The hidden worries behind the myth of Nongfu Spring’s gross profit margin are the peak when listed. Is it still happy to "move water"?

There are not many hot-searched news on the capital market, but the "richest man" is always happy to see it.

On September 8, 2020, an ordinary Tuesday, a name that is unfamiliar and hard to read-Zhong Sui Sui successfully made the headlines of major media.

The man at the helm of Nongfu Spring was successfully placed on the throne of the richest man in China on the day his stock was listed, and has since become the richest man in Asia in one fell swoop.

Most investors should have predicted that Nongfu Spring’s stock price will create a miracle, but most people probably cannot imagine how strong it is in the capital market.
In the six months since its listing, the market value of Nongfu Spring has exceeded 2 Yili, 6 Master Kong, and 11 Unity.
.
.

What created the myth of the richest man in Nongfu Spring, and what made a "porter" go further and further?

This article will lead readers to explore Nongfu Spring’s "water-moving" business from three aspects:

1.

Is the gross profit margin nearly 60% sustainable?

2.

It's not easy to be a good "porter"

3.

From selling water to selling beverages, where is the boundary of Nongfu Spring?

1.

The hidden worries behind the myth of gross profit margin

1.
The hidden worries behind the myth of gross profit margin

Compared with its peers, Nongfu Spring’s gross profit margin is simply a mystery.

While the gross profit margin of Master Kong and Uni-President was still struggling in the 30% range, Nongfu Spring's gross profit margin increased for three consecutive years, reaching 59.

86% in H1 in 2020.
Although it declined slightly by the end of the year, it remained at 59.
05%.

This means that if you also sell a bottle of water, Nongfu Spring can make twice the gross profit of Master Kong.

Why is Nongfu Spring’s gross profit margin so much higher than that of its peers?

Why is Nongfu Spring’s gross profit margin so much higher than that of its peers?

Generally speaking, water is everywhere in nature, but there are not many water sources with good water quality.

Therefore, the early occupied water source is one of the most important commercial barriers to Nongfu Spring; the widely distributed water source can directly sell the water to the market nearby, which also reduces the transportation cost.
This makes its gross profit much higher than its peers.

But in fact, there are uncertainties behind this abnormally high gross profit margin, among which the biggest uncertain factor lies in the "bottle.

"

According to the semi-annual report of Nongfu Spring, the continued growth of gross profit margin is due to the decline in the price of PET raw materials.

PET is used as the raw material for plastic bottles, and its cost accounts for nearly 30% of the total cost of sales.
Since PET is obtained through petroleum cracking, oil prices have a direct impact on PET prices.

According to Wind's data, since February 2020, crude oil prices have continued to fall, which has directly led to the continued decline in PET prices, and the average purchase price of PET at Nongfu Spring has also fallen below 6000 yuan/ton.

When we continue to disassemble the cost, we can find that although the cost of PET is declining in absolute terms, in reality, the average purchase ton price of PET from Nongfu Spring has surpassed the average ex-factory ton price.

It can be seen from the figure that the average ex-factory price of PET in 2017 was 6761 yuan/ton.

At this time, the price of Nongfu Spring’s purchase of PET was 6426 yuan/ton, which was only about 95% of the former; since then, this gap has gradually narrowed to In 2019, the average ex-factory price of PET was 6,706 yuan/ton, which has been lower than two years ago.
At this time, the price of Nongfu Spring’s purchase of PET rose to 7,074 yuan/ton, which was 105% of the average ex-factory price.

One after another, the cost of Nongfu Spring's PET has risen by 10%.

In addition to the "bottle", the myth of Nongfu Spring's overall gross profit margin is also closely related to "water".

As we all know, the business of Nongfu Spring is mainly "water".

For the whole year of 2020, the company’s revenue from “moving water” from nature accounted for 61.
05%, while the second-place tea beverage accounted for only 13.
50%.

After weighting, nearly 60% of the gross profit margin of Nongfu Spring is based on the contribution of water and tea.
Among them, the gross profit margin of packaged drinking water, which is the most profitable, has stabilized at about 65%, accounting for the majority.

In the remaining products, whether it is functional drinks, juice drinks, soda, coffee, etc.
, gross profit margins are dragging down.

It can be seen that, although the overall gross profit margin of Nongfu Spring is steadily increasing, the cost fluctuation of "bottle" and the strong position of "water" in the revenue structure are all factors that cannot be ignored.

2.
Moving water is not easy

2.
Moving water is not easy

As a "porter of nature", Nongfu Spring has ten water sources across the country.
Judging from the map, these ten water sources are fairly evenly distributed, covering key ecological protection areas such as Changbai Mountain, Qiandao Lake, and Danjiangkou.

However, the question of what kind of water is Nongfu Spring has puzzled many consumers.

We organized a small survey within a limited scope, taking Nongfu Spring’s highest-selling and oldest “2 yuan water” picture as the title, and giving it three options, “pure water”, “mineral water” and “other”.
Among the 24 people who participated in the survey, 18 people thought the water was mineral water, 2 people thought it was pure water, and 4 people chose other.

However, the truth is always in the hands of a few people.
According to the classification, this bottle of water we are so familiar with is neither pure water nor mineral water, but belongs to "natural drinking water", that is, natural water.

Among the ten water sources of Nongfu Spring, nine can produce "2 yuan water", but only two can produce the "3 yuan water" shown in the figure below.

According to the product introduction of Nongfu Spring's natural mineral water, the "3 yuan water" comes from the water source of Moya Spring in Changbai Mountain.

Therefore, it is not difficult to infer that Nongfu Spring's "distribution of water sources in various places" refers only to the category of natural water, while the "3 yuan mineral water" only comes from Changbai Mountain.

In addition to the ten water sources in the picture, the latest water source constructed by Nongfu Spring is the Wuyi Mountain in Fujian where "tea water" is used.
However, since the start of construction, controversy has continued, and public interest litigation has been triggered due to "destroying forests for water".

According to media reports, the Nongfu Spring took water through the water intake facilities, resulting in the exposure of the river bed of the downstream mountain stream, thereby destroying the local flora and fauna.
After this issue was reported, Nongfu Springs in turn sued the reporter for infringement of reputation, and then took the initiative to withdraw the lawsuit.
.
.

Although the "Porters of Nature" is very successful in the education market, after distinguishing between "natural water" and "mineral water", you will find that its layout is not as perfect as imagined.

After the “porters” collect and pack the water, they have to rely on distributors to sell it to consumers.

However, how many specific dealers there are, Nongfu Spring I am afraid I can't even count them.
This is the unique and extensive first-level dealer model of Nongfu Spring.

It wasn't until the time of listing in 2020 that Nongfu Spring began to sign a tripartite agreement with a small number of potential sub-distributors in the township market.
Before that, Nongfu Spring was only responsible for the continuous development of first-level distributors, and did not have any contact with second-level or even lower-level distributors.
On the better side, this allows dealers to have a sense of ownership and stimulate their potential; on the worst, this is to put the responsibility on the first-level dealers, making many dealers miserable, and even causing market chaos.
.

For example, some dealers borrowed Nongfu Spring’s signs to open convenience stores in lower-tier cities.
These stores that had no legal relationship with the company blatantly branded the "Nongfu Spring" label, but once there was a product quality problem, customers would have nowhere to complain.

In 2019, some media reported that a dealer in Central China who did not complete the target task was 1% short of the bid.
Due to the lack of bidding, no one was interested in the inventory, he lost his identity as a dealer, and the inventory of nearly 400,000 was difficult to digest.

Nongfu Spring’s rigid criteria for selecting distributors is that 80% of the target tasks must be completed to be eligible.
But for the threshold of "80%", Nongfu Spring was able to find new distributors to take over the task and relocate in the past.
When the epidemic hits in 2020, the average income contributed by the dealers in the first five months of Nongfu Spring is only 1.
82 million.
Yuan/Name.
Due to the lack of channel support for sub- and lower-level distributors, according to this figure, the average contribution income of each first-level distributor in 2020 may be regressed to the level of 2017.

In addition, 93.
6% of Nongfu Spring’s revenue in 2019 came from distributors.
Based on this trend, Nongfu Spring’s revenue in 2020 will be hit hard.

The distribution of water sources fell short of expectations, the distribution model lacked control, and the business of Nongfu Spring's "porters" was not easy to do.

3.
New category expansion is a bit difficult

3.
New category expansion is a bit difficult

As we all know, the marketing level of Nongfu Spring is outstanding, and the advertising slogan resounds across the country.

However, there are many opponents of Nongfu Spring in the drinking water world-there are representatives of pure water including Cestbon and Wahaha, and representatives of mineral water include Master Kong, Baisui Mountain, Kunlun Mountain.
.
.

From the perspective of sales volume, the pure water that dominates with a price advantage of 1-1.
5 yuan per bottle is actually the real bigwig in the drinking water industry, accounting for more than 60%.
Nongfu Spring, which has long since retired from the world of pure water, can only look for market opportunities with slightly more expensive natural water.

Although "natural water" sounds tall, but with its total share of about 22.
3%, it is still difficult to compete with pure water players.

According to Frost & Sullivan's data, natural water is expected to maintain a compound annual growth rate of 16.
7% from 2020 to 2025.
If calculated at this compound growth rate, the share of natural water in 2025 will still not reach 30%.
On the other hand, for purified water with a large base, even if the compound annual growth rate is slightly lower than that of natural water (12.
5%), the category share is still more than twice that of natural water, which is expected to reach 61.
6%.

In this way, drinking water is worthy of the name, but only relying on natural water to "walk on one leg", the development space is worrying.

Of course, Nongfu Spring is not unrelenting.
It has also begun to deploy in other product lines, but the brand power is not so prominent.

When we talk about other brands of beverages, we often bring brands-such as "Master Kong Green Tea" and "Uniform Fresh Orange", but Nongfu Spring's weakening of the brand makes it difficult to form associations between products.
Because each product has a specific advertising slogan and is not tied to Nongfu Spring, it is difficult to break through the original market layout with the help of the "brand".

For example, in terms of tea drinking, Nongfu Spring has pushed tea π violently.
The "strange" name coupled with the fierce offensive of the "Tea π, self-contained" slogan, coupled with the strong push of the spokesperson, made the product quickly enter the public eye.

However, the two big brothers in the tea beverage market, Master Kong and Uni-President, have become overlords in this land, and the two together accounted for 66.
8% of the market (2019).
The horror of this number is that even if Nongfu Spring deliberately promotes tea, the "Big Mac" in front is not easy to provoke.

In order to highlight differentiation, Nongfu Spring focuses on high-end products.
For example, oriental leaves and tea π, the unit price of 15 bottles (500ml*15) must exceed 4.
2 yuan/bottle, while the unit price of Master Kong green tea for the same specifications is only 3.
3 yuan/bottle.
Not to mention NFC juice, it is the Evian of the juice industry.
The unit price of 10 bottles (300ml*10) is as high as 6.
5 yuan per bottle.

High-end layout is indeed a good choice when the parity market is saturated, but Nongfu Spring is still open for discussion.
The reason is still inseparable from its uncompleted single-tier distribution strategy.

On the other hand, Master Kong has implemented a "channel intensive farming" system since 1998, dividing customers into three types: third-tier, second-tier, and first-tier.
The route is shortened, and for first-tier retailers, it is divided into very detailed and special supporting facilities.
For service, the mall is directly operated by the company’s account opening.
The general supermarkets, tobacco and liquor stores and special channels have different dealers to serve.

This channel layout makes it extremely fast to distribute goods.
According to Master Kong, it only takes two weeks for a new product from the factory to the final terminal.

，、，，“”。，。，，。

4.

4.

2020，，。，，87.
45%，75.
15%（）。

，。

，，68.
75/40.
95/（325），40%。5000，？

：

：，！

xianjichina.
com">，