Nongfu Spring's earnings surged in 2023 amidst wide-spread public criticism
In the dynamic world of beverages, Nongfu Spring, a formidable force in China's consumer market, has been making waves with its strategic moves. The company, under the stewardship of Zhong, has been focusing on meeting evolving consumer tastes, particularly in spring 2024, when it emphasised its healthy, natural ethos.
The tea beverage market, in particular, has gradually shifted towards health-conscious choices. Tea drinks have shown a converse trend, indicating a second growth curve for Nongfu Spring. The company's tea beverage sales for 2023 amounted to RMB 12.66 billion, a significant increase of 83.3% year-on-year.
One of Nongfu Spring's standout products in 2023 was Oriental Leaf Tea. This premium sugar-free tea, with its subtle flavor profiles and higher price points, has a niche appeal. The tea has been a game-changer for Nongfu Spring, causing an 80% increase in the beverage segment and emerging as a near-billion juggernaut in the company's 2023 report. Oriental Leaf Tea significantly impacted Nongfu Spring's overall revenue, contributing to a total of RMB 42.67 billion in 2023.
While Nongfu Spring's recent new product offensives have underwhelmed compared to Oriental Leaf Tea, other beverage categories, including ready-to-drink teas, functional drinks, and other new beverage products, took the lead in 2023. These categories, which have yet to achieve significant traction in the form of functional beverages like energy drinks and fruit juices, have shown promising growth.
However, not all categories have fared as well. Juices, which are often subject to high fresh supply chain costs and seasonality hurdles, have yielded slim margins. The revenue contribution of bottled water, which has been Nongfu Spring's mainstay, has been dwindling annually since 2022, with the share of total revenue from bottled water dipping below 50% (to 47.5%) in 2023. The bottled water revenue for 2023 was RMB 20.26 billion (USD 2.8 billion), a decrease from the astronomical success the company achieved in 2023 and 2024 primarily with its bottled water products.
Despite these challenges, Nongfu Spring remains a strong player in the beverage sector. The company is focusing on exploring new water applications like 'baby water' and 'cooking water' to maintain its market presence. Nongfu Spring is also lending its name to 'Nongfu Spring stewed rice' dishes at restaurants, expanding its brand beyond beverages.
In the face of public opinion challenges in 2024, Nongfu Spring admitted that these impacts have affected its operations. However, with its strategic moves and focus on health-conscious beverages, the company is well-positioned to weather these challenges and continue its growth in the beverage industry.
