-2018, according to S&P Global Market Intelligence. So despite only being a niche market, there are good prospects for imported water brands going forward.
Changing Market
As average incomes continue to rise and public concern regarding food safety and health consciousness increase in China, consumers are slowly upgrading their consumption to high-end bottled water. More and more suppliers have been bringing out high-end products in recent years to cater for this demand.
Another area in which the market has been changing is in pack sizes. As more consumers have begun to drink bottled water on a larger range of occasions, brands have created different pack sizes to cater to the new demand. For example, many people have switched from only drinking bottled water when out to also drinking it at home rather than boiling tap water, making larger pack sizes have become popular.
Market Leader: Nongfu Spring
Nongfu Spring has reacted to both of these trends well, which has contributed to it establishing itself as the market leader in the category with 11% market share. The company has been so successful that its founder, Zhong Shanshan, briefly became China’s richest man after the company’s mega IPO in Hong Kong in September 2020.
Nongfu Spring has successfully targeted the household segment with a range of large packs ranging from 4 to 15 litres. The company has also successfully diversified its offering to cater to all price points with products ranging from its mass-market 380ml bottle, which usually sells for RMB2 ($0.30) to its 750ml premium glass bottles, which usually sell for RMB40 ($6). In between these two there are products at various price points, including sparkling, flavoured and functional waters.
Prospects for Foreign Brands
The rate of premiumisation among bottled water in China is only increasing slowly compared to other drinks categories, making it difficult for foreign brands that often sell for at least 3-5 times the price of local, mass-market equivalents to differentiate themselves.
Offering a variety of pack sizes and investing into marketing to promote the quality of the water’s source are two ways imported brands can learn from Nongfu Spring’s example to stand out. The majority of imported water for sale in China is sold in standard sizes. Creating smaller packs, perhaps aimed at the children’s market, and bigger packs for the household consumption market would make a foreign brand more appealing to the needs of Chinese consumers.
Investing into marketing that tells the brand story and, specifically, why the source of the water presents a healthy and high quality alternative is needed for any international brand to justify its high price point. This is also done by Nongfu Spring with their premium lines, which it boasts come from China’s most unspoilt bodies of water. Chinese consumers are willing to pay above average prices for premium products, but the story of why that product is superior to competitors must be made clear for them to justify the expense.