Summary of Key Points
In the first half of 2026, Nongfu Mountain Spring's total revenue and profits both maintained double-digit growth of around 16%. However, the internal business performance was uneven: tea beverages became the absolute growth driver (revenue increased by 30%, profits reached a new high), while the growth rate of packaged water almost stagnated (only 2.1%) and profits declined. Functional beverages sacrificed short-term profits to launch new products, and juice products managed to double their profits through structural optimization. The high gross profit margin in the first half was supported by the advance purchase of low-cost raw materials. In the second half of the year, cost pressures will increase, and the key to future growth will depend on the success of these new products.
1. Packaged Water Faces Stagnation: Triple Challenges from Weather, Costs, and Competition
Packaged water has always been Nongfu Mountain Spring's main business, but it suddenly experienced slowdown in the first half of the year: revenue only increased by 2.1%, and profits decreased by 2.7%, making it the only business segment with declining profits.
The reasons are straightforward:
1. Unfavorable weather: Most regions across the country experienced cold weather and heavy rainfall in the second quarter, reducing the frequency of outdoor drinking activities (such as shopping and exercising), which affected the entire packaged water industry (sales dropped by 7-9%). Although Nongfu outperformed its competitors, it was still affected.
2. Rising costs without price increases: The price of PET plastic used for packaging increased by 40% in three months (from 6,300 yuan/ton to 9,000 yuan/ton). As packaged water is the category with the lowest unit price and the highest plastic consumption, the cost pressure was significant. Competitors were cutting prices to gain market share, and Nongfu was hesitant to raise prices for fear of losing customers, resulting in compressed profits.
3. Fierce competition: Rivals like Yibao and Jingtian were offering bulk promotions, attracting many ordinary consumers with their low-priced purified water. This put packaged water in a competitive situation where companies were competing for existing customers.
2. Tea Beverages Soar: From Gaining Market Share to Generating High Profits
Tea beverages have become Nongfu Mountain Spring's main profit driver: revenue amounted to 13.1 billion yuan (44% of total revenue), with a growth rate of 30% and a profit margin of 49% (a record high).
Why such strong performance?
- Shift in growth strategy: Previously, Nongfu Mountain Spring focused on gaining market share in sugar-free tea. Now, it aims to expand the market by attracting consumers of sugary tea to sugar-free tea and expanding usage scenarios (such as household stockpiling).
- New high-end products: The company launched its first low-temperature tea product, "Cold Brew Longjing," which quickly became the top-selling sugar-free drink at Sam's Club, a premium membership store. This partnership provided quality recognition for the new product, making it more expensive but popular.
- Smart channel strategy: Nongfu used Sam's Club as a testing ground for new products, verifying their quality and pricing before launching them nationwide. This approach avoided the risk of competing with numerous small stores that offer dozens of beverages on their shelves, increasing the success rate.
3. Functional Beverages Sacrifice Profits for Market Share; Juice Products Improve Profits
These two business segments played a supporting role, but their strategies were different:
- Functional beverages: Revenue increased by 15.6%, but profit growth was only 9.7%. Nongfu launched new electrolyte beverages under its main brand and advertised during the World Cup on CCTV, resulting in higher costs and lower profits. This was a short-term strategy to gain market share.
- Juice products: Revenue increased by 14% (slower growth), but profits increased by 31% (twice the revenue growth rate). The company focused on more premium products, such as 17.5°NFC juice and family-sized packaging, and enhanced the product with water-soluble C100 to boost vitamin C content, thereby increasing profits.
4. Pressures in the Second Half of the Year: Cost Concerns
Nongfu Mountain Spring's gross profit margin reached a record high of 60.9% in the first half, but this was due to the advance purchase of low-cost PET raw materials. In the second half, as these stocks are depleted and plastic prices rise, the cost pressure will increase, potentially leading to a decline in the gross profit margin.
However, cost control was relatively good: despite the World Cup marketing expenses, the sales expense ratio only increased by 0.1%, and management expenses were well-controlled, resulting in a 0.9% increase in core profits.
The key to future growth lies in whether Nongfu can replicate the success of its new products, such as the Cold Brew Longjing and Lily and Ophiopogon soup. If these high-end products can continue to gain market traction, they will drive long-term growth.
Conclusion
Nongfu Mountain Spring's performance in the first half of the year was satisfactory overall, but with uneven business segments. Tea beverages supported growth, while packaged water encountered a bottleneck, and functional beverages are being positioned for future development. The main challenge in the second half of the year is cost management. If the new product development strategy is successful, there is still hope for long-term growth. For consumers, they can expect to see more high-end tea and electrolyte water products from Nongfu Mountain Spring, while packaged water prices are unlikely to rise significantly due to the company's desire to retain customers.