Zhongtai: The packaged water industry is shifting towards value competition. Top brands are seizing the initiative with product matrix and responsiveness capability.

Zhongtai released a research report stating that as the packaging water industry continues to focus more on value, consumers' demand for product quality and scene-specific focus is increasing. The packaging water industry is transitioning from a price war to a value war, as packaging water scene demands become more specialized. Considering that top brands are expected to gain an advantage with a complete product matrix and fast market response capability, Zhongtai recommends actively following industry-leading companies such as NONGFU SPRING (09633). At the same time, considering that competition over water sources will become a core focus in the future, Zhongtai believes that some regional packaging water brands will seize opportunities within their regions due to geographic advantages. Water sources will become a key focus for regional breakthroughs, and Zhongtai recommends actively following high-quality regional packaging water companies like Jilin Quanyangquan (600189.SH). Zhongtai's main points are as follows: Review 2025: Value breakthroughs under intensifying industry competition Differentiation in market leaders, with some regional brands performing well. The market size of the Chinese packaging water industry (excluding packaging larger than 8L) is expected to reach 224.31 billion yuan in 2025, a 3% year-on-year growth. The industry shows multi-dimensional value competition, with clear differentiation among market leaders. As of September 2025, NONGFU SPRING led the industry with a 33% market share, followed by Wahaha with a 2% increase in market share compared to the previous year, while Nongfu's market share decreased by 3%. Some regional brands achieved rapid growth in key regions due to strong distributor relationships, local cultural advantages, and shorter transportation distances. Jilin Quanyangquan's revenue grew by 13.86% year-on-year in the first three quarters of the year, and beverage companies' sales volumes grew by 14.50% in the first half of the year. Segmented consumer groups driving growth in both mid-range and high-end markets. In terms of pricing, the packaging water price index slightly narrowed in the first half of 2025, dropping significantly between June and September. Packaging water manufacturers adopted a "volume for price" strategy during the peak season. Additionally, PET prices have been declining since 2024, hitting a low in April 2025 before gradually increasing again, providing some support for packaging water companies to engage in price wars. We believe that the packaging water industry's competition is not solely based on price but reflects consumer demand shifts, driving industry upgrades and transformations. High-end water products are experiencing rapid growth due to their scarce water sources and the healthy consumption trend. According to a report by China Report Hall titled "Analysis of the Development Trend and Future Investment in the Chinese Mineral Water Industry 2025-2030," it is projected that new mineral water products priced above 10 yuan will grow by 42% compared to the previous year, accounting for over 30% of all new products for the first time. Strong performance in specific distribution channels, with modern channels under pressure. In terms of distribution channels, the packaging water market has undergone significant changes since 2025. From January to July, sales via specialized channels grew by 13.8% year-on-year, stabilizing around 15% growth between May and July, while traditional channels saw a 12.0% growth and modern channels experienced a 14.2% decline. For instance, Jilin Quanyangquan successfully expanded its distribution through specialized channels by catering to the water needs of Southern Airlines systems and other measures. Additionally, major brands are increasing their presence in discount stores and launching exclusive products to gain market share. Outlook for 2026: Focusing on value and industry competition shifting towards resource optimization Deepening product value and continuation of health trends. Consumer acceptance of premium pricing for products is more focused on the product itself rather than the brand. Consumers' demand for packaging water has expanded beyond just quenching thirst to include a focus on health benefits and functionality. According to data from iMedia Consulting, in a survey on upgrading the aspects of purified water, 71.37% of consumers hope for increased functionality (such as antioxidants and immunity boosters), while 60.39% expect improved taste and the addition of natural flavorings (such as fruit flavors), highlighting the importance of health and drinking experience. Overall, we believe that competition in the Chinese packaging water market has shifted from a "price war" to a "value war." In the future, the industry will be driven by value rather than price, with packaging water brands seeking to gain market share by enhancing product value. Segmentation of packaging to meet diverse scene-specific demands. We believe that the future consumption scenarios for packaging water will become more segmented, focusing on exploring untapped scenarios for product growth rather than competing in existing markets. While packaging water is a highly standardized product category, consumer drinking scenarios are diverse and fragmented. In the medium to long term, the extent to which packaging water companies can cover all consumer scenarios will determine their industry influence. Competition focus shifting towards resource optimization. We believe that the Chinese packaging water industry is undergoing a transformation from quantity to quality, with key competitiveness shifting from industrial production to water resources. Competition in the packaging water industry will gradually shift from distribution channels to upstream water sources, making water source competition a future core element. Investment logic: As the industry continues to prioritize value, and consumer demand for product quality and scene-specific focus increases, the packaging water industry will transition from a price war to a value war. With the gradual segmentation of packaging water scenes, and considering that top brands are likely to leverage their comprehensive product offerings and fast market response capabilities, we recommend actively following industry-leading companies such as NONGFU SPRING. Furthermore, given that competition over water sources will become a key focus in the future, we believe that some regional packaging water brands will seize opportunities within their regions due to geographic advantages, with water source advantages becoming key to regional breakthroughs. We recommend actively following high-quality regional packaging water companies like Jilin Quanyangquan. Risk factors: Macroeconomic fluctuations, intensified industry competition, risks associated with outdated research report information, lower-than-expected end-demand, slower-than-expected progress in channel transformation, lower-than-expected effectiveness of new product promotions, fluctuating raw material prices, food safety risks.