China's pure water "boss" China Resources Beverage submitted to the Stock Exchange, its ambition is not only to "sell water"

Source of this article: Times Business School Author: Sun Huaqiu

Text/Sun Huaqiu

Recently, CR Beverage has taken an important step in its development history by officially announcing that it has submitted an initial public offering (IPO) application to the Hong Kong Stock Exchange.

Following the successful listing of Nongfu Spring, another beverage industry giant launched an impact on the capital market. This decision not only signifies CR Beverage's pursuit of greater market influence, but also demonstrates its confidence in the company's future growth potential, providing a unique opportunity for global investors to participate in China's large and fast-growing beverage market.

According to the prospectus, China Resources Beverage is the pioneer of China's packaged drinking water industry, and after 40 years of development, it has grown into the second largest packaged drinking water enterprise in China and the largest drinking purified water enterprise in China (in terms of retail sales in 2023).

In the context of Nongfu Spring's successful listing and wide recognition in the market, the IPO of China Resources Beverage will undoubtedly inject new vitality into the capital market. Market analysts generally believe that the listing of CR Beverage is expected to rebuild investor confidence, and its market performance will become an important bellwether for evaluating the development of China's beverage industry.

Annual sales exceeded 14.6 billion bottles of water!

The data in the prospectus reflects the good achievements of CR Beverage. According to the CIC report, from 2014 to 2023, CR Beverage ranked among the top two in the retail sales of packaged drinking water for 10 consecutive years, and from 2012 to 2023, it led the industry in China's purified drinking water market for 12 consecutive years. Among the top five ready-to-drink soft drink companies in China (in terms of retail sales in 2023), CR Beverage ranks the top two in terms of retail sales growth rate (based on the average annual compound growth rate from 2021 to 2023) and net profit growth rate (based on the average annual compound growth rate from 2021 to 2023).

In 2023, the sales volume of Cestbon brand aquatic products under China Resources Beverage exceeded 14.6 billion bottles, with retail sales reaching 39.5 billion yuan and a market share of 32.7%, which is about four times that of the second-ranked company and more than the second-ranked companies combined. Consumers' trust and love for the "Cestbon" brand has created a legend in China's ready-to-drink soft drink market. At present, "Cestbon" is not only the No. 1 brand in China's drinking water market, but also one of the only seven brands in China's ready-to-drink soft drink market with annual retail sales of more than 30 billion yuan.

According to the CIC report, China's ready-to-drink soft drink market achieved an astonishing retail sales of 909.2 billion yuan in 2023, and with the acceleration of urbanization, the take-off of the economy and the improvement of people's living standards, consumers' purchasing power still has high upside, and the market size is expected to grow by more than 1.2 trillion yuan by 2028. This leap in number is also an indication of the growth potential of CR Beverage.

Targeting the healthy tea market segment and quickly seizing category opportunities and long-tail value

Competition is the eternal keyword in the water beverage market, on the one hand, CR Beverage sits firmly on the throne of China's pure water market, on the other hand, it has been actively expanding the growth point of the beverage business, and is currently strategically laying out high-growth potential categories such as tea drinks, fruit juice drinks, and sports drinks.

With the rise of healthy lifestyles, the healthy tea market has ushered in unprecedented development opportunities, and consumers' choice of beverages is no longer limited to taste preferences and convenience, but they are more concerned about whether the products meet health standards and whether they have specific health benefits. The popularity of concepts such as "Buddhist health preservation" and "light health preservation" has given birth to a new consumer trend.

Combined with this trend, with its keen market sense and strong product research and development strength, China Resources Beverage has successfully launched Zhiben Qingrun Chrysanthemum Tea Beverage, which not only quickly occupied the market highland, but also became a key member of its "one super and many strong" strategy.

In Liangguang and other regions, chrysanthemum tea has always been believed to have the effect of cooling and removing fire, warming and nourishing, and China Resources Beverage has cleverly used the recognition and efficacy endorsement of this traditional Chinese drink recipe to launch this Chinese tea with "classic taste and taste in memory". Combined with the consumption needs of consumers in different scenarios such as cooling off in summer, relieving spicy heat and even staying up late to work overtime, supplemented by precise channel laying and successful product marketing. According to the CIC report, in terms of retail sales in 2023, Zhiben Qingrun ranked first in China's chrysanthemum tea beverage market.

By reusing the market experience and playing methods it has accumulated in the field of packaged water, CR Beverage is more keenly able to grasp those market opportunities that are "fleeting" or easy to lead to cost loss for other companies, and its strong channel network enables CR Beverage to quickly bring its products to the market, so as to effectively seize the opportunities of subdivided categories and further tap its long-tail value, and open up more untouched potential markets.

Therefore, under the popularity of Zhiben Qingrun Chrysanthemum Tea, China Resources Beverage also took advantage of the trend to launch Zhiben Qingrun lemon tea products and sour plum soup products, consolidating the market position of this series in the beverage market. From 2021 to 2023, the average annual compound growth rate of revenue and sales volume of CR Beverage's beverage products will exceed 40%, so it seems that the second growth curve of CR Beverage has gradually become clear.

The infinite possibilities released by the strategic layout of the market channel network

As early as many years ago, China Resources Beverage put forward the slogan of "intensive cultivation, winning the terminal", and this forward-looking market layout now seems to be more far-reaching.

As market competition in Tier 1 and Tier 2 cities intensifies, Tier 3 and below cities have become the largest incremental markets. In addition, with the development of the economy and the increase of residents' income, consumers in the third-tier market have begun to pursue higher quality products and services, which provides unprecedented development opportunities for enterprises such as China Resources Beverage.

In the fierce market competition, CR Beverage has built a nationwide cooperation network by deeply tapping the potential of cooperation with terminal retail outlets, and has established a solid cooperative relationship with more than 1,000 distributors, covering more than 2 million retail outlets in China, which makes CR Beverage have a significant advantage in the channel sinking strategy. In the context of the current era of sinking markets, this strategic layout indicates that CR Beverage will be able to unleash unlimited potential and growth.

CR Beverage's channel capabilities are also reflected in the fact that it has a sales team of more than 8,700 people, which can lead the service and maintenance operations of retail outlets. These personnel can provide efficient mobilization capabilities to improve market penetration of different categories of products, especially fast-growing beverage products, and enhance channel influence and customer stickiness by accurately understanding the competitive landscape, consumer preferences, product pricing and channel inventory status of retail outlets.

Not only that, according to the CIC report, CR Beverage has demonstrated strong competitiveness in the Yangtze River coastal market, which includes 7 provinces and cities including Shanghai, Jiangsu, Anhui, Hubei, Chongqing, Sichuan and Tibet, covering an area of about 2.2 million square kilometers, accounting for 23.1% of the country's population, 24.8% of the population, 29.4% of GDP in 2023, and about 30% of the packaged drinking water market share in 2023 in terms of retail sales in 2023. According to the CIC report, among the seven provinces and cities along the Yangtze River, CR Beverage's packaged drinking water products ranked first in 2 provinces (Hubei and Sichuan) and second in five provinces or municipalities (Shanghai, Jiangsu, Anhui, Chongqing and Tibet) in terms of retail sales in 2023.

In addition, CR Group's strong brand and business ecosystem also provide CR Beverage with unique corporate empowerment. As a member of China Resources Group, China Resources Beverage occupies a pivotal position in the group's large consumption sector. Brother companies such as China Resources Beer, China Resources Power, China Resources Land and China Resources Mixc Life have all become constituent stocks of Hong Kong's Hang Seng Index, which not only demonstrates the leading position of China Resources Group in various fields, but also provides strong support for the market performance and brand building of China Resources Beverage.

For investors, as a member of the big family of China Resources Group, CR Beverage has the strong brand endorsement and resource support of the group behind it, which undoubtedly increases investment confidence.

The multi-dimensional empowerment of brands, products and channels has enabled CR Beverage to maintain a relatively stable financial structure. According to the prospectus, at the end of each period from 2021 to 2023, the leverage ratio of China Resources Beverage was 0.7%, 0.5% and 0.5% respectively, all of which remained at a low level, far better than other companies in the same industry. Sound financial management provides a solid guarantee for the company's sustainable development and greatly enhances its attractiveness to investors.

Choosing to sprint to the Stock Exchange under the current market weakness, this positive attitude of CR Beverage not only demonstrates its influence on the market, but also demonstrates its firm confidence in its own development. With its industry pioneer status and excellent performance, it will undoubtedly become the focus of the capital market and is expected to inject a boost into the market.

In the future, we will wait and see how this industry giant will break the waves in the capital market.