Nongfu Spring Shares Drop 12% Amid Slowing Profit Growth

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Shares of Nongfu Spring, China’s largest bottled water producer, fell by 12% on Wednesday. This decline follows a report revealing a significant slowdown in the company’s profit growth for the first half of the year. Nongfu Spring’s stock, listed on the Hong Kong exchange, has plummeted over 41% in 2024.

The company’s net income reached 6.24 billion yuan ($876 million), marking an 8% increase compared to the same period last year. However, this growth is a sharp decrease from the 23.3% rise reported in the first half of 2023. Analysts are concerned about this dramatic slowdown.

Nongfu Spring cites heightened market competition and recent controversies as factors impacting its performance. The company has faced negative publicity due to claims of “malicious defamation” and online backlash. In particular, nationalist Chinese internet users criticized the design of Nongfu’s green tea packaging, alleging it resembled Japanese religious buildings. This led to calls for boycotts and affected sales.

The death of Zong Qinghou, the founder of rival Wahaha Group, further intensified the situation. His passing led to comparisons with Nongfu Spring’s founder, Zhong Shanshan, exacerbating the boycott movement. Some retailers, including 7-Eleven, reportedly removed Nongfu products from their shelves amid the controversy.

In response, Nongfu Spring has defended its packaging, stating that the designs are inspired by traditional Chinese temples. The company has pledged to pursue legal action against those who have tarnished its reputation. Despite these issues, Nongfu Spring reports a general increase in domestic demand.

Revenue from Nongfu’s packaged drinking water products fell 18.3% to 8.53 billion yuan, down from 10.44 billion yuan in the same period last year. Conversely, revenue from tea beverages surged nearly 60%, partially offsetting the decline in water product sales.

The significant drop in Nongfu Spring’s stock highlights the challenges facing the company as it grapples with both market competition and public relations issues.