The shares of China’s largest mineral water company, Nongfu Spring, were so popular when they were announced in early September that they were rewritten 1,148 times. It was one of the most sought after markets in the history of the Hong Kong Stock Exchange. The stock price was approximately 60 percent higher than the issue price in the first three days of trading, helping Nongfu reach a market capitalization of $ 53 billion.
Zhong Shanshan, who as Nongfu’s founder owns 84 percent of Nongfu’s shares, grew overnight to become one of the three richest men in China. And he’s just behind two technology billionaires: Alibaba founder Jack Ma and Tencent CEO Pony Ma.
Zhong, on the other hand, earned his wealth “as a bearer of nature,” according to the slightly pathetic-esoteric slogan of his society. In richly made films about a landscape with clear water and good air, Zhong promotes the ten springs from which Nongfu’s water comes. Nongfu Shanquan literally means the mountain spring water of farmers. It should sound down. Nongfu is actually the cheapest bottled water sold in China. A pint bottle costs three yuan (0.37 cents), while the same amount of water costs almost twice as much from providers such as C’est bon, the second largest mineral water brand in the country and owned by the state conglomerate China Resources.
Although the competition’s plastic bottles are a little more complicated, Nongfu is the only supplier with a double-digit share of the mineral water market. Euromonitor, a market research company, reports nongfu in the country at 12 percent. This puts it well ahead of the Western water brands Danone or Coca-Cola, which have a market share of only three percent in China. According to its own information, Nongfu achieved a market share of bottled water in China of 21 percent between 2012 and 2019. Revenue rose to 24 billion yuan ($ 3.5 billion) last year, up 37 percent from 2017.
Success came late
Making money for health was not the original business idea of the founder Zhong. Before founding Spring Nongfu in 1996, he tried erectile dysfunction pills. Authorities eventually questioned the effectiveness of his drug and revoked his license. Even as a journalist and the founder of a mushroom farm, he was not a lasting success.
As a bottled water producer, Zhong Shanshan becomes the third richest in China. Photo: imago images / VCG
Zhong learned one thing in his work as a pill representative: It is important to be able to meet customer demand as quickly as possible. For this reason, it has built a strong sales network of more than 4,000 dealers and 10,000 dealers in Nongfu over the years and has also gained an impact on supplier margins in this process. Despite the cheaper price, traders’ profit margins when selling nongfu water are higher than those of other competing brands.
At about 61 percent, Nongfa’s profit margin is well above other bottled water brands in China. C’est bon is the second largest brand with 41 percent. Once production plants are set up, there are almost no additional costs and plastic bottles are also cheap.
When it comes to marketing, Nongfu has long relied on quantity, thus expanding his lead. According to calculations by the Mintel Market Research Institute, consumers in the People’s Republic still consumed 41 liters of bottled water per capita in 2014, compared to 59 liters last year. And the growth potential does not seem to be exhausted in the long run. In the United States, 141 liters of bottled water per person was consumed last year.
Many use water to brush their teeth
Research firm Frost & Sullivan estimates that China’s bottled water market will grow by an average of more than 10 percent a year by 2024. As the largest company in this segment, Nongfu would benefit accordingly. Many Chinese not only use nongfu water to drink, but also use it to brush their teeth or cook baby bottles. Chinese tap water is not drinkable in most parts of the country. A few years ago, up to 80 percent of wastewater flowed directly into groundwater.
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Rivers in cities like Beijing and Shanghai were so polluted that Greenpeace warned in 2017 that 85 percent of the rivers around Shanghai were so polluted that people should avoid any contact. But due to state-supported urbanization and a rapidly growing middle class, provincial governments often cannot keep up with drinking water quality. At the same time, however, the demand for clean water and a healthier lifestyle is increasing.
Health is a key cultural issue in China, which is why water must make it “healthier”. Nongfu supports water containing lithium, which is said to be good for the nervous system. In 2019, high-fruit juices, sugar-free teas and other so-called vitamin drinks accounted for approximately 40 percent of Nongfu’s sales.
The topic of health unexpectedly brought Zhong a lot of money this year. In April, the Beijing Wantai Biological Biotechnology Company, which now also produces corona tests, was listed on the Shanghai Stock Exchange. Zhong has been the majority shareholder for two decades, and its wealth has even increased from 7 billion to 20 billion.
The current IPO of Nongfu also helped some of his associates to new wealth. During the performance bonus, it distributed 0.79 percent of its shares to 33 employees, who can now also count as new Chinese millionaires.