The growth of China's bottled water market is slowing but Chinese consumers are sipping more and more of the high-end stuff.
China's imports of mineral waters and aerated waters more than doubled between 2013 and 2017, from 1,159 shipments worth $23.6 million to 2,553 shipments worth $65.7 million, according to Panjiva Research, a division of S&P Global Market Intelligence. France and Italy are the top two exporters.
"Drinking luxury water is more than just for the pursuit of health, it is also considered as a statement [about having a] connoisseur lifestyle and social status in China," said Northeast Securities' analyst Li Qiang. "With more consumers growing capable of affording higher-priced products, we expect the premium bottled water market to grow faster than the broader beverage market."
According to a Mintel survey of about 3,000 people, 50% of Chinese consumers aged between 20 and 49 years old consumed unflavored sparkling water in 2016, up from 29% in 2015, and 60% consumed flavored sparkling water in 2016, an increase from 30% in 2015. Mintel's research does not specify how often consumers drank those types of water over the course of a year.
China's overall market for bottled water is starting to slow down, coming off a boom over the past decade. Per capita consumption of bottled water has quadrupled over the past decade to 20 liters in 2017 from 5 liters in 2007, amid rising levels of disposable income, increasing mobility and fear of water pollution, according to Mintel.
Retail sales of bottled water in China are forecast to reach 27 billion liters in 2017 from 25 billion liters in 2015. The annual growth rate has slowed from 5% in 2015 to 4.2% in 2017 and it is seen slowing to 2.8% by 2021, Mintel said.
Loris Li, associate director of food and drink at Mintel, said mass market water brands such as Wahaha, operated by Hangzhou Wahaha Group Co. Ltd., and Master Kong, owned by Tingyi (Cayman Islands) Holding Corp., have been under pressure to differentiate themselves from the crowd in recent years as the market matures.
"With more Chinese consumers drinking bottled water, it's difficult to distinguish among mass market brands, since there are no obvious gaps in product features and pricing," she said. "The implication for brands now is that they need to focus on premiumization and differentiation to create new business opportunities."
Ten companies, including local companies such as China Resources and foreign giants including Coca-Cola Co., Nestlé SA and Danone, dominate approximately 50% of China's bottled water market, according to data from Euromonitor International. The remaining is split up by hundreds of other smaller players, with each having less than 0.5% of the total market share.
In China, premium bottled water typically costs about 10 yuan per bottle, compared to the price of mass market brands, which range from 1 to 3 yuan. The gross profit margin for the premium brands is about 70%, compared to approximately 30% for mass market brands, Li Qiang said. Drawn by the higher profitability, a number of domestic Chinese companies have set their sights on the upscale segment, he added.
High-end water brands often target newly affluent Chinese consumers through cafes, high-end restaurants, premium offline outlets and e-commerce channels. Pristine water sources are used as key selling points for luxury water in China, with domestic companies touting origins such as Tibet glaciers, Tian Shan Mountains in Xinjiang, Changbai Mountains in northeast China and Bama, a county in Guangxi province known as the "land of longevity."
Shenzhen Ganten Food and Beverage, for example, in 2017 launched Blairquhan, a brand named after a Scottish castle that costs about 10 yuan for a 348-milliliter bottle. Nongfu Spring Co. Ltd., one of China's largest mass-market bottled water producers, also released a series of luxury mineral waters, which it said is bottled at Changbai Mountains and contains low levels of sodium. A glass bottle containing that water carries a retail price of about 45 yuan, while a regular plastic bottle of plain Nongfu water goes for as little as 1 yuan.
Nongfu Spring's parent, Yangshengtang Co. Ltd., has seen its share in the domestic bottled water retail market inch up to 9.9% in 2017 from 8.1% in 2015, according to data provided by Euromonitor. Nongfu Spring is the only bottled water brand in Yangshengtang's product portfolio. Meanwhile, Shenzhen Ganten's market share has grown to 3% from 2.4% during the same period, the data showed.
The luxury water trend also bodes well for foreign brands such as Fiji Water and Danone's Evian, thanks to their established history in the upscale segment in Europe and North America. "In the high-end sector, imported brands still have advantages in branding and prestige," said Li Qiang.
Swiss food and beverage giant Nestlé, which has been selling bottled water in China since the 1990s, is upbeat on the market potential. The group's sparkling mineral water brands Perrier and San Pellegrino have enjoyed double-digit annual growth in China since 2010, while the country has already surpassed Japan as the largest market in Asia for Perrier, according to a spokeswoman. The company declined to give specific sales figures for China.
"The China market is a key priority for us. Nestlé is confident in the long-term growth of our water business in China," she said.
As of April 19, US$1 was equivalent to 6.28 yuan.