China Food

Zhong Fuying, the richest man’s “mineral” business

“ 
triple barriers protect the richest man.
 ”
Drinking water in his left hand and biomedicine in his right hand have made him the richest man in China again.
Although the market value of its two companies fell, resulting in the loss of nearly 100 billion yuan of Zhong’s wealth, he still won the title of China’s richest man with 455 billion yuan. It ranks first in China and 15th in the world in the 2022 Hurun global rich list.
Nongnongshan spring, which contributes most of its wealth, is an amazing “money making machine”: it has a gross profit margin of 61%, a cash reserve of 12.8 billion, a return on net assets of 34% and an annual net profit of 7 billion (institutional forecast).
Previously, with the strong performance of Wahaha, founder Zong Qinghou also won the title of China’s richest man three times, and Wahaha has not been listed yet.
In the rigid demand, high-frequency and large market, people were surprised that a bottle of water could create such a huge profit and market value, and began to analyze this familiar and unfamiliar business.
People are familiar with the definition of consumer goods of water, but what is less known is that the essence of natural mineral water is actually a unique “mineral resource”. The market-oriented development of water as a mineral resource must cross the high threshold of “policy access”.
Nongnongshan spring currently focuses on the strategy of “natural + mineral water”, holds 11 major water sources, 34 water intake licenses and 3 mining licenses, and integrates three trump cards of policy barriers, brand price barriers and channel advantages, making Zhong become the “richest man in China” with the most stable position in recent years.
Hidden policy barriers
Although mineral water is called water, it is a “liquid mineral” recognized by the state.
In the drinking water industry, there has been a saying that there are more water illiterates than illiterates in China. No one thinks there is much difference between water and water.
Nongnongshan spring launched a “century water war” in 2000, breaking the “monopoly” position of Wahaha and robust in the purified water market. At the same time, the concept of “natural mineral water is better than natural water and better than purified water” is popularized to consumers.
In 2013, nongnongshan spring encountered the “standard gate” incident, which directly contributed to the birth of the national food safety standard packaged drinking water. According to the new national standard, bottled water is divided into three categories: natural mineral water, purified drinking water and other drinking water.
While standardizing the industry, the new national standard also provides consumers with a “literacy education”: the superior level of bottled water follows the following order: natural mineral water > natural water > purified water and mineral water > distilled water.
Since then, “natural water + mineral water” has completely gained the upper hand. As early as April 2000, nongnongshan spring announced that it would no longer produce purified water and instead produce drinking natural water.
Early layout, taking the lead in seizing the minds of consumers. From 2012 to 2020, nongnongshanquan has maintained the first market share of domestic packaged drinking water for nine consecutive years. With the increasing awareness of people’s health, natural mineral water has become a new layout point for bottled water enterprises.
It is worth mentioning that although mineral water is called water, it is a “liquid mineral” recognized by the state. Entering the natural mineral water industry requires not only a water intake license, but also a mineral water mining license. This means that the threshold is much higher.
There are two ways to obtain the mining right: one is to find minerals and springs funded by the Ministry of finance, and then the bidder obtains them through bidding; Second, the miners apply to the Department of land and resources for prospecting rights, carry out survey work and bear the survey expenses.
It is estimated that it will take 4-5 years to complete all processes, with a cost of millions of yuan. Therefore, natural mineral water has high resource barriers and policy barriers.
At present, nongnongshan spring is in a leading position in the control of water sources. It has 11 major water sources and has obtained 11 water intake licenses and 3 mining licenses. The forward-looking reserve of high-quality water sources has built a solid barrier for its sustainable development.
Due to the low mining cost, the endorsement of the national standard and the high pricing, the profitability of natural mineral water and natural water is much higher than that of purified water. China Resources Yibao is the second largest packaged water company after nongnongshan spring and the largest purified water company.
In the past four years, the gross profit margin of nongnongshan spring packaging water business has been maintained at about 60%, while China Resources Yibao is only 40%;
In 2020, the operating profit margin of nongnongshanquan rose to 37%, which was only 8%.
Obviously, on the premise that natural spring water is double recognized by national standards and consumers, the license system of “natural spring water” has greatly improved the access threshold of medium and high-end bottled water market, which also means that consumers are more willing to buy natural water.
“Nature’s Porter” has thus been successfully transformed into “nature’s money printer”. Enterprises represented by nongnongshan spring have thoroughly rolled the purified water in terms of profitability.
The logic of attacking competitor
water barrier is not at the resource level, but policy approval.
“Water source story” has always been the core competitiveness of nongnongshan spring brand. “We don’t produce water, we’re just nature’s porters” accurately attacked purified water. Nongnongshan spring took advantage of the situation to beat Yibao and Wahaha and took the top position in the industry.
At present, the value chain of packaged water market is transferring to natural mineral water. In the upgrading competition, nongnongshan spring must face two major problems. First of all, can nongnongshan spring, which is mainly natural water, switch the track smoothly? Secondly, in the face of competition from Baisui mountain, which focuses on the high-end market, Kunlun Mountain and Evian in the ultra-high-end market, is the barrier advantage of nongnongshan spring thick enough?
In the competition of high-end water, water source is undoubtedly the “core weapon”. According to the data, there are more than 4000 qualified mineral water sources in China, and the allowable exploitation amount is 1.8 billion m3 / year. At present, the amount of mineral water resources developed and utilized is about 50 million m3 / year, accounting for 3% of the allowable exploitation amount. Therefore, in terms of the total amount of water sources, mineral water sources themselves are not scarce resources.
Baisui mountain and Evergrande ice spring also have water sources in Changbai Mountain; In the ultra-high-end water, Danone Evian comes from the foot of the Alps, Nestle’s San pello comes from the small town of San pello in Italy, and the Voss FOSS water source of Huabin group is the small town of iveland in Scandinavia. Therefore, compared with competitors, the water source of nongnongshan spring is not scarce enough or exclusive.
Therefore, the logic of water source barrier does not lie in the resource level, but in policy approval. It is difficult to obtain the mining right and water intake license. Generally, the application for mining right needs to go through dozens of complex approval processes, which takes 2-3 years. Therefore, the bottom logic of water source barrier is “policy barrier”.
Secondly, as an industry reformer, nongnongshan spring has the advantage of giving priority to the layout of water sources and forming a deep understanding in the minds of consumers. Moreover, nongnongshan spring has 11 major water sources in the country. Compared with the more centralized layout of Baisui mountain, it can effectively shorten the transportation radius, and the scale advantage can also amortize the cost.
Centenarian mountain is the strongest challenger that Nongfu mountain spring can foresee. Baisui mountain focuses on the high-end market of natural mineral water. It has many natural mineral water sources, such as Huizhou Luofu Mountain, Guangzhou Aofeng, Zhejiang Siming Mountain and Jiangxi Yichun. It is the enterprise with the largest natural mineral water production base in China.
It took only four years for Baisui mountain to surpass binglu, Wahaha and Master Kang and advance strongly into the top three. According to Euromonitor data, nongnongshan spring, China Resources Yibao and Baisui mountain ranked among the top three in China’s packaging water industry in 2020.
Nongnongshan spring created a cognitive system of “natural mineral water is better than natural water and better than pure water”, and achieved success in one fell swoop; However, it must be admitted that in the field of natural mineral water, Baisui mountain comes from behind and occupies the price band of 3 yuan of water.
With the enhancement of people’s health awareness, quality consumption will become the mainstream. According to the data, from 2014 to 2019, the retail volume of high-end bottled water in China increased from 761000 tons to 1464000 tons, accounting for 1.5% of the retail volume of bottled water from 0.97%. In the future, the space of high-end water market will be further expanded and become a new consumption hotspot.
The agency predicts that the pattern of China’s bottled water market will change from pyramid to spindle, 1 yuan water will further shrink, and medium and high-end 2 yuan water and high-end 3 yuan water will become the mainstream of the market.
In order to advance to the high-end track, Nongfu mountain spring launched a new product changbaixue in April 2021, with a capacity of 535ml and a price of 3 yuan, benchmarking Jingtian Baisui mountain.
In the battle of upgrading dimension, nongnongshan spring relied on the breadth and scale of water source layout. Compared with centenarian mountain and other brands with concentrated water sources, nongnongshan spring has a wide distribution of water sources and a more balanced layout, which can be sold nearby and reduce the transportation cost, which is also one of the key factors for it to become a leader in the industry.

Channel bottom gas


夫山泉目前主要集中在县级经销商,零售网点规模上还有巨大下沉空间。
To do a good job in water business, water source, channel and brand are indispensable.
Relying on dealer channels is a typical feature of the bottled water industry. 94% of nongnongshanquan’s revenue comes from dealer channels, which shows the importance of dealer channels.
Unlike Wal Mart and other supermarket channels since American bottled water, China mainly relies on traditional channels such as streets and communities, followed by supermarkets and e-commerce. Therefore, the key to the success of enterprises is to make a “capillary” layout of the breadth and density of channels, strengthen the control of terminal retail, and even squeeze competitors out of the terminal.
The success of product positioning and brand marketing can produce popular products, but further growth is bound to be limited by channels. The early channels of nongnongshan spring were not as good as those of Wahaha and Master Kang who had been deeply cultivated for many years. As a result, its income hovered around 2 billion from 2004 to 2007, falling into a growth bottleneck.
Since then, nongnongshanquan has focused on channel layout. As of May 2020, the company has 4454 dealers and 2.43 million terminal retail outlets, of which 1.88 million retail outlets are located in third tier and below tier cities.
In 2016, nongnongshanquan reformed the dealer model. It is reported that this idea comes from the tenant farmer theory written by Zhong Fuxiang’s long-term research economist Zhang Wuchang. Its core idea is that the enterprise fully authorizes the dealers and provides assistance and services in time. In terms of specific operation, we should give full play to the land advantages and subjective initiative of dealers through the strategies of cost contracting, cost write off, business model transformation, salary system reform and in-depth channels of grass-roots managers.
Through this reform, the single product income of nongnongshanquan dealers increased by 2-10 times, and the income of a single dealer increased from 4.29 million yuan in 2017 to 5.29 million yuan in 2019, an increase of 23.3%.
In terms of horizontal comparison, the gross profit margin of nongnongshanquan dealers is about 25% and the net profit margin is about 6%, which is 1.5-2 times the average level of the industry, the net profit margin of baishuishan is 5% and that of Yibao is 3% – 4%. Moreover, due to the rich product line of nongnongshan spring and higher profit of soft drinks, dealers can distribute and package water and drinks at the same time, which is more attractive to dealers.
At the same time, nongnongshanquan also vigorously built its own channels, such as “sesame store” (community vending point), e-commerce self operated stores, convenience stores and other self operated channels to reach consumers.
Compared with Master Kang and uni president, nongnongshan spring is mainly concentrated in county-level dealers, and there is still a huge sinking space in the scale of retail outlets.
At present, purified water still accounts for more than 60% of the market, and the structural substitution of bottled water market is still in progress; Among them, 1 yuan water is mainly the purified water of Master Kang and Wahaha; 2 yuan water is represented by Nongfu mountain spring natural water and Yibao purified water; 3 yuan water is occupied by the mineral water of Jingtian Baisui mountain.
In the future, 1 yuan water will gradually withdraw from the mainstream stage. With the channel expansion and sinking of nongnongshan spring, 2 yuan water will replace 1 yuan water and become the mainstream of market consumption.
The triple advantages of “water source + channel + brand” will thicken the solid barrier of nongnongshan spring in the 2-yuan price belt, but how much it can play in its breakthrough to a higher price belt remains to be confirmed.

Write at the end

Water source is as important to bottled water enterprises as milk source is to dairy enterprises.
Brand marketing and channel are important factors for the success of FMCG enterprises, but for bottled water enterprises, high-quality and extensive water source is the foundation of their growth and growth.
In the current “structural upgrading” war of bottled water Jianghu, enterprises with administrative licenses for developing natural mineral water undoubtedly occupy the first mover advantage.
Although there are Jingtian Baisui mountain and Kunlun Mountain in China, and foreign brands include Danone, Nestle, Chaowu, etc., in the face of the encirclement and suppression of various enterprises, the existence of nongnongshan spring triple barriers can ensure that any one of them fails, and the other two barriers can still protect its sales from sharp fluctuations.
It seems that Zhong’s position as China’s richest man will probably continue to sit steadily.
Author: Xie Zefeng; Editor: Yang xuran; Source: tide wave (ID: wave-biz), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246); In addition to the innovative value of the 2022-02 e-commerce fair and the 2022-02 e-commerce fair, the e-commerce fair in Shanghai aims to provide more resources for the whole industry, such as the 20202-02 e-commerce fair and the 20202-02 e-commerce fair. Here, products, content, technology, marketing and other aspects related to food & brand innovation will be presented in the form of “professional exhibition + innovative content + interactive experience”, breaking through and differentiating in the consistent form of industry exhibition.

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