"Nature's porters" fired the first shot to increase the price of bottled water in 2023.
On February 1, Nongfu Spring (09633.HK) announced to increase the price of bottled water in Hangzhou.
Although Nongfu Spring said that it has not received any notices about product price adjustments in other cities, but after the customer service suggested that users in other regions can purchase exchange cards first "just in case", the news that Nongfu Spring will increase prices in an all-round way also spread. out.
To rise, or not to rise, is probably the decision made by Nongfu Spring after waiting and watching for a long time.
Faced with the reality of rising costs and declining gross profit, Nongfu Spring finally chose to digest this pressure in the form of price increases.
As a giant in the beverage industry, after Nongfu Spring took the lead in raising prices, will other companies follow?
Under the high cost, will the price increase be the antidote for "Nongfu Springs"?
Nationwide price hike speculation
After Shanghai, Nongfu Spring’s bottled water has increased in price in Hangzhou.
On February 1, a piece of Nongfu Spring's "Notice on Price Adjustment of 19 Liters of Water in Hangzhou Area" (hereinafter referred to as "Notice") was circulated in the industry.
The reporter dialed the official website of Nongfu Spring and learned that starting from February 1, 2023, the retail price of 19L bottled water of Nongfu Spring in Hangzhou will increase from the previous 20 yuan/barrel to 22 yuan/barrel.
Regarding the reason for this price increase, Nongfu Spring said that it was mainly caused by the rising costs of commodity prices, raw materials, labor and freight.
This reason seems familiar. On December 28, 2021, Nongfu Spring issued a price adjustment announcement to adjust the retail price of 19L natural water in Shanghai from 26 yuan/barrel to 28 yuan/barrel from January 1, 2022. , for the same reason as above.
Shanghai and Hangzhou have successively raised the price of bottled water, which makes consumers in other regions speculate: Will this wave of price increases at Nongfu Spring spread across the country?
As for whether the price increase will spread to other cities, Nongfu Spring did not give a clear response, only saying that it has not received any notice yet.
"Currently, the price of Nongfu Spring bottled water in Beijing is 28 yuan per barrel. Just in case, users can buy an exchange card first, which is more favorable now." The other party suggested.
According to Xu Xiongjun, an expert in strategic positioning and the founder of Jiude Positioning Consulting Company, Nongfu Spring will first test the water in first- and second-tier cities, and then it may be extended to the whole country.
For many years, Nongfu Spring has relied on water as a stepping stone. What really makes money is some beverage products at the back end, which have higher profits.
But in the past few years, beverage sales have been hindered and growth has been slow, so Nongfu Spring has turned around and raised the price of water to achieve sustainable profitability for the company.
Shen Meng, chief strategist of Guangke Consulting, believes that product price increases are mainly related to changes in operating costs. The increase in operating costs in first-tier cities is higher than that in other cities. Therefore, for a perfectly competitive market such as bottled water, unless there is an industry-specific General price increases, otherwise there will not be a nationwide general increase in a short period of time.
Difficult to control costs and declining gross profit
The packaged drinking water business where bottled water is located accounts for more than 50% of Nongfu Spring’s revenue.
In 2021, the revenue of Nongfu Spring's packaged drinking water products will be 17.058 billion yuan, accounting for 57.4% of the total revenue.
However, judging from the financial report data in the past two years, it seems that the water business is not easy to do.
In the first half of 2022, the revenue of Nongfu Spring's packaged drinking water business increased by only 4.8%, while in the same period in 2021, this figure was 25.6%.
The proportion of packaged drinking water revenue will also drop from 58.8% in 2021 to 56.3% in 2022.
Part of the reason behind the data performance comes from cost pressures.
Since 2021, Nongfu Spring has frequently mentioned rising costs in its financial reports.
The 2022 mid-year report shows that Nongfu Spring's main raw material PET is a downstream product of crude oil, and the uncertainty of rising crude oil prices and fluctuations has put pressure on Nongfu Spring's cost control.
At the same time, it was mentioned that the group's gross profit margin decreased by 1.6% to 59.3% from 60.9% in the same period last year, mainly due to the increase in PET procurement costs due to changes in international crude oil prices.
At an analyst performance meeting in March 2022, Zhou Zhenhua, executive director of Nongfu Spring, said bluntly that the cost pressure has "exceeded the level that the company can unilaterally digest", and Nongfu Spring's first choice is to digest costs by improving operating efficiency. The market and cost have fluctuated greatly, and competing products have also adjusted their prices. Nongfu Spring is also continuing to wait and see.
Faced with cost pressures, Nongfu Spring, the leading water company, took the lead in raising prices at the beginning of the year. Will other companies in the industry join the wave of price increases this year?
And under the high cost, is the price increase the antidote for "Nongfu Springs"?
In Xu Xiongjun's view, the rise in raw material prices is the core reason for the increase in the cost of Nongfu Spring.
In recent years, with the trend of consumption upgrading and the change of consumption awareness, some consumers are willing to pay higher prices for better drinking water.
Of course, in the face of cost pressures, product price increases are a better way for companies to relieve pressure.
Zhu Danpeng, an analyst in China's food industry, believes that this wave of price increases at Nongfu Spring should not really increase much in actual operations.
Because China's drinking water competition has entered a very introverted cycle, Nongfu Spring does not have advantages in terms of water species; from brand effect to scale effect, Nongfu Spring has advantages but not crushing advantages.
Other water companies should not follow up with price increases.
According to Beijing Business Daily