Nongfu Spring ambushed C'estbon

Zebra Consumer Chen Xiaojing

At the critical moment when China Resources Beverage is pushing for an IPO, Nongfu Spring suddenly announced its entry into the purified water market. Isn't this a direct challenge to C'estbon?

In the past, these two bottled water giants competed fiercely in the market, but one focused on natural water and the other on purified water, each dominating its own niche.

After 24 years, Nongfu Spring is entering C'estbon's territory with its "green bottle." Can China Resources Beverage withstand this sudden and massive impact?

The Pioneer of Bottled Water

Recently, C'estbon's parent company, China Resources Beverage (Holdings) Co., Ltd. (hereinafter referred to as China Resources Beverage), submitted its listing application to the Hong Kong Stock Exchange, confirming long-standing rumors of an IPO. This has allowed the public to get a glimpse of the true state of this purified water brand.

Over the past 30 years, C'estbon, with its iconic small green bottle, has become popular nationwide. Few people know that C'estbon was actually China's first bottled water.

This traces back to the "Father of China's Packaged Water." In 1990, China Dragon Ring Co., Ltd. (the predecessor of C'estbon China), which had been established for six years, primarily produced sea buckthorn beverages. The company decided to introduce bottled water, a popular product in Hong Kong, to the Shenzhen market, producing the first bottle of distilled water in mainland China and acquiring the C'estbon trademark.

However, this product failed to make waves in the market. By the end of 1991, Vanke acquired a 51% stake in China Dragon Ring and overhauled its management. The company imported equipment to produce purified water, but sales remained lukewarm.

In 1996, Vanke shifted its focus to real estate, and C'estbon became the first business to be divested. The China Resources Group took over, marking a turning point in the fate of this purified water brand.

By then, Zhou Jingliang had left China Dragon Ring for four years. He launched Jingtian Purified Water in Shenzhen and later ventured into natural mineral water with the brand C'estbon.

After changing hands twice, C'estbon maintained steady growth but remained confined to purified water products for a long time.

According to CIC data, from 2012 to 2023, C'estbon ranked first in China's purified water market for 12 consecutive years. In 2023, C'estbon sold 14.6 billion bottles of purified water, generating retail sales of 39.5 billion yuan and holding a 32.7% market share, firmly securing its position as the leader in this segment.

Lagging Behind the Market Leader

In terms of revenue, China Resources Beverage lags behind the latecomer Nongfu Spring (09633.HK). However, its recent performance has been noteworthy.

From 2021 to 2023, the company's revenue was 11.34 billion yuan, 12.623 billion yuan, and 13.515 billion yuan, respectively, with annual profits of 858 million yuan, 989 million yuan, and 1.331 billion yuan. During the same period, its gross margin rose from 43.8% to 44.7%, and its net profit margin increased from 7.6% to 9.9%.

China Resources Beverage's main business is packaged water and beverages, with over 90% of its revenue coming from C'estbon-branded packaged water. During the reporting period, revenue from packaged water was 10.818 billion yuan, 11.906 billion yuan, and 12.447 billion yuan, with gross margins of 44.6%, 42.4%, and 45.6%, respectively.

Nearly 90% of China Resources Beverage's sales come from distributors. Its prospectus reveals that the company has over 1,000 distributors nationwide, covering more than 2 million retail outlets.

Despite this, China Resources Beverage still trails Nongfu Spring, the market leader in packaged water. In 2022, C'estbon held a 20.9% share of the packaged water market, consistently overshadowed by Nongfu Spring's 26.4%.

Unformed Second Growth Curve

Recently, several authoritative media outlets reported that Nongfu Spring, after 24 years, has launched a bottled purified water product, directly encroaching on C'estbon's territory.

The implications are obvious. China Resources Beverage's second growth curve has yet to fully mature. Despite aggressively launching new products in recent years—such as coffee, sugar-free tea, milk tea, juice, and functional sports drinks—its non-water business remains underdeveloped. For example, its tea beverage line includes 11 SKUs of herbal and sugar-free tea drinks, while its juice segment features six SKUs of low-concentration juice products.

Some of the company's products are licensed from Japan's Kirin, such as Afternoon Milk Tea, Fire Coffee, and globally sourced kitchen juice products. However, these products have failed to gain significant market traction, contributing less than 2% to the company's revenue, with sales continuing to decline. The partnership with Kirin is set to expire next year, and it remains uncertain whether it will be renewed.

To date, non-water products account for less than 10% of the company's total revenue.

Under these circumstances, doubling down on its core packaged water business may have become a consensus within China Resources Beverage. The company's proposed fundraising plan emphasizes strategic expansion, capacity optimization, accelerated sales channel expansion, digital upgrades, sales and marketing activities, and potential investments and acquisitions.

In recent years, China Resources Beverage has spared no effort in sports marketing. Since 2016, it has partnered with marathons and road races and invested heavily in top-tier football events.

This has come at a significant cost. From 2021 to 2023, the company spent 1.047 billion yuan, 963 million yuan, and 1.074 billion yuan on marketing and promotions, accounting for 9.2%, 7.6%, and 7.9% of its revenue, respectively.