$20 Billion Wealth Dip for China’s Beverage Mogul Zhong Shanshan Due to Market Challenges

Zhong Shanshan, the head of Nongfu Spring and China’s wealthiest individual, has experienced a significant decline in his fortune, losing up to $20 billion since early May. This downturn stems from investor skepticism about the company’s aggressive pricing strategy for new bottled water products.

Despite this setback, Zhong, aged 69, maintains a net worth of $54 billion, primarily from his substantial holdings in the Hong Kong-listed beverage company, according to Forbes. Although still the richest person in China, Nongfu Spring’s stock has plummeted nearly 30% to a record low since the introduction of its heavily discounted purified water products two months ago.

In response to the stock decline, Nongfu Spring unveiled a $256 million share buyback program, through which Zhong plans to acquire more shares over the next six months, signaling confidence in the company’s future growth.

Kenny Ng, a securities strategist at Everbright Securities International, notes that Nongfu Spring’s strategy aims to attract budget-conscious consumers in a sluggish economy. The company’s expansion into purified water, priced at less than $0.14 per bottle.

Analysts interpret this pricing move as an attempt to capture market share from competitors like China Resources (Holdings) Co. and Wahaha Group. However, the aggressive pricing has sparked concerns about profitability, with fears of an ongoing price war until Nongfu Spring secures a dominant position in the purified water market.

Historically, Nongfu Spring has been highly profitable, trading at a price-to-earnings ratio exceeding 30, comparable to high-growth tech stocks like Google. Last year, the company reported a 40% increase in net profit to around $$1.65 billion, with sales rising 28.4% to approximately $5.87 billion.

Jacky Tsang, an equity analyst at Morningstar, mentions that recent sales have been adversely affected by a consumer backlash unrelated to pricing strategies. Earlier this year, some consumers called for a boycott of Nongfu Spring following accusations against Zhong regarding his former partnership with Wahaha Group. Additionally, there were criticisms over the company’s packaging design, perceived by some as overly influenced by Japanese aesthetics.

These issues led to a slowdown in water product sales, which constitute about half of Nongfu Spring’s revenue, in April and May. Tsang revised his sales growth forecast for 2024, down from 18% to 16%, attributing the adjustment to lower expectations for the water segment.

Despite these challenges, Nongfu Spring remains well-positioned due to the rapid growth of its tea-based products and a robust distribution network across China. The company’s sugar-free bottled tea, Oriental Leaf, has gained popularity by appealing to health-conscious consumers.

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