Market Analysis: Thirsty for Growth: China´s Drinking Water Market

cctv.com 09-11-2003 09:52

Today, the increasingly health-conscious Chinese population is more willing to fork out cash to ensure their physical well-being. Which leads them to be more and more cautious about the water they drink and ensuring it is safe and healthy. In today's Market Analysis section, we will focus on China's drinking water market to see the latest developments and how domestic and foreign brands are diving in deep to compete for market share.

It was just another ordinary Sunday afternoon in Hangzhou, an ancient and beautiful city in eastern China. As usual, Mr Liu was riding his bicycle to deliver 5 gallon bottles of water to a residential area. In recent years, this has become a commonplace scene in many streets of Chinese cities. For Mr. Liu, he has been doing it for almost two years and experienced some changes.

Currently, there are 2000 people in the business of delivering water. One 5-gallon bottle of water costs RMB 15 or 2 US dollars. Today, in supermarkets, the good old thermos鈥the traditional drinking equipment in China is losing popularity. But over at the water dispense section, the salesman is patiently introducing the functions to customers.

Li Ming, of the Wu Mei Supermarket, said, "Nowadays, customers have more choices. For example, waster dispenser and other equipment are very convenient. That has brought a decrease in thermos sales."

Wei Youxiang, a customer, said, "At present, the working pace is fast. People get home quite late. The water dispenser is very convenient. Water from water dispensers tastes sweeter."

Since the first foreign beverage brand鈥攃oca-cola entered the Chinese market in 1980; carbonated drinks have assumed an irreplaceable position in the drinking habit of Chinese people. Compared with carbonated drinks, water beverages show a more seasonal skew.

However, since the late 90's, it has grown rapidly especially bottled water, which has shown 40% annual growth since 1999. So, what are the underlying reasons for the increase?

Li Fuxing, Director of Beijing IDM Institute of Bio-Technology, said, "With improvements in living standards of the Chinese people, health and drinking water have become top concerns. In the recent five or six years, bottled water in China has kept the fastest growth in Asia or even the world."

Eyeing the change in the drinking habits of Chinese people, foreign beverage companies have quietly stepped into China's drinking water market.

Li Fuxing, Health Expert of Beijing IDM Institute of Bio-Technology, said, "It is a trend for foreign water companies to step into China's drinking water industry. This trend consists of two aspects. China is a populous nation. Whoever comes first, will wins the upper hand. In addition, Chinese water companies should also enter foreign markets. Competition can bring fast development."

In order to face competition posed by foreign brands, price cuts are becoming one of the key tactics for domestic brands to attract more customers. However, it brings some problems.

"Price war" is against social trends. People always favour high-quality products. Therefore, providing high quality water should be the top priority, not lowering the price.

Currently, foreign investment is playing an important role in China鈥檚 drinking water market.

Among those top five water brands in China, only the market leader, Nongfu Spring has no involvement of foreign investment. Moreover, Nongfu Spring ranked number one for four years straight from 1998. What is its winning strategy?

Zhe Bo, Assistant President, said, "We think that foreign brands have their own core business when entering China鈥檚 market. For instance, Coke is Coca-cola's main business. They don't have an exclusive manufacturing base for drinking water. However, we have the best water resource and built the production base nearby to produce good quality drinking water. That鈥檚 one of our strengths."

As a domestic brand, Nongfu Spring is not only able to survive but also thrive amidst fierce competition. However, for the majority of China鈥檚 drinking water companies, they still meet some difficulties, such as not achieving economy of scale and lacking in technology. Those problems can be overcome by bolstered capital backing and international co-operation to bring in world,s best technologies.

According to statistics released by the Beverage Association of China, every Chinese consumes 2 liters of drinking water per year. A westerner drinks 130 liters of water. The huge difference may stem from different drinking habits. But with increasing attention and expenditure given to Chinese health, it spells an opportunity for domestic and oversea drinking water companies.

Editor:Zhang  Source:CCTV.com