Author|Not empty
Business warfare is so unpretentious.
On April 22, China Resources Beverage submitted a prospectus, holding China Resources Beverage to the Hong Kong Stock Exchange is a pure water product - Cestbon. In 2023, the retail sales of "Cestbon" will reach 39.5 billion yuan, ranking first in the market share of the pure water track. The retail sales of the bottom four combined, none of them are worth one Cestbon .
On the second day, the news of "Nongfu Spring Returns to the Pure Water Battlefield" spread, and even the promotional pictures and texts of Nongfu Spring's pure water products were circulated. As a well-deserved leader in the packaged drinking water industry, Nongfu Spring's move has the intention of competing with Cestbon.
At the important juncture of listing, and also the first echelon of the industry, China Resources Beverage could not avoid the competition with Nongfu Spring, and the initiative of Nongfu Spring this time was undoubtedly adding fuel to the fire, making the market's attitude towards China Resources Beverage a little more cautious.
Selling water is indeed an enticing business.
Nongfu Spring, which has been listed on the Hong Kong stock market, has a market value of more than 500 billion Hong Kong dollars, and directly sent Zhong Sui to the richest man in the 2024 Hurun Report. Peer Wahaha, although it was not listed, it also made Zong Qinghou the richest man in China three times.
Compared with Nongfu Spring, which has many products, China Resources Beverage, which has only one trump card, is indeed slightly inferior.
From the perspective of revenue scale, in 2023, Nongfu Spring's total revenue will be three times that of China Resources Beverage, and the profit difference will be nine times;
In terms of product matrix, Nongfu Spring's beverage product revenue will surpass that of drinking water in 2023. In contrast, the revenue of beverage products accounts for less than 10% of the total revenue of CR Beverage.
Under the ferocious offensive of Nongfu Spring, it is not yet known how China Resources Beverage will respond. What is certain is that in 2024, the war on packaged drinking water will escalate again.
The turbulence of the capital market has long been foreshadowed. Today's success of Cestbon is inseparable from the "abdication" of Nongfu Spring, the industry boss in the past.
The competition for the pure water market also starts with the battle between Nongfu Spring and Wahaha. In 1996, Zhong Sui quickly entered the pure water market with the sentence "Nongfu Spring, a little sweet", and the momentum was close to the market hegemon at that time, Wahaha.
The turning point in the confrontation between the two armies occurred in 2000. Also in April, Nongfu Spring held a special media conference at Qiandao Lake. At the meeting, Nongfu Spring demonstrated that "pure water" not only does not contain minerals, but may also bring potential risks to the human body, and then Zhong announced that Nongfu Spring will completely stop the production of "pure water".
This conclusion dealt a fatal blow to Wahaha, which was mainly engaged in pure water at that time, and the pure water market returned to the era of chaos.
In the rear market where the strong compete, Cestbon also ushered in a new life. In 1999, China Resources Group acquired Cestbon at a price of 10 million yuan, and replaced the bottle packaging with a small green bottle familiar to the public, and Cestbon, which started in Guangdong, also began to fly into all parts of the country.
From 2021 to 2023, the revenue of packaged drinking water products accounted for more than ninety percent of the total revenue of China Resources Beverage, among which, the annual retail sales of Cestbon purified water products exceeded 30 billion yuan, firmly occupying the position of the No. 1 brand of drinking purified water.
Behind such a strong retail sales of Cestbon, it is inseparable from the category advantage of pure water. According to the CIC report, purified water accounted for 56.1% of China's packaged drinking water market in terms of retail sales in 2023, and this growth momentum continues.
Cestbon, the star product, has won the "second in the industry" market share for China Resources Beverage, supporting China Resources Beverage's listing ambitions. At present, CR Beverage is already the second largest packaged drinking water company in China, after Nongfu Spring. The bullet fired at Wahaha back then, after 24 years, hit the eyebrows of Nongfu Spring.
In the larger packaged beverage industry, the strategy of large single products has always been the norm for brand survival and expansion.
Looking further afield, Coca-Cola has built a beverage empire with a market value of 100 billion dollars, setting an example for the packaged beverage industry. Closer to home, Yuanqi Forest has found a new cut through sugar-free sparkling water in the crowded beverage market and is among the forefront of the industry. In a sense, large single products are more like a key leap for packaged beverage brands, and with the advantage of single products, brands can achieve category breakthroughs and gain a foothold in the fierce consumer market.
Although with the trump card of Cestbon, China Resources Beverage has solved the short-term worries of profitability, but there are also many "long-term concerns" of China Resources Beverage.
In the horizontal category competition pattern, Nongfu Spring, the "industry leader", has returned to the pure water market and is bound to compete head-to-head with Cestbon. According to the news circulating on the Internet, Nongfu Spring once again set foot in the pure water market, and did not adhere to the consistent red packaging, but changed to green packaging similar to the color of Cestbon packaging, which is full of benchmarking significance.
Another side effect of the strong reliance on large single products is that the battle between Cestbon and Nongfu Spring directly affects the direction of China Resources Beverage. China Resources Beverage, which "walks on one leg", does not have a high ability to resist risks.
China Resources Beverage has long realized that a Cestbon may not be able to support the confidence of capital. In 2011, CR Beverage allotted shares to Kirin Holdings Co., Ltd. ("Kirin"), a Japanese listed company engaged in beer and beverage business. Obviously, with the addition of Kirin, CR Beverage hopes to fill the gap in the beverage category.
The cooperation between the two has indeed helped CR Beverage complete the vertical category development, but although the actions are frequent, the product performance is not satisfactory. Judging from the prospectus, China Resources Beverage has a layout in packaged drinking water, tea drinks, fruit juice drinks, coffee drinks and other categories, and has launched a total of 13 brands such as Cestbon, Zhiben Qingrun, and Honey Water series, with a total of 56 SKUs.
Source: Cestbon prospectus
In addition to the star single product Cestbon, chrysanthemum tea beverage is the best-selling product of China Resources Beverage, with a total retail sales of 756 million yuan in 2023. However, this achievement is not outstanding in the packaged beverage industry.
One of the most significant control groups is still Nongfu Spring, which, according to its 2023 performance report, has exceeded the 10 billion revenue mark in the tea beverage category. Nielsen data shows that in 2023, the sales revenue of Oriental Leaf, a sugar-free tea drink launched by Nongfu Spring, will increase by more than 100% year-on-year. Brands such as tea π, farmer's orchard, and NFC juice are also continuing to make efforts.
Source: Nongfu Spring's financial report
Obviously, CR Beverage has lagged far behind Nongfu Spring in terms of category expansion and profitability of multiple single products. In 2022, the cooperation between Kirin and China Resources Beverage also ended, and all 40% of the equity held by Kirin in China Resources Beverage was transferred to Putuo Investment.
James Cass made the point in The Game of Finite and Infinite: finite games are played within boundaries with the aim of winning. Infinite play is an exploration of changing boundaries themselves, aiming to keep the game going forever.
The same applies to the packaged beverage industry. Relying on the single product of Cestbon, China Resources Beverage has indeed laid a foundation for pure water. However, market competition is accelerating, consumer demand is changing, and there are still many long-term challenges for CR Beverage.
In the first half of the prospectus, CR Beverage explained the core business model of the water company: it mainly generates revenue from the sale of products through a nationwide sales and distribution network.
From 2021 to 2023, the revenue from distribution channels accounted for about 87% of CR Beverage's total revenue. At present, CR Beverage has reached cooperation with more than 1,000 distributors across the country, covering a total of 2 million retail outlets.
Source: China Resources Beverage Prospectus
To understand the significance of distributors to water companies, it is necessary to return to the product characteristics of packaged drinking water. Although the categories of packaged drinking water are constantly differentiated, most of consumers' demand for packaged drinking water is the supply of physiological needs, and they do not hope to enhance their resistance and supplement nutrients through drinking water. In fact, most consumers are not sensitive to the quality of packaged drinking water, and are rarely able to distinguish between natural and purified water.
For consumers, packaged drinking water only has brand differences, and there is little category awareness. In this case, whoever is closest to the consumer will be able to open up the market. In addition, the demand for packaged drinking water has obvious immediacy, and the consumption scene is concentrated offline, which is destined to be an offline business.
The construction of the channel distribution system is a huge network of brands linking hundreds of millions of consumers, and from this point of view, dealers do control the lifeline of water enterprises.
Zong Qinghou attached great importance to offline channels during his lifetime, and the relationship with dealers was even closer. Before he officially handed over Wahaha to Zong Fuli, he and Zong Fuli commended Wahaha's outstanding dealers together, and announced that they would give 100 million cash rewards to outstanding dealers in 2024. At present, Wahaha has more than 7,000 dealers and more than 3 million sales terminals.
In the packaged beverage industry, channel distributors are equally important.
Yuanqi Forest has been planted at this point. However, with the slowdown in first-tier cities and the decline of online channels, the habitual gameplay of Yuanqi Forest has become ineffective. With the successive failures of cola sparkling water, milk tea and other categories, Tang Binsen had to "return to tradition" and repair the relationship with distributors.
Source: Yuanqi Forest official website
In February this year, Tang Binsen issued an internal letter, he said frankly that in the past year, Yuanqi Forest continued to learn from the traditional model, rectify the dealer channel management structure, "unite most of the external partners, concentrate on promoting development, do not always want to take advantage of partners, and rely on long-term emotional investment and respect to gain trust."
The relationship with dealers determines the brand's position in offline channels, which is why brands continue to show favor to dealers.
The best way to capture dealers has to be profit. Judging from the prospectus of China Resources Beverage, in the past three years, the distribution and sales expenses of China Resources Beverage have increased year by year, and by 2023, this expense has soared to 4.087 billion yuan, which is three times the company's net profit, and the heavy distribution and sales expenses have eaten into the profit margin of China Resources Beverage.
Source: China Resources Beverage Prospectus
CR Beverage and distributors are no longer a simple distribution relationship, but a community of shared interests and risks, and the channel advantages are guaranteed by giving benefits to distributors. Not all of the positive effects have been achieved. If the sales performance is good, the brand and the dealer can naturally benefit each other and win-win. Once the sales side is sluggish, the dealer will turn around, which will also be a devastating blow to the brand.
On the other hand, in order to open up brand awareness and stimulate sales conversion, CR Beverage has invested a lot in marketing, and sports marketing has always been a key marketing strategy of CR Beverage. According to the prospectus, since 2013, China Resources Beverage has been cooperating with marathons and other sports events. Since 2019, the company has been a partner of TEAMCHINA/China national team.
Source: China Resources Beverage official website
In the step of ringing the bell for listing, China Resources Beverage is still a beat slower.
As early as 2020, Nongfu Spring has successfully landed on the Hong Kong Stock Exchange, laying a positive example for the packaged beverage industry.
In March this year, Nongfu Spring released its latest financial report, in 2023, Nongfu Spring's annual total revenue will be 42.667 billion yuan, and the net profit attributable to the parent company will be 12.079 billion yuan, a year-on-year increase of 42.2%. Specifically, in terms of packaged drinking water products, Nongfu Spring's revenue in 2023 will reach 20.262 billion yuan.
Just one day before the release of Nongfu Spring's financial report, the Hurun 2024 Global Rich List was released at the same time, and 70-year-old Zhong Sui, chairman and general manager of Nongfu Spring, became the richest man in China for four consecutive times with 450 billion yuan.
Today, Nongfu Spring's market capitalization has exceeded the HK$500 billion mark many times. For Nongfu Spring's stable market performance, Hong Kong stocks also gave positive feedback.
Source: Nongfu Spring's financial report
Nongfu Spring's footsteps have not stopped. Starting from the "return to pure water", Nongfu Spring is still further expanding its territory. CR Beverage is not only facing how to catch up and narrow the gap, but also needs to hold the market and stabilize its advantages.
The capital market is becoming more and more pragmatic about enterprises, and efficient and intuitive profitability is the essence of the business model. The performance of the new tea brands Cha Baidao and Nai Xue's tea in the Hong Kong stock market confirms this view.
On April 23, the new tea brand Tea Baidao was officially listed on the Hong Kong Stock Exchange, thinking that the bell of Tea Baidao could rekindle the enthusiasm of the capital market for tea brands, but I didn't expect to wait for the news that the first day of the opening was broken, and Hong Kong stocks "drank" the profits of Tea Baidao in the past three years.
When Nai Xue's tea, the "first share of new tea drinks", was listed, it also suffered a broken scene. Even though not long ago, Nai Xue's tea handed over a financial report for the first full year, the reaction of Hong Kong stocks was still cold, and the stock price fell by 12.79%.
Looking at the brand's performance table, it is not difficult to find that the attitude of Hong Kong stocks is closely related to the profitability of the brand.
Whether it is the financial report of Nai Xue's tea delivery, or the recently updated prospectus information of Tea Baidao, it invariably reveals that the hematopoietic ability of the new tea drink brand is declining.
Taking Nai Xue's tea as an example, the financial report shows that in the past year, the average sales per order of Nai Xue has dropped from 34.3 yuan in 2022 to 29.6 yuan in 2023, a year-on-year decrease of 13.7%, and the average daily order volume of each tea shop has dropped from 348.2 orders in 2022 to 344.3 orders in 2023.
Source: Nai Xue's tea official website
From the perspective of the larger market, the Hong Kong stock market is indeed in a downturn. In the past two years, companies that have been listed have faced a situation of bleeding and discounting their stock prices. Mobvoi, the "first share of AIGC", which is in full swing, broke down 3.16% on the first day. J&T Express, which was successfully listed in November last year, has its share price cut in half.
As the consumer market becomes more volatile, certainty and sustainable profitability become more critical.
The hematopoietic ability of China Resources Beverage is bound to meet the more stringent test of the market.
On the product side, in addition to the multi-category layout, CR Beverage also tries to tap the market increment by broadening the price band of packaged drinking water products. High-end mineral water includes the "Cestbon Dew" series priced at 15 yuan, and the 2 yuan natural mineral water anchored in the sinking market.
On the channel side, improving channel efficiency is the development goal of CR Beverage. According to the prospectus, at present, China Resources Beverage's packaged drinking water products occupy the highest market share in Guangdong, Hunan, Sichuan and other places. In recent years, China Resources Beverage has also accelerated the construction of factories, trying to further seize the market in East China, South China and Southwest China. According to the prospectus, CR Beverage currently has five new factories and two expanded factories.
Of course, the new story of this beverage veteran has only written a beginning, and more complex and fierce competition will follow.