This is the first of part of an article on China’s water purification market and Unilever’s Qinyuan acquisition. China’s level of water pollution has grown in tandem with its rapid industrial revolution and urbanisation. Consumer awareness of water quality and safety, rising living standard and improved levels of income have contributed to the increasing demand for bottled water. Euromonitor International’s data show that China’s bottled water market is worth approximately US$18 billion in 2014, and the country is set to continue to be the growth engine of global bottled water sales in next few years. Simply satisfying 1.4 billion people’s basic needs - safe water and sufficient food - offers abundant business opportunity and challenges.
Nevertheless, the consumer market is changing and the competitive environment is evolving constantly. Euromonitor International’s field analyst commented that sales of bulk water are likely to be affected by the growing adoption of household purification and filtration devices, as evidence shows that a growing number of households are opting for various purification solutions as a replacement for bulk water. Unilever took a swift move in this dynamic market and acquired a local company, Qinyuan, to complement its international brand Pureit in 2014.
Water purification is part of home improvement
Despite the slow sales of some domestic appliances, there are a growing number of manufacturers entering water purification. In 2000, it was reported that there were only several hundred companies engaging in this specialist field. According to China’s water purification solutions official report, there were over 3,000 brands available by 2014 and the number is growing daily. Sales of water purification solutions grew by 20% year-on-year for the past three years. There are millions of new-build apartments, and old apartments in need of decoration or refurbishment; safe and economical drinking water has become the priority for all households and finding the solution is becoming a key part of the home improvement process.
Typically, a construction company will collaborate with a water purification solution player to install intertap filter water taps. The price of the products ranges from high-end (typically Japanese or South Korean brands) to economy brands (typically domestic brands). Normally, for high-income households, the solution provider will recommend high-quality foreign brands. Middle and lower-income households will normally choose affordable domestic brands. Consumers see the benefits of water filter devices for home use as there is no more need to purchase bulk water, saving time and avoiding hassle. Moreover, the recent reported incidents of contaminated bulk water packaging have also made some consumers uncomfortable consuming this water. Moreover, the price of bulk water in first-tier cities is not cheap. In Shanghai, for example, a typical nuclear household (three persons) consumes three bottles of bulk water in two weeks, and the cost for a whole year could be RMB1,584. For water purification devices, the average price, such as Ecowater Systems is around RMB4,000 for at least 15-20 years of lifetime.
This is not good news for bottled water players such as Wahaha and Ting Hsin International Group, which have enjoyed strong sales for the past decade. Although there are no clear figures to show how badly their sales have been affected by the adoption of water filter devices at home, this trend certainly represents a serious threat to growth.
Online sales booming
Given the excellent consumer response, water purification is highly profitable, offering good margins, and subsequently attracting new entrants, including domestic appliance companies, electronic manufacturers and international investors. Chinese official sources estimate water purification to be worth around US$16.3 billion by 2024, and annual double-digit growth is anticipated. Naturally, as the market expands and the competition increases, there will be some market consolidation and some brands may be squeezed out in the next five years. Manufacturers need to work on improving their services, continue their innovation and make their products user-friendly to attract new consumers. Product innovation such as a display to alert when the cartridge needs to be changed is a good feature, something that will appeal to consumers.
With the development of internet sales and internet connection, many consumers are choosing to purchase online. Although regional brands continue to take a big chunk of share in their local areas, it is now possible to build a nationally popular brand, given the sales opportunity created by internet. Technology advancement has disrupted the traditional way of brand building and marketing. Euromonitor International’s data show that China is the world’s second largest internet retailing market, with sales reaching US$98 billion in 2013, compared to the US’s US$207 billion. Online sales backed by proper logistics and distribution networks can help manufacturers effectively reach the third and fourth tier cities without the need to have fixed selling premises. On Alibaba’s website, there are numerous listings for water filter appliances. This is very important for a country like China, where its sheer physical size and underdeveloped retail infrastructure in some regions remain obstacles.