Sunday, 2024 May 26

Why has Nongfu Spring become a “public enemy” in China?

Nongfu Spring has been having a rough time lately.

A notice from a 7-Eleven convenience store in Changzhou, widely circulated, announced the discontinuation of all Nongfu Spring products: “Starting today, we will cease selling all Nongfu Spring products. We will continue to sell products from all countries but will not offer products from Chinese companies that cater to Japanese interests.”

This prompted an immediate response from 7-Eleven’s head office in Jiangsu, clarifying that it was the action of two employees at local stores in Changzhou and did not represent the company’s headquarters. After all, it seemed somewhat absurd for a Japanese brand to accuse a Chinese brand of pandering to Japan.

Following the passing of Zong Qinghou, the founder of Hangzhou Wahaha, past events involving Nongfu Spring and Wahaha have once again become topics of discussion, taking an unexpected turn.

In public discourse, Wahaha is perceived as a patriotic enterprise, with retired teachers from Hangzhou, Wahaha employees, and consumers nationwide grieving over Zong’s death. Conversely, Nongfu Spring has faced significant criticism for its early commercial practices, product packaging designs, and the nationality of Zhong Shuzi, the son of Nongfu Spring founder Zhong Shanshan. These comparisons resulted in Zhong Shanshan being labeled as ungrateful and driven by fame and profit.

Zhong Shanshan, Chairman and Founder of Nongfu Spring. Image by Nongfu Spring.

Public criticism of Nongfu Spring is no longer confined to its alleged unethical business practices in its early years, but has evolved into a larger-scale moral judgment. People scrutinize every move and word of Nongfu Spring. Some say that the packaging of its “Oriental Leaf Tea” product uses symbols of Japanese ancient architecture, while others argue that the font design of its Tea Pi (stylized as “Tea π”) product resembles that of the Yasukuni Shrine. There are even comments about the red bottle cap of Nongfu Spring drinks resembling the Japanese flag.

Nongfu Spring has apparently not only become a business competitor to Wahaha but also positioned itself in opposition to the entire nation—the company probably never expected that it would be the one sacrificed following a funeral.

Promotional images of Nongfu Spring’s “Oriental Leaf Tea” (left) and “Cha Pi” products. Image source: Nongfu Spring.

“Don’t mess with honest folks”

Wahaha and Nongfu Spring, once arch rivals, now find themselves in completely opposite situations.

“Wow, it’s amazing! The machines are working overtime, they just won’t stop, Wahaha is urgently hiring temporary and full-time workers,” a person claiming to be a Wahaha employee said in a short video circulated online. In the video, automated production lines keep running smoothly, bottling Wahaha’s “A&D Calcium Milk” drinks one by one.

Wahaha’s live streams have been equally popular. Since February 25, Wahaha’s official flagship store on Douyin has seen its follower count surge from 400,000 to 5.55 million in a span of just over ten days, increasing 12-fold. According to Feigua Data, Wahaha’s sales also skyrocketed from around 500,000–750,000 units on February 26 to an estimated 7.5–10 million units, more than ten times higher.

Not only were products quickly snapped up during the live streams, viewers were also speculating on Wahaha’s concept stocks. Suppliers of Wahaha’s plastic bottles, equipment, and bottling lines were all being uncovered by people, with both upstream and downstream stakeholders of Wahaha seemingly on a train to prosperity.

In stark contrast, the outlook of Nongfu Spring’s sales and stock prices became gloomy.

According to data from Winwin Network’s offline retail monitoring network, Nongfu Spring’s nationwide offline sales declined significantly over a period of two weeks. On March 10, the sales volume of Nongfu Spring’s bottled water decreased by about 22% compared to February 25, prior to the public outcry. The sales volume of ready-to-drink tea products manufactured by Nongfu Spring also declined by around 10%.

Since February 28, Nongfu Spring’s stock price has fallen by 6%, evaporating nearly HKD 30 billion (USD 3.8 billion) of its market value. As of March 12, Nongfu Spring’s stock price was HKD 42 (USD 5.3), with a market value of HKD 79.1 billion (USD 10.1 billion).

For a long time, Nongfu Spring has been the undisputed king of bottled water, overshadowing Wahaha. According to data from Guanyan Tianxia, in 2021, Nongfu Spring had a market share of 26.5% in bottled water, ranking first, while Wahaha’s market share was 9.9%, ranking fourth.

Zong Qinghou’s departure has led consumers to collectively reminisce and begin “retaliatory” consumption, with some even vowing to make his daughter Zong Fuli, sole child and successor of Zong Qinghou, the “richest person.”

Zong Qinghou (left) and his daughter Zong Fuli (right) last appeared in public. Image source: Wahaha Group.

The seeds of this consumer frenzy may have been planted 20 years ago.

A widely circulated version of the backstory suggested that Zhong Shanshan was a distributor of Wahaha in Hainan in the 1990s. After having his distributorship revoked in Guangdong due to overstocking, he used the first bucket of gold he obtained from Wahaha to start Nongfu Spring. Subsequently, Nongfu Spring adopted a controversial marketing strategy that “targeted” purified water.

At the turn of the century, the bottled water market was still dominated by purified water. During that period, Robust and Wahaha were undoubtedly the leaders. However, Nongfu Spring chose to break into the market with natural water, conducting experiments to compare natural water and purified water. Nongfu Spring’s experiments produced results showing that flowers grown with natural water fared better. Upon learning this, Zong Qinghou sneered: “Even daffodils grow better in sewage. Does that mean sewage is better?”

Afterward, Robust and Wahaha jointly issued an alliance declaration with dozens of purified water companies, accusing Nongfu Spring of unfair competition. This incident ended with Nongfu Spring being fined RMB 200,000 (USD 27,640), but the impression of Nongfu Spring’s water being better had already become firmly established in consumers’ minds. Its market share subsequently soared.

Interpreting the same story 20 years later yields completely different results. While Nongfu Spring daringly went on the offensive back then, Wahaha is now the “honest man” that has seemingly been vindicated after two decades. Noting the escalating public opinion, Zhong Shanshan, typically low-profile, had to respond personally, publishing an article about “a few things” between Zong Qinghou and him.

In the article, Zhong Shanshan expressed his respect for Zong Qinghou and sought to refute public doubts. For example, he clarified that his first bucket of gold did not come from Wahaha but from a curtain business. He added that he had never received a salary from Wahaha, let alone been fired for overstocking. Regarding the dispute between natural water and purified water, Zhong Shanshan claimed that he had already reconciled with Zong Qinghou previously, witnessed by senior officials in Hangzhou.

However, it seemed too late. After the article was published, people continued to flood Nongfu Spring’s live streams, professing that they will only purchase Wahaha’s products.

Who can always be the “honest man?”

Over the past year, Nongfu Spring’s experiences can be summarized as a rollercoaster ride.

Since earlier this year, the resurgence of Nongfu Spring’s “Oriental Leaf Tea” has been a topic of heated debate. Once known to be among the “most difficult drinks to swallow,” the drink wound up becoming the next high-potential product in the beverage market by riding on the trend of sugar-free tea.

The tide has now turned again. No longer synonymous with the long uphill battle of the consumer market, the once-popular drink has become a product with a tarnished reputation in China due to its “pro-Japanese” ingredients. Perhaps Zhong Shanshan, a former journalist who has won numerous public opinion battles, would also feel perplexed by the current media environment.

The story of soaring to success and then swiftly plummeting is something Chinese sportswear brand Li-Ning is likely familiar with. In 2018, Li-Ning appeared at New York Fashion Week with a “Chinese” hoodie in the colors of tomato and egg, becoming the first Chinese sportswear brand to debut at the fashion week.

Image courtesy of Li-Ning

At that time, Li-Ning was widely perceived as the ideal national brand as it was introducing beautiful designs and Chinese culture to the international stage. The subsequent saga concerning the usage of Xinjiang cotton undoubtedly bolstered Li Ning’s popularity further.

According to data from Euromonitor, in 2019, Nike and Adidas had a market share of 37.6% in China’s sportswear market. By 2022, Nike and Adidas’ market share had fallen to 28.2%, while Anta Sports, Fila, Li-Ning, and Xtep’s market share had risen to 35.2%. The shares of overseas giants and domestic brands were in a state of flux, with a reversal of fortunes.

Ai Xiao, executive director at Qingshan Capital, once shared a viewpoint that appropriate design, when combined with the right social and ideological context, might give a brand a new lease on life. Li-Ning happened to cater to the social sentiment at the time, becoming the pioneer of trendy national brands. Li-Ning’s revenue more than doubled in a span of three years, from RMB 10.5 billion (USD 1.4 billion) in 2018 to RMB 22.57 billion (USD 3.1 billion) in 2021.

But the good times didn’t last long. In 2022, Li-Ning held a grand event called “Chasing Dreams 2022,” but the designs showcased were criticized for being ostentatious, changing its reputation overnight.

In the current downturn in consumer sentiment, Li-Ning, with its low brand favorability, is clearly not the favorite. In a recent research report by Goldman Sachs, Li-Ning’s investment rating has been downgraded from “buy” to “neutral.” The firm added that Li-Ning may face potential risks to profitability this year due to increased marketing expenses and operational deleveraging.

For Wahaha, does the sudden surge in traffic mean luck? Bee & Flower is perhaps a cautionary tale. After the Florasis incident, older Chinese brands like Bee & Flower suddenly became top of mind for numerous Chinese consumers. People scrambled to join the brand’s live streams and purchase its products, causing shortages.

Brands that have been briefly loved by consumers understand that sudden surges in traffic are fickle. According to Feigua Data, compared to September 2023, December saw a sharp decline in sales in Bee & Flower’s live streams, with interest in the brand’s videos on Douyin largely cooled off.

For brands, any strategy to cater to emotions and increase sales could be construed as a form of laziness and neglect of the product itself. Consumer sentiment may be temporary, but good products and appropriate prices will consistently be what consumers pursue.

The “deification” and “demonization” of brands often hinge on just a few positive or negative reviews from individuals. But one thing is foreseeable: Nongfu Spring is not the first to be sacrificed, nor will it be the last, and no one should feel jubilant about this trial.

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted high-quality insights published on 36Kr.com, the largest and most influential technology portal in Chinese language with over 150 million readers across the globe.
MORE FROM AUTHOR

Related Read