Opportunity looms for premium Chinese water brands

A customer stands in front of shelves filled with numerous brands of bottled water. China's high-end bottled water market was 3 billion yuan ($471 million) last year, and it's expected to grow to 10 billion yuan in 2015. [Photo/China Daily]

On July 6, after a month-long silence, Evian held a news conference in Shanghai to address the issue of the excessive nitrite found in its products.

Dai Ning, general manager of Danone Premium Brands, which owns the Evian brand, said his company could not confirm that the water that failed an inspection was produced by Evian.

Excessive nitrite intake can cause oxygen depletion and even cancer if ingested over a long period of time.

"It’s hard to confirm if the affected products were real Evian water, or where they came from, because they were not imported by an assigned official importer to the Chinese market," Dai said.

Untapped ocean

This was the sixth time in the last six years that the company was inspected due to quality problems. Experts said that even if the tainted water was indeed not produced by Evian, the incident exposed the company’s weak control over its import chain and its vulnerability to negative news.

For most domestic water companies, the Evian incident offered a rare opportunity to catch up.

A number of Chinese companies are quietly setting foot on the high-end water market, long dominated by overseas brands like Evian, Volvic and Perrier. A few domestic brands — such as 5100 Tibet Glacier Spring Water — have already exceeded the sales of those foreign giants.

In its latest financial report, Tibet 5100 Water Resources Holdings Ltd, which produces the water, said its revenues in 2011 were 633 million yuan ($99.2 million), up 76 percent from the previous year.

The figure is impressive, given that the company’s first production line was set up only five years ago. In that time, the company went public in the Hong Kong Stock Exchange, becoming the first domestic premium mineral water maker to launch an IPO.

For other water companies, the high profit margins are more appealing. In the financial report, Tibet 5100 said its gross profit margin was 79 percent, up from 64 percent a year before.

A report by Euromonitor said the profit margin of high-end bottled mineral water is six to seven times that of the bottled water for the general market.

For many Chinese water companies, long disappointed with the industry’s meager margins, the lucrative high-end market is an untapped ocean.

According to CIConsulting, an industry research institution, the market value of high-end bottled water in 2011 was 3 billion yuan and the figure is projected to grow to 10 billion yuan by 2015.

But given the size of China’s market, the figure is a drop in the ocean. Chinese people on average drink 18 liters of bottled water a year, compared with 117.5 liters in Europe.