Market Information
Asia Pacific

Bottled Water - Market Brief
Yangzi Delta region

March 2003

Canadian Consulate in Shanghai
Suite 604, Four Shanghai Centre
1376 Nanjing Xi Lu
Shanghai, China
200040
Tel: (86-21)6279-8400
Fax: (8621) 6279-7456
Internet: http://www.shanghai.gc.ca

Market Overview

The lack of clean, potable water in China has created a need to generate alternative water sources. Approximately two-thirds of Chinese cities face water supply shortages. Sixty per cent of the rivers flowing through urban areas are polluted. This has created an enormous demand for bottled water. Sales have increased, and will continue to increase to meet consumer demand. Zenith International projects that China will be one of the world's fastest growing markets over the next five years.

In whole, the Chinese beverage market has grown at a steady pace. Shanghai alone boasts a per capita annual expenditure on liquor and beverages almost two times the national average at CND $36.16 per year in 2000. The Consumption rate in Shanghai has grown 36% over the last three years, compared with a national growth rate of 13%. Bottled water sales are estimated to be one- third of the total beverage sales. Annual per capita consumption is estimated at 4.9 litres. Compared to 45 litres in the United States and 111 litres in Europe, the market has significant room to grow. Bottled water consumption is forecasted to reach 14 billion litres by 2005.

Canadian water exports to China have been sporadic. Overall, exports have risen 29% since 1999. Exports fell drastically from their 1999 level of CND $59,863.76¹ to CND $19,266.92 in 2000. Exports made a modest recovery in 2001 growing by 39%. Exports in 2002² increased substantially from 2001, achieving their highest level since 1998. In 2002, Chinese customs official statistics recorded $CND 83,970.65 of Canadian water exports to China. Of that figure, 82% entered through Shanghai ports. The remaining entered in Beijing.

China Customs, November 2002

France is the number one exporter of water to China. In both 2001 and 2002, they captured on average 84% of the imported water market. Other significant exporters are Italy, Japan, New Zealand and the United States. In comparison to France, each country's respective market share is small. Due to the high level of Canada's 2002 exports, Canada ranks third largest behind Italy and France in water exports. Canada's total market share for 2002 were 2.62%.

As a result of China's WTO accession, tariffs on bottled water have and will continue to decrease. Individual tariff rates exist for different types of bottled water. This change in tariff rates will lower water prices vis à vis local brands and create an increasingly favourable trading environment.

Opportunities

• As the demand for bottled water increases, opportunities will increase in the bottled water industry. Increased living standards, disposable income, and awareness of health issues are all factors in market development. Foreign water is well positioned to breach the gap between supply and demand.
• In terms of expertise and technology in water purification opportunities exist. Chinese water standards and water treatment techniques will improve and diversify as demand increases. Canada's domestic industry is well developed and has the expertise and technology to meet such demand.
• Water coolers and dispensers are an increasingly popular method to get water. Coolers are popular in office building and factories. Increasingly, urban households are investing in a cooler to meet their water needs.

Key Participants

The adjacent table lists the main local players. The market share leader, Nonfushanquan, captured 35.7% of the market in 2002. Of the estimated 100 factories with licenses to produce bottled water in Shanghai, most use treated domestic tap water and not mineral water. The most common method is filtration.

2002 FMCG Guide

All the international bottled water players are operating in the market. Coca-Cola (Sensation), Pepsi (various products), Nestlé and Dannon (Wahaha) have their own brand. As all the production facilities are located in China, they have successfully penetrated the local distribution network and are able to sell at local prices. Bottling locally is a definite advantage as prices are kept low and trade barriers to a minimum.

At present, there is no known Canadian bottle water on the market. Though, there are Canadian flavoured water being sold to certain market tiers. The majority of the imported products are from France, and second Italy. Evian water was one of the first bottle water brand to enter the Shanghai market, and has since built a name for itself. Imported water is sold mainly in supermarkets catering to upper class Shanghainese and the expatriate community. Five star hotels and restaurants also provide bottled water to their clientele.

Customer Preferences

The key attributes are price, quality and brand. Shanghainese consumers are apt to try new products and providing the imported product has the right features, are willing to purchase the imported brand.

In general, Chinese consumers are price conscious. Locally produced or bottled waters are significantly cheaper than imported brands. The leading water brand sells their 350-ml bottle for 1.20 RMB ($0.22 CND) and their 4 Litre for 5.6 RMB ($1.03 CND). Bottled water sold in convenience stores is generally 18% higher in price. In contrast, a 500-ml of Evian water costs on average 7 RMB ($1.29CND) and 1.5 litres 18.5 RMB ($3.40CND). Due to the difference in price, the majority of consumers will purchase local brands.

Developing and marketing a brand is important. Evian water is consistently chosen due to name recognition and the high quality associated with the brand. Shanghai consumers trust the water. An aggressive and consistent marketing campaign is crucial. This campaign should concentrate on promoting their brand and developing a loyal consumer base. As the market develops and competition increases, successful branding will make the difference between success and failure.

Quality is equally important and closely related to brand. Compared to other major Chinese cities, the safety performance of bottled water is excellent in Shanghai. A summer 2002 government inspection discovered that 98.6 per cent of the water produced in Shanghai is safe. There is still a public concern over the health safety issues associated with bottled water. Chinese consumers are beginning to recognise the differences in quality and will purchase brands they trust. Imported water is perceived as being high quality.

The penetration of water coolers and distillers in urban households has grown significantly. In order to maximise space efficiency, water coolers are designed to be small and compact. They fit nicely on a counter or table. Companies offer cheap refills and free home delivery. In this extent, consumers do not need to hand-carry huge water containers from the local supermarket. Water coolers can be purchased from local super markets or water distribution companies. Special deals are offered in conjunction with the purchase of water. Despite the growing number of households with coolers, boiling water and storing it in a thermos is still the most popular method of water treatment.

Smaller bottles of water are purchased from a variety of different retailers.³ The size, brand and price vary depending on the size and nature of the retail store. For example, convenience stores carry smaller bottle water due to limited space and the nature of their clientele. The average Chinese consumer does not purchase water for home consumption. The purchase reason is for outdoor activities, sports and travel. Water bottles are compact and can be easily transported.

Though, Canada's presence in the bottled water market is limited. The current image Canada has with Chinese consumers has a beneficial application. Canada is believed to be a large country with abundant clean air and fertile land. It is know for the quality of its natural resources. Canadian water is perceived to be clean, natural, pure and healthy.

Key Contacts

Canadian Government Contacts in China

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Mr. Henry Deng, Commercial Officer
Tel: (86-21) 6279-8400
Commercial Assistant
Fax: (86-21) 6279-7456
E-mail: henry.deng@dfait-maeci.gc.ca
Internet: http://www.shanghai.gc.ca

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Ms. Shirlie Wu, Commercial Assistant
Tel: (86-21) 6279-8400
Commercial Assistant
Fax: (86-21) 6279-7456
E-mail: shirlie.wu@dfait-maeci.gc.ca
Internet: http://www.shanghai.gc.ca

Shanghai-China Government Contacts

Shanghai Customs of The People;s Republic of China
Responsible for the regulations and inspections on import and export documents and certificates

Address: 13 Zhong Shan Dong Yi Lu
Shanghai 200002
Tel: 86-21-63232410
Fax: 86-21-63232095
Website: www.shcus.gov.cn

Shanghai Entry-Exit Inspection and Quarantine of People's Republic of China
Responsible for the inspection of imported and exported goods

Address: 1208 Minsheng Road, Pudong
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939

Shanghai Import Food Enterprise Association
Provides assistance for the application and approval of labels for imported foods

Address: Room 1702, Hero Building
2669 Xie Tu Road
Shanghai 200030
Tel: 86-21-64398189
Fax: 86-21-64398191

Bibliography

Print

Shanghai Statistical Yearbook 2002, Shanghai Municipal Statistics Bureau, China Statistics Press

China Statistical Yearbook 2002, National Bureau of Statistics of China, China Statistics Press

Bottle Water in China Canadian embassy in Beijing, Department of Foreign Affairs and International Trade, 2001

The Bottled Water Market in the Yangzi Delta Region, Canadian Consulate General Shanghai, Department of Foreign Affairs and International Trade, September 2000 (available by contacting the Shanghai consulate)

2002 FMCG Guide, Business Information of Shanghai, January 2003

Electronic

Bottled Water more Vulnerable, Shanghai Star June 20, 2002. Downloaded from http://www.chinadaily.com.cn/star/2002/0620/fo5-1.html on January 20, 2003

Soft Drink Market Expanding in Asia, Asian Market Research News, November 5, 2002. Downloaded from http://www.asianmarketresearch.com/news/000255.htm on January 27, 2003

Chinese: Embrace Bottled Water, Drink less Soda Drinks, People Daily December 16, 2000. Downloaded from http://english.peopledaily.com.cn/english/200012/16/
eng20001216_58005.html on January 20, 2003

World Trade Statistics, Global Trade Information Services Inc. Nov 2002 Internet Version 4.2a

Useful Information

The Canadian consulate has prepared and published a series of market reports on the different food sectors in Shanghai and the Yangzi Delta region. Please contact us directly for a complete list of available reports or visit our website at http://shanghai.gc.ca/ag_food.

¹ All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. The conversation rate to Canadian dollars is based on the Bank of Canada rate, January 26, 2003

² All 2002 Trade values are for January to November only.

³ For further information on the Shanghai retail industry, please refer to the Canadian Consulate General in Shanghai's report entitled Shanghai Retail 2003available on out website http://www.shanghai.gc.ca