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Bottled Water - China - March 2015

“The bottled water market has become increasingly polarised with a dominant low end, squeezed profit margins and a booming high-end market facing increasingly intense competition. As such, the low-end market is moving towards an oligopoly and smaller players are forced to withdraw from the market due to their inability to reach a sustainable level of scale.

Owing to the high margins and the rapid expansion, the high-end segment is attracting new entrants. Domestic brands are gaining momentum in both segments. With the huge influx of imported food and drink products in both online and offline channels, the imported products and international brands are facing pressure from consumers’ changing attitudes. With the competition intensifying and the aura surrounding international brands fading, the once solid competitive advantage has shown signs of disappearing.”
– David Zhang, Senior Drink Analyst

This report answers the following questions:

  • Are at-home occasions the growth engine for bottled water in the future?
  • How to appeal to young female consumers aged 20-24?
  • Is it still too early to premiumise bottled water products using ethical claims?
Despite bottled water being a drink suitable for on-the-go occasions, at-home usage could be the next growth engine for the largely saturated market, in particular when it comes to premium bottled water.

In addition, when it comes to out-of-home occasions, targeting young female consumers aged 20-24 by highlighting the relaxing out-of-home occasion tends to offer brands the highest level of CLV. More importantly, the spill-over effect from female consumers to their male counterparts highlights the urgency for brands to maintain a solid user base among young female consumers.

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Table of contents

  1. Introduction

      • Definition
        • Methodology
          • Abbreviations
          • Executive Summary

            • A polarised market poses uncertainties
              • Figure 1: Best- and worst-case forecast of China retail sales of bottled water, by value, 2009-19
              • Figure 2: Best- and worst-case forecast of China retail sales of bottled water, by volume, 2009-19
            • Market drivers
              • The overhaul of the existing regulatory system
                • The development of high-quality water sources
                  • The quality scandal and its impact
                    • Luxury, necessity or both?
                      • Reduced cost of packaging provides breathing space for many brands
                        • The consumer
                          • Still, unflavoured water dominates the market
                            • Figure 3: Penetration of different types of bottled water products, November 2014
                          • Health concerns over the added flavour pose the main barrier
                            • Figure 4: Reasons for not drinking flavoured water, November 2014
                          • Consumers are more likely to trade up for out-of-home occasions
                            • Figure 5: Change in bottled water consumption behaviour – in home and out of home, November 2014
                          • At home is the least popular occasion for drinking bottled water
                            • Figure 6: Bottled water drinking occasions, November 2014
                          • Environmentally friendly claims gaining momentum in the premium segment
                            • Figure 7: Attributes associated with premium bottled water, November 2014
                          • Bottled water maintains its unique competitive advantages
                            • Figure 8: Correspondence analysis, November 2014
                          • What we think
                          • Issues and Insights

                              • Are at-home occasions the growth engine for bottled water in the future?
                                • Facts
                                  • Implications
                                    • How to appeal to young female consumers aged 20-24?
                                      • Facts
                                        • Implications
                                          • Figure 9: Percentage point differences of the penetration of bottled water when relaxing out of home, by age, November 2014
                                          • Figure 10: Penetration of flavoured still water, by age and gender, November 2014
                                          • Figure 11: Selected attributes associated with bottled water, by age, November 2014
                                        • Is it still too early to premiumise bottled water products using ethical claims?
                                          • Facts
                                            • Implications
                                            • Trend Applications

                                                • Factory Fear
                                                  • Figure 12: Label of Triple-X vitamin drink from Coca-Cola, Q4 2014
                                                • Slow It All Down
                                                    • Figure 13: Aromatic sparkling water launched by Pokka Sapporo in Japan, Q2 2014
                                                  • Objectify
                                                    • Figure 14: Water Air bottles water product, February 2015
                                                • Market Drivers

                                                  • Key points
                                                    • The overhaul of the existing regulatory system
                                                      • The development of high-quality water sources
                                                        • The quality scandal and its impact
                                                          • Luxury, necessity or both?
                                                            • Figure 15: Urban households’ disposable income, 2005-13
                                                          • Reduced cost of packaging provides breathing space for many brands
                                                            • Figure 16: Crude oil monthly average prices in RMB, January 2010-November 2014
                                                        • Market Size and Forecast

                                                          • Key points
                                                            • Polarised market poses uncertainties
                                                              • Figure 17: Value and volume retail sales for bottled water in China, 2009-19
                                                              • Figure 18: Best- and worst-case forecast of China retail sales of bottled water, by value, 2009-19
                                                              • Figure 19: Best- and worst-case forecast of China retail sales of bottled water, by volume, 2009-19
                                                            • Forecast Methodology
                                                            • Market Share

                                                              • Key points
                                                                • Figure 20: Market share of bottled water market in China, by value, 2012-14
                                                                • Figure 21: Market share of bottled water market in China, by volume, 2012-14
                                                            • Who’s Innovating?

                                                              • Key points
                                                                • Lung-cleansing drinks in the PM2.5 era
                                                                  • Figure 22: Loquat drinks launched in China, 2014
                                                                  • Figure 23: Mung bean water launched by Youyang in China, Q4 2013
                                                                • Juice, but lighter; water but sweeter
                                                                  • Natural claims reaching their roof
                                                                    • Figure 24: The ingredient claims of new product launches in China, 2012-14
                                                                    • Figure 25: Bamboo charcoal water launched by Jingshantang in China, Q3 2014
                                                                  • Bottled water with fortified vitamins is on the rise…
                                                                    • Figure 26: Product claims of new product launches in the bottled water market in China, 2012-14
                                                                    • Figure 27: Glacéau Vitaminwater product launched by Coca-Cola, Q3 2014
                                                                    • Figure 28: Suntory Life Partner launched in Japan, Q1 2014
                                                                  • …ethical claims show slow but steady growth
                                                                    • Figure 29: Lemon and clear water included in Japan, Q2 2014
                                                                  • Glass is the rising star in packaging material
                                                                    • Figure 30: Packaging material used in new products, 2010-14
                                                                  • Making online the sole retail channel
                                                                  • Brands and Companies

                                                                    • Master Kong
                                                                      • Wahaha Group
                                                                        • Challenges in 2014
                                                                          • New products
                                                                            • Nongfu Spring Co. Ltd
                                                                              • China Resources Enterprise
                                                                                • Jiangxi Runtian Beverage Co. Ltd.
                                                                                • The Consumer – Penetration of Different Types of Bottled Water

                                                                                  • Key points
                                                                                    • Still, unflavoured water dominates the market
                                                                                      • Figure 31: Penetration of different types of bottled water, November 2014
                                                                                      • Figure 32: Penetration of different types of bottled water products, November 2014
                                                                                    • Consumers from tier one cities are trading up
                                                                                      • Figure 33: Penetration of selected types of bottled water, by city tier, November 2014
                                                                                    • Residents in Chengdu enjoy flavoured water more than others
                                                                                      • Figure 34: Penetration of flavoured bottled water in Chengdu, November 2014
                                                                                    • Cross-selling sparkling water with premium still products shows potential
                                                                                      • Figure 35: Penetration of bottled water products, by type of bottled water users, November 2014
                                                                                    • Female consumers aged 20-24 are more likely to drink flavoured still water
                                                                                      • Figure 36: Penetration of flavoured still water, by age and gender, November 2014
                                                                                    • Sparkling water’s triumph of at-home occasions
                                                                                      • Figure 37: Penetration of sparkling water, by occasions, November 2014
                                                                                  • The Consumer – Reasons Not to Drink Flavoured Water

                                                                                    • Key points
                                                                                      • Health and efficacy of thirst-quenching pose the main barriers
                                                                                        • Figure 38: Reasons for not drinking flavoured water, November 2014
                                                                                      • Lighter flavoured water shows potential to attract more female consumers…
                                                                                        • Figure 39: Agreement with the statement “I prefer drinking water that is not thirst-quenching”, by age and gender, November 2014
                                                                                      • …functionality is important to convert male non-drinkers
                                                                                        • Figure 40: Agreement with the statement “It’s useless to add flavours only without other benefits”, by gender, November 2014
                                                                                        • Figure 41: Triple-X Vitamin water launched by Coca-Cola, Q4 2014
                                                                                      • The premiumisation route for flavoured water
                                                                                        • Figure 42: Selected reasons for not drinking flavoured water, by usage of premium bottled water, November 2014
                                                                                        • Figure 43: Sicilian Lemon & Crushed Mint Flavoured Water launched in Japan, Q3 2013
                                                                                    • The Consumer – Change of Consumption Behaviour

                                                                                      • Key points
                                                                                        • Consumers are more likely trade up at out-of-home occasions
                                                                                          • Figure 44: Change of bottled water consumption behaviour – in home and out of home, November 2014
                                                                                        • Female consumers aged 20-24 are reducing their spending and drinking frequency in at-home occasions
                                                                                          • Figure 45: Change of bottled water consumption behaviour, by age and gender, November 2014
                                                                                          • Figure 46: Advert by Nestlé in 2014
                                                                                          • Figure 47: The rose water flavoured bottled water product launched in China, Q4 2014
                                                                                          • Figure 48: Daily-C Vitamin Water product launched by Lotte in South Korean, Q2 2013
                                                                                        • Having children encourages consumption of bottled water at home
                                                                                          • Figure 49: Change of bottled water consumption at home, by presence of children in the household, November 2014
                                                                                          • Figure 50: Advert of the pure life bottled water product from Nestlé in China, 2014
                                                                                          • Figure 51: Mom & Baby Premium Alkaline Water launched in South Korea, Q4 2013
                                                                                          • Figure 52: Natural water for baby launched by Qomolangma Glacier in China, Q2 2014
                                                                                          • Figure 53: Retail channels, by presence of children in household, December 2013*
                                                                                        • Chengdu shows the potential to a key growth engine for at-home occasions
                                                                                          • Figure 54: Bottled water consumption index, by selected cities, November 2014*
                                                                                        • The alarming sign of shrinking demand from tier two and tier three cities
                                                                                          • Figure 55: The change of drinking frequency when drinking bottled water out of home, by city tier, November 2014
                                                                                      • The Consumer – Drinking Occasions

                                                                                        • Key points
                                                                                          • At home is the least popular occasion for drinking bottled water
                                                                                            • Figure 56: Bottled water drinking occasions, November 2014
                                                                                            • Figure 57: Bottled water drinking occasions, November 2014
                                                                                          • Young women aged 20-24 enjoy bottled water when relaxing out of home
                                                                                            • Figure 58: Consumption of bottled water when ‘relaxing out of home’, by gender and age, November 2014
                                                                                            • Figure 59: Percentage point differences of consumption penetration of bottled water, by age, November 2014
                                                                                          • Young consumers are more likely to drink bottled water when socialising with friends
                                                                                            • Figure 60: Penetration index* of drinking bottled water when socialising with friends, by age, November 2014
                                                                                          • Eating out occasion shows a skew towards lower tier cities
                                                                                            • Figure 61: Penetration of bottled water when eating out, by city tier, November 2014
                                                                                          • At home – the go-to occasion for premiumisation
                                                                                            • Sparkling water drinkers enjoys higher penetration in at-home occasions
                                                                                              • Figure 62: Penetration of drinking bottled water at home, by type of bottled water, November 2014
                                                                                            • Consumers are more likely to drink premium bottled water at home
                                                                                              • Figure 63: Drinking occasions, by types of bottled water, November 2014
                                                                                              • Figure 64: The rose water flavoured bottled water product launched in China, Q4 2014
                                                                                          • The Consumer – Attributes Associated with Premium Bottled Water

                                                                                            • Key points
                                                                                              • Purified water has limited potential in the high-end segment
                                                                                                • Figure 65: Attributes associated with premium bottled water, November 2014
                                                                                              • Environmentally friendly claims gaining momentum in the premium segment
                                                                                                  • Figure 66: Lemon and clear water included in Japan, Q2 2014
                                                                                                • Using all-natural ingredients to give flavoured bottled water a premium image
                                                                                                  • Imported bottled water products give brands limited leverage
                                                                                                    • Figure 67: Imported bottled water section in a local supermarket, Shanghai China, February 2015
                                                                                                  • Men care more about the brand on the bottle
                                                                                                    • Figure 68: Selected attributes associated with premium bottled water, by gender, November 2014
                                                                                                  • Environmentally friendly products appeal to young female consumers aged 20-24
                                                                                                    • Figure 69: Agreement with environmentally friendly being an attribute of premium bottled water, by gender and age, November 2014
                                                                                                  • High-end packaging works better for young consumers aged 20-24
                                                                                                    • Figure 70: Agreement with high-end packaging being an attribute of premium bottled water, November 2014
                                                                                                    • Figure 71: Water Air bottles water product, February 2015
                                                                                                • The Consumer – Attitudes towards Different Types of Non-Alcoholic Drinks

                                                                                                  • Key points
                                                                                                    • Bottled water maintains its unique competitive advantages
                                                                                                      • Figure 72: Correspondence analysis, November 2014
                                                                                                      • Figure 73: Attributes associated with different types of non-alcoholic drinks, November 2014
                                                                                                    • Consumers aged 20-24 are less likely to consider bottled water as premium and refreshing
                                                                                                      • Figure 74: Selected attributes associated with bottled water, by age, November 2014

                                                                                                  Companies Covered

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                                                                                                  Bottled Water - China - March 2015

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