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Friday, December 4, 2015, 11:55

China seeks safe ways to quench thirst

By KARL WILSON in Sydney and PEARL LIU in Hong Kong

Domestic bottled water beats foreign brands in soaring sector as pollution fears and rising incomes drive demand

China seeks safe ways to quench thirst
Bottles of mineral water on display at a supermarket in Nantong, eastern China’s Jiangsu province. China is now the world’s biggest consumer and producer of bottled water and has more than 1,500 domestic brands. ( CHINA OUT / AFP)

Fears of pollution and rising incomes across China have led to the creation of a very large market for bottled water.

China is home to more than 19 percent of the world’s population but has less than 7 percent of the world’s potable water. And much of the water in the rivers and lakes across the country needs significant processing before it can be safely consumed. Virtually nobody is willing to drink what comes out of the tap without boiling it first.

“The central thing is that a large majority of people really do not trust the water they get from the tap,” said James Roy, associate principal at the China Market Research Group, a strategic market intelligence firm.

“People are terrified of water pollution as well as soil pollution and air pollution.

“They are seeking safer water sources, as well as the packaging. When it comes to bottled water, people also have concerns about the plastic packages, whether they are toxic or not.”

As a result, in the last two decades China has become the world’s biggest consumer and producer of bottled water. The market is unique in that imported water is not necessarily seen as better than domestically produced brands.

The market is less unique in that it is both highly fragmented and highly localized. China has more 1,500 local brands of bottled water, with only three sold nationally, and 100 leading companies hold over 60 percent market share.

According to market research group Euromonitor, as China’s living standards continue to improve, consumers are becoming more demanding when it comes to the water they drink.

“There is definitely a need for more premium water sources which have much better guarantee of quality and safety,” said Roy.

“At the same time, they have an increasing emphasis not just on quality and safety, but also on health and nutrition. More people are drinking mineral water for nutritional benefits, which go beyond ‘safety’.”

To meet demand, manufacturers have restructured their product portfolios and shifted their focus from “bottled purified water to bottled natural mineral water”, according to a Euromonitor report, Bottled Water in China , released earlier this year.

“Given the nature of bottled water products, differentiating and standing out from the crowd becomes a key challenge for many brands,” said Laurel Gu, senior research analyst at Shanghai-based Mintel Information Consulting.

Focus on source

“Highlighting the origin of the water in a bottle is a most straightforward way to differentiate a product,” Gu said.

“We have seen many domestic brands working on establishing their competitive advantages through secure, unique and high-quality water resources over the years.”

For example, Baisuishan, a domestic brand in the high-end segment, uses the location of its water source as the brand name, similar to the French brand Evian. Another rising star is Tibet 5100, which sources its water from glaciers at an altitude of 5,100 meters in the Tibet autonomous region.

“The market is led by domestic manufacturers,” said Gu. “The imported products and international brands are facing the pressure from consumers’ changing attitudes.”

Only 19 percent of bottled water drinkers consider that imported water is better, the second-least popular attribute for premium products.

“With the competition intensifying and the aura surrounding international brands fading, leading international brands are showing a significant retreat in terms of market share.”

Gu pointed out that Danone and Nestle have both suffered from a significant dip in their market share in 2014. Euromonitor’s report noted that a number of companies have changed focus to aim at the premium segment, which has the promise of higher returns.

For example, President Enterprises (China) Investment Co has now exited low-priced bottled water to focus on the mid- to high-priced natural spring water.

Another example is Ting Hsin International Group, one of the leading players in China’s bottled water industry, which launched the Master Kong brand of mineral water last year to “meet the growing needs of China’s affluent consumers in their pursuit of healthy and quality lifestyles”, according to Euromonitor.

Evergrande Spring Group — a unit of mainland property developer Evergrande Real Estate Group — registered the strongest sales growth in 2014 of 358 percent.

“Evergrande Spring was positioned as a high-end bottled still spring water,” Euromonitor said. “The company employed multiple distribution channels to sell the product, based on its strong distribution capability.”

Euromonitor added that Evergrande Spring broadcast advertisements on more than 60 television channels in over 30 cities to achieve multi-frequency exposure within days, driving sales.

It is not only companies that tap into the opportunities but entire regions, particularly those with the most natural resources.

Recently, officials in Tibet announced a massive upgrade of its bottled water manufacturing along the Qinghai-Tibet plateau — known as Asia’s water tower.

The 10-year plan calls for a massive expansion of the industry in the region with a target to build 5 million cubic meters of bottled water production capacity by 2020.

Liu Hongqiao, a researcher at China Water Risk, said both the local and central governments have “shown strong political will to expand the industry”, adding that the provincial government has set up a special office to facilitate the industry’s development.

“Financial support and preferential tax policies are also issued to support the industry. Capitals and investors are also moving fast,” said Liu, who is also the author of a report titled Bottled Water In China — Boom Or Bust?

Water produced upstream among snow-capped peaks is also perceived as pure, commanding a premium.

This has led to a huge influx of companies hoping to cash in on the region’s water resources.

Premium push

Although it only makes up a very small proportion of China’s annual bottled water production, such premium water is seen as the new point of growth for the country’s booming industry.

“The competition might intensify with more companies and brands marketing Tibetan natural water, but that’s a sustainable issue for investors to figure out. Generally speaking, the industry is as profitable as oil, if not more profitable, as the financial world calls it ‘blue gold’,” said Liu.

The Qinghai-Tibet plateau is already hotly contested by the bottled water industry with 28 licenses to produce bottled water already approved.

Bottled water operations are also growing rapidly in neighboring Xinjiang, Qinghai and Yunnan provinces, with companies even producing water straight from glacier tongues, according to Chinese media reports.

Gelaixue Glacier Water is one such company. According to its official website, its water comes from the glacier tongue of the “No 1 Glacier” — which sits 4,480 meters high in the Tianshan mountains in the Xinjiang Uygur autonomous region.

The company and its partner, the Tianshan Glaciological Station of the Chinese Academy of Sciences, have not disclosed any details about the exploitation process or the environmental impact of its activities.

What is clear, however, is that the glacier is melting rapidly — at a rate of 4 to 8 meters every year.

Companies are also tapping glaciers in the Qomolangma mountain range, known as Mount Everest in the West. Qomolangma Glacier Water bottles water from the Qomolangma National Nature Reserve, 80 kilometers from the Everest Base Camp.

In the Pamir range near Tajikistan, Pamirs Ancient Glacier Water bottles spring water at the foot of the Ata peaks.

This is just the beginning of the rush to exploit the region’s water resources. Cash-rich companies in sectors including pharmaceutical, confectionery, petroleum and biotechnology all want a piece of the pie.

Last year, the Tibetan provincial government also set up a 250 million yuan ($39 million) development fund to promote the industry. Companies investing in bottled water now enjoy preferential tax rates, income tax exemptions and low-interest loans.

With the support of local and central governments, companies have moved fast. Since early 2015, the State-owned energy giant Sinopec has sold glacier water bottled from Tibet in its 23,000 petrol stations and convenience stores across China.

Contact the writers at karlwilson@chinadailyapac.com

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