Author | Meng Xiao

Learn more about financial information | BT Finance Data Pass

The article consists of 3945 words in total, with an estimated reading time of 10 minutes

Recently, Zhong Shanshan's full-on attack has garnered widespread attention on the internet.

Not long ago, Zhang Yiming briefly became China's richest person, but soon the title was reclaimed by former richest person Zhong Shanshan.

According to Blue Whale News, on November 19, while inspecting the navel orange industrial park in Ganzhou, Jiangxi, Zhong Shanshan accepted a media interview and abandoned his usual low-key image to publicly address Zhang Yiming and Huang Zheng, who had stepped down from Pinduoduo.

According to media reports, Zhong Shanshan believes that Zhang Yiming of Toutiao is the actual controller, and ByteDance is a profit-making enterprise. As a platform with sufficient power to control public opinion, it should uphold the rules of corporate civilization. Regarding the online harassment he faced earlier this year, Zhong Shanshan called for algorithms to be made public in a clear and unambiguous manner, believing that no standard should remain undisclosed. Zhong Shanshan also expressed his own demands, urging the immediate deletion of speech and images that harm or defame him.

Zhong Shanshan also criticized Pinduoduo's pricing system: "Internet platforms have lowered the pricing system, especially Pinduoduo's pricing system, which is a tremendous harm to Chinese brands and industries. It's not just a case of bad money driving out good; it's also an industrial orientation."

Interestingly, in August this year, Huang Zheng also briefly surpassed Zhong Shanshan to become China's richest person. Now, both individuals criticized by Zhong Shanshan have surpassed him to become the new richest persons. Zhong Shanshan once declared on CCTV's "Dialogue" program that becoming the richest person deprived him of freedom. Faced with the two individuals who "granted him freedom," he chose to speak out. Why did this situation arise? Zhong Shanshan once promoted the idea that "wealth is not just economic success; it's also a social responsibility." This may offer some insight into his thinking.

After Zhong Shanshan criticized the two tycoons, the capital market reacted swiftly. On November 20 and 21, Nongfu Spring's share price fell consecutively by 1.87% and 2.54%, respectively. After reaching a new high of HK$47.98 on May 3 this year, the overall share price has fluctuated significantly, stabilizing above HK$30 only during the bull market at the end of September. As of the close on the 25th, Nongfu Spring's share price was HK$32.05, compared to HK$44.63 on the first trading day of the year. In other words, Nongfu Spring's share price has fallen by about 30% this year.

As the "richest person speaks out" incident continued to escalate, trending multiple times on search engines, Zhong Shanshan believes that Zhang Yiming is trapped in algorithms. Is Nongfu Spring, then, trapped in its financial reports?

1

Why is Zhong Shanshan so angry?

It surprised many that Zhong Shanshan, who is in the water business, became the richest person and achieved a "four-peat."

In 1996, Zhong Shanshan founded Xinanjiang Health Spring Drinking Water Company, the predecessor of Nongfu Spring. The following year, he launched the first packaged water product under the Nongfu Spring brand, breaking the previous duopoly of the packaged water market by Wahaha and Robust. However, Nongfu Spring's growth rate was average in the subsequent years, prompting Zhong Shanshan to explore new avenues.

In April 2000, Zhong Shanshan publicly stated that purified water does not contain minerals and is therefore not beneficial to human health, announcing that his company would no longer produce purified water and would instead produce natural water. Since then, slogans like "Nongfu Spring is a bit sweet" and "We don't produce water; we're just nature's movers" have become household names through television advertising. Comparisons via daffodil experiments, animal experiments, and cell experiments were used to demonstrate the advantages of natural water over purified water. This strategy enabled Nongfu Spring to quickly capture a significant market share. From this perspective, compared to celebrity entrepreneurs like Lei Jun and Zhou Hongyi, Zhong Shanshan may be the original marketing master.

Nongfu Spring's public relations offensive caught purified water companies like Wahaha and Robust off guard, sparking strong dissatisfaction. Wahaha founder Zong Qinghou and 69 other purified water companies decided to join forces to drive Nongfu Spring out of the market. In Zong Qinghou's view, Zhong Shanshan's concept of natural water was deceptive, especially the daffodil experiment, which he deemed absurd, stating, "Daffodils grow better in feces." However, Zong Qinghou was unable to drive Nongfu Spring out of the market. In response, Zhong Shanshan funded advertisements in the country's top-selling newspapers at the time, inviting the 69 purified water companies to visit Nongfu Spring.

Nongfu Spring subsequently solidified its position as the leading bottled water brand in China, and Zhong Shanshan retained his position as China's richest person. However, everything changed with Zong Qinghou's passing. On February 25, 2024, Wahaha founder Zong Qinghou passed away, and Zhong Shanshan sent a wreath to express his condolences. However, some self-media outlets criticized Zhong Shanshan, and this incident is seen by Zhong Shanshan as the beginning of harm and defamation against him. Perhaps it was at this time that Zhong Shanshan began to express dissatisfaction with Zhang Yiming, Toutiao, and Douyin.

It is undeniable that Zhong Shanshan and Nongfu Spring suffered significant losses during this online harassment. Netizens took practical actions to support Wahaha, purchasing large quantities of its purified water and AD calcium milk products, and even boycotting Nongfu Spring at one point. During this period, Nongfu Spring's official flagship store saw a steep drop in sales for five consecutive days, falling by over 90%.

Under the pressure of public opinion, Nongfu Spring's performance was also affected. Zhong Shanshan believes that Zhang Yiming's Toutiao and Douyin failed to control misinformation during this wave of online harassment.

2

Reneging on the commitment to avoid purified water

After introducing the concept of natural water, Zhong Shanshan repeatedly emphasized that he would not produce purified water, a commitment he broke after 24 years. In April 2024, Nongfu Spring announced the resumption of its purified water business, which had been halted for over two decades.

This move was seen by many netizens as a "reneging on a promise." BT Finance noted that Nongfu Spring's green-bottled purified water was launched during the peak period of online harassment against Zhong Shanshan and Nongfu Spring. The product entered the market at a very low price, with a retail price of only HK$9.9 for a 12-pack, and even discounts were available during some promotions, making each bottle cost approximately HK$0.7, nearly the lowest price in the industry, sparking a price war in the packaged water market.

According to media reports, in the second quarter, Zhong Shanshan demanded that the packaged water department issue a military-style order, stating that if the lost market share was not quickly regained, the entire department would be dismissed. However, Zhong Shanshan denied this information, calling it a rumor.

On November 19, Zhong Shanshan invited several media outlets to respond to various hot topics concerning him and Nongfu Spring this year, including why he chose to produce purified water again. Zhong Shanshan stated, "To be honest, we produced the green-bottled water (purified water) out of anger at the time. But I still don't want everyone to drink green-bottled water (purified water)." He emphasized, "I've created a gap between the red-bottled water (natural water) and the green-bottled water (purified water). I want to tell people that the red-bottled water (natural water) is worth the price, while the green-bottled water (purified water) is not." He also explained his decision to resume producing purified water by saying, "I deprived consumers of their choice, and now I'm giving it back to them."

During the CCTV "Dialogue" program in August, Zhong Shanshan was also asked why he chose to produce purified water again after 24 years. At the time, he bluntly stated that he was "reverse stimulated" by online rumors. What particularly upset Zhong Shanshan was that "some people said 'Nongfu Spring is a bit sweet' deceived me for 20 years, for my entire life. Some people said it wasn't sweet at all." These uninformed individuals stimulated him, gradually making him realize that his mistake was depriving consumers of their choice. In response, Zhong Shanshan's approach was, "Since you want a choice, I'll give you that opportunity again."

In fact, the market size has already provided the answer. According to a report by China Insights Consultancy, the size of China's drinking purified water market reached RMB 120.6 billion in 2023, making it the largest segment of the domestic packaged drinking water market, accounting for nearly 60% of the total. The report predicts that the industry size will reach RMB 179.8 billion by 2028.

Investor Liu Bo believes that no drinking water enterprise would willingly forgo the lucrative purified water market due to its huge size. "Purified water is different from natural water. The purified water market is much larger and growing more rapidly. It has faster production expansion, lower logistics costs, and easier quality assurance regarding health and safety. In the long run, purified water will continue to grow at a higher rate than other segments of the industry."

According to a report by China Business News, science popularization blogger @Xiang Dongliang posted on November 22 that he had filed a real-name complaint with the Hangzhou Xihu District Market Supervision Bureau against Nongfu Spring's drinking purified water (green bottle) for allegedly endangering public health.

3

Nongfu Spring's performance under pressure

Nongfu Spring's performance was average in the first half of this year.

According to the financial report, Nongfu Spring's revenue in the first half of this year was RMB 22.17 billion, a year-on-year increase of 8.36%, the lowest growth rate in the past three years. Net profit attributable to shareholders was RMB 6.24 billion, a year-on-year increase of 8.04%, also the lowest growth rate in the past three years. From the first half of 2021 to the second half of 2023, Nongfu Spring's revenue growth rates (reporting period) were 31.44%, 29.81%, 9.38%, 11.93%, 23.28%, and 28.36%, respectively. The revenue growth rate of 8.36% in the first half of this year decreased by nearly 15 percentage points compared to the same period last year. The net profit growth rates for the same periods were 40.09%, 35.71%, 14.84%, 18.62%, 25.33%, and 42.19%, respectively. The net profit growth rate of 8.04% in the first half of this year decreased by 17.29 percentage points compared to 25.33% in the same period last year.

According to the financial report, Nongfu Spring's revenue in 2023 was RMB 42.67 billion, a year-on-year increase of 28.36%, and its net profit attributable to shareholders was RMB 12.08 billion, a year-on-year increase of 42.19%. The revenue and net profit growth rates in the first half of this year declined significantly.

At the same time, Nongfu Spring's gross profit margin and net profit margin in the first half of this year declined to varying degrees. The gross profit margin of 58.78% decreased by 1.38 percentage points compared to 60.16% in the same period last year. The net profit margin of 28.14% also slightly declined compared to 28.22% in the same period last year. In 2023, Nongfu Spring's gross profit margin was 59.55%, and its net profit margin was 28.31%. Compared to last year's overall gross profit margin and net profit margin, the gross profit margin and net profit margin in the first half of this year also declined to varying degrees.

The slowdown in Nongfu Spring's growth rate directly affected its price-to-earnings ratio. Taking this year's interim report as an example, Nongfu Spring's price-to-earnings ratio was 25, while that of Eastroc, which also started as a beverage company, was as high as 36, 11 points higher. The fundamental reason lies in their vastly different growth rates. Nongfu Spring's interim report showed a growth rate of only 8.36%, while Eastroc's was as high as 44.19%. Eastroc's share price increased by 55% within the year, while Nongfu Spring's decreased by 30%. As a result, Eastroc, which has only been listed for three years, saw its market capitalization soar to RMB 109.6 billion, while Nongfu Spring's fell to HK$360.4 billion, more than halving from its peak.

Specifically, in terms of product categories, as Nongfu Spring's largest business, packaged drinking water revenue decreased by 18.3% year-on-year, accounting for 38.5% of total revenue; beverage products increased by 36.7% year-on-year, accounting for 61.1% of total revenue. This shows how significantly online public opinion has harmed Nongfu Spring.

In its interim report for 2024, Nongfu Spring also explained its poor performance in the first half of the year. The report stated, "Since the end of February 2024, a large number of online attacks and malicious defamation against the company and its founder have emerged, severely impacting our brand and sales." This may explain why Zhong Shanshan is so angry with Toutiao and Douyin, which have a large audience reach.

"When a company's performance is under pressure, manufacturing public opinion can indeed increase the company's exposure and influence, but it can also bring immeasurable negative public opinion, which has both advantages and disadvantages for the company's development in the future." Liu Bo believes that the more adversity a company faces, the more it should enhance its product capabilities.

Just as Zhong Shanshan was furious, on November 24, the Cyberspace Administration of China and three other departments jointly issued a notice to launch a special action to "clean up and regulate typical issues related to online platform algorithms," focusing on rectifying key issues such as homogenized push notifications creating "information cocoons," manipulating rankings to stir up hot topics in violation of regulations, and using algorithms to implement "price discrimination" through big data.

It is hoped that in the future, all enterprises can compete and develop in a fair and just public opinion environment.

The article reflects the author's personal views. For any questions or feedback, please leave a comment directly in the comment section.