China Consumer

Facing the future

Water firm Nongfu decides to detour into skincare


Not a part of the skincare plan

A background in journalism likely taught Zhong Shanshan how to grab attention. The founder of Nongfu Spring has always had a knack for making headlines. For instance, when he launched his bottled water firm, he announced that he wouldn’t be bothering with sales of purified water and that he would focus on mineral water instead, because purified water had no health benefits whatsoever.

Zhong had his first commercial success with nutritional supplements processed from turtle shells. In the mid-1990s, he started selling water from a reservoir near his hometown in Zhejiang province. Since then, Nongfu Spring has emerged as China’s largest bottled water supplier, with about a fifth of the market, and Zhong has diversified into an empire that is worth over Rmb10 billion ($1.5 billion) spanning beverages, foods, health products and biopharma.

Nongfu will now keep its consumers hydrated on the outside, too, with the launch of premium skincare products. And while water is a commonly used ingredient in most cosmetics products, Nongfu is marketing its skincare brand Yoseido somewhat differently. Yoseido contains “not one drop of water,” says Zhong, relying on natural birch sap from Finland as the base for its products.

Nongfu Spring’s research reveals that most facial skincares in the China market contain up to 90% water. It says they add minimal nutrients to the skin but that birch sap bestows a far better hydrating effect.

The Yoseido products won’t come cheap. All made in Japan, the facial masks are sold for Rmb168 ($25.39) a pack, containing five pieces. The toners retail for Rmb188 a bottle. Yoseido is competing at the higher end of the market. Industry observers say its price points are closer to the offerings of US brand Olay, which is owned by P&G.

“At the moment, the skincare industry in China is so competitive that a lot of companies have stopped innovating,” Zhong told China Enterprise News. “We are positioning our newly launched cosmetics products in the high-end market, where products are very differentiated. We don’t believe that sales are going to be a problem.

“Our motivation is to create products that meet consumer demand. The process is very product-driven, innovation-driven, rather than sales-driven.”

Using birch sap as an ingredient is hardly revolutionary. South Korean cosmetics brands like Missha and Enature have long been formulating their skincare with sap instead of water, even though experts argue that some active ingredients can be more effective when mixed with water.

Analysts say Nongfu Spring’s foray into the beauty industry makes sense in adding a higher margin business to its portfolio. “Some people wanted us to do skincare products a long time ago,” Zhong admits. “After all, the profit on a bottle of water is five cents but a bottle of facial mist could give us Rmb100 or even Rmb200 margin.”

China Enterprise News was supportive of the move. “Skincare is Nongfu Spring’s way of building a story around water,” says the news portal. “From the standpoint of relevance and the company’s long term development, skincare has a lot of synergy with bottled water. The brand extension can help bundle two consumer groups [i.e. the people that drink its water will use its face masks].”

Evian has released a facial spray using its mineral water and Chinese premium water label Tibet 5100 launched a series of skincare products back in 2009.

The Yoseido range is already available for sale on Tmall, and Zhong he says he has plans to sell the brand in the Japanese market. He also hopes to become a top-five seller in domestic skincare within five years, brushing aside some of the more established brands. “There is no such thing as brand loyalty. It took a little time for all the once die-hard Nokia followers to shift to iPhones when [Steve] Jobs created it,” he declares.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.