Text: Sina Finance Yuan Yiming
Recently, Cestbon's parent company, China Resources Beverage (Holdings) Co., Ltd. (hereinafter referred to as "China Resources Beverage"), submitted a listing application to the Hong Kong Stock Exchange. Judging from the comparison of the prospectus data, C'estbon, which once sat on the top spot in the market share of bottled water, now has a 63% difference in revenue from the head brand, and the growth rate is far less than that of the head brand.
For the parent company China Resources Beverage, in addition to Cestbon, as many as 56 SKUs have no single products that can break the circle - to this day, more than 92% of the profits of China Resources Beverage are still provided by Cestbon. According to the above-mentioned industry insiders, Cestbon is getting farther and farther away from the status of the industry's big brother......
"Carrying the handle" is being surpassed
Cestbon is still the "leader" of China Resources Beverage and even the pure water industry. China Resources Beverage said in the prospectus that Cestbon is the No. 1 brand in China's drinking purified water market.
According to the disclosure, from 2021 to 2023, the operating income of China Resources Beverage will be 11.34 billion yuan, 12.62 billion yuan and 13.51 billion yuan respectively, and the net profit will be 858 million yuan, 989 million yuan and 1.331 billion yuan respectively, and more than 92% of the revenue will be contributed by Cestbon .
In addition, relying on Cestbon, CR Beverage's market share in the packaged drinking water market and the drinking purified water market is 18.4% and 32.7% respectively. According to the prospectus, according to the statistics of retail sales in 2023, China Resources Beverage is the second largest packaged drinking water company in China and the largest drinking water company in China.
Compared with the previous pattern and status, when competing products are growing rapidly, Cestbon's progress is not fast. Nielsen data shows that in December 2015, the market share of bottled water in Cestbon and Nongfu Spring was 20.4% and 20.1% respectively, and Cestbon was promoted to the industry leader and sat on the top spot.
But now 9 years later, not only has Nongfu Spring been listed as early as 2020, but in recent years, Nongfu Spring's market share has far exceeded that of Cestbon. According to the data of Guanyan Tianxia, in the bottled water industry, Nongfu Spring has a market share of 26.5%, and Cestbon has a market share of 21.3%.
And judging from the financial report data, in 2023, Cestbon's packaged water revenue will be 12.445 billion yuan, while the corresponding figure of Nongfu Spring will be 20.262 billion yuan, which is 63% higher than Cestbon. Compared with the growth rate of net profit, the profit growth rate of Cestbon in 2023 will be 34.7% year-on-year, compared with the profit of Nongfu Spring increased by 42.2% year-on-year.
The reason is that Shen Meng, executive director of Xiangsong Capital, believes that the competition of affordable bottled water has tended to be homogeneous, while Cestbon has not formed a differentiation from other brands and has not established a moat of yield, such as Nongfu Spring has positioned itself as high-quality drinking water by creating the concept of water source, but Cestbon does not have such brand value.
In Shen Meng's view, Cestbon has now fallen into the low-end position, and has not played its own characteristics and differences.
How to solve the dilemma of gross profit margin?
A careful comparison of the financial report data shows that the gross profit margin of China Resources Beverage, with Cestbon as the absolute fist product, is 44.7%, while the gross profit margin of Nongfu Spring has reached 59.5%.
From the cost side, in the packaged water industry, PET (polyethylene terephthalate) is the most important raw material for the production of product packaging, and its price fluctuations will greatly affect the profit of the product. In February 2023, Nongfu Spring adjusted the price of bottled water in Hangzhou due to the rise in PET prices.
CR Beverage revealed in the prospectus that in 2021, 2022 and 2023, its raw materials and packaging materials costs accounted for about 58.5%, 62.2% and 60.3% of the total cost of sales, respectively.
"Given that raw material and packaging material costs are expected to continue to account for a significant portion of our cost of sales, any significant increase in raw material and packaging material prices could have a material adverse effect on our margins. China Resources Beverage also said in the prospectus.
In recent years, companies have been eyeing scarce high-quality water sources and taking the high-end route to bring high-priced natural mineral water to the market, which is one of the important ways to broaden channels and improve profit margins and reduce cost impacts.
In January 2022, Cestbon launched the high-end product "Dew" series, but now the e-commerce platform shows that "Dew" has been sold out, and its latest evaluation is still stuck in May 2022.
Shen Meng believes that Cestbon does not have the right to raise prices like Nongfu Spring, because Cestbon has no core things to support its price increase so far.
Today, according to the prospectus of China Resources Beverage, in China's ready-to-drink soft drink market in 2023, the market share of China Resources Beverage will only account for 4.7%, less than half of the leading companies.
However, fortunately, the market size of packaged drinking water, where Cestbon is located, is still expanding rapidly. According to the CIC report, China's ready-to-drink soft drinks market is expected to expand to RMB1,203.2 billion by 2028 in terms of retail sales. Among them, packaged drinking water is the largest category, with a market size of RMB 215 billion in 2023 and an expected CAGR of 7.9% from 2023 to 2028, making it the fastest-growing category among all ready-to-drink categories.
With a single product line, it is difficult for China Resources Beverage to have high growth?
It can also be found from the prospectus of China Resources Beverage that except for Cestbon, China Resources Beverage has not made products other than Cestbon into fist products, which is one of the important reasons why the growth rate of China Resources Beverage is not as fast as that of Nongfu Spring.
According to the prospectus, CR Beverage has 56 SKUs (minimum stock keeping unit), and in addition to Cestbon's 13 SKUs, CR Beverage has also launched a product portfolio of 13 brands such as "Zhiben Qingrun", "Honey Water Series", "Holiday Series" and "Flavored Tea", with a total of 43 SKUs.
In order to launch new products, CR Beverage cooperated with Japan's Kirin in 2011 to launch a series of new products such as afternoon milk tea, fire coffee, and magic to enrich the beverage product line, but the corresponding products accounted for only 2%, 1.5% and 1.4% of the company's total revenue from 2021 to 2023. Due to the limited contribution of new beverage products to China Resources Beverage, the market defined the cooperation between Kirin and China Resources as a failed marriage at that time.
In 2018, CR Beverage launched Honey Water Lemon and Small Master Bacteria Milk Drinks, in 2020, CR Beverage launched a new magic sports drink, including three series of magic vitamins, magic electrolytes and magic amino acids, and in 2021, it launched a holiday series of fruit juice drinks.
But in fact, these products have not formed a cognition in the minds of consumers, in addition to failing to break the circle in the social circle, judging from the prospectus data, the core business of China Resources Beverage is still Cestbon water products. According to the prospectus, beverage products accounted for only 7.9% of CR Beverage's revenue, and the proportion in 2021 and 2022 was even lower, at 4.6% and 5.7%, respectively.
On the other hand, Nongfu Spring, in 2023, the revenue of its beverage products will account for 51.7% of the total revenue, of which the year-on-year growth rate of tea drinks will be as high as 83.3%.
Zhu Danpeng, an analyst of China's food industry, once said that the biggest shortcoming of China Resources Beverage's listing lies in its singleness: single category, single product, single channel, single customer, single function and single model.
Another industry insider analyzed that compared with international food and beverage brands and other leading domestic enterprises, the growth rate of China Resources Beverage has slowed down, the net profit margin is not high, and repeated attempts of new categories and new products have been fruitless, which may indicate that its internal organizational efficiency and management capabilities need to be improved.
Shen Meng believes that it is not surprising that China Resources Beverage, as a large state-owned enterprise group, promotes the independent listing of its mature businesses, but its future high growth space is limited, coupled with the low yield, it may not receive more expectations in the capital market.
CR Beverage is also aware of the importance of innovation, "Achieving growth depends on its ability to successfully develop, launch and market innovative new products. China Resources Beverage wrote in the prospectus.
"From the perspective of its own development needs, CR Beverage must deploy to the five-plus strategy of multi-brand, multi-category, multi-scene, multi-channel and multi-consumer group. From the current point of view, CR Beverage is very lacking in the planning, implementation, implementation and monetization capabilities of these five strategies. Shen Meng told Sina Finance.