China Bottled Mineral Water Market MARKETING REPORT   January, 2014 market in China Bologna, 2013

Overview of Bottled Mineral Water Market in China The bottled water market in China consists of various types of bottled water, including mineral water, sparkling water and purified water. Economic growth, urbanization, increase in disposable income and changes in lifestyle and consumption behavior have led to substantial growth in the bottled water market in China.1 Over the five years through 2012, revenue for the Water Supply industry in China has been increasing at an annualized rate of 8.0% to total $16.0 billion in 2012. In recent years, the Chinese government has been promoting the commercialization of the Water Supply industry, which has contributed to revenue growth. Most companies in the industry now have private and foreign capital.2 1. Source: China Bottled Water - Market Report, New Zealand Trade and Enterprise, 2012. 2. Source: Water Supply Market Research Report, IBISWorld, 2013

Trends With Improving health consciousness and growing urbanisation and their enhanced health awareness, more consumers, especially those living in urban areas, prefer to purchase bottled water instead of drinking tap water. Wealth accumulation of consumers in the low-tier areas has resulted in a marked increase in their general consumerism. The water contamination problem in China and concern about how to improve the standard of daily drinking water have also been the focus of attention for consumers in the low-tier areas. This has resulted in them switching from tap water to bottled water. Manufacturers contributed to increased penetration of the benefits of bottled water to consumers through a series of marketing campaigns.2 2. Source: Water Supply Market Research Report, IBISWorld, 2013 With Improving health consciousness and growing urbanisation and their enhanced health awareness, more consumers, especially those living in urban areas, prefer to purchase bottled water instead of drinking tap water. In particular, young consumers are willing to buy flavoured bottled water with functions.

Characteristics of Premium and Mass-Market Bottled Mineral Water Retail price of premium bottled mineral water (500ml) is not less than 8CNY (1,3USD; 0,96EUR). Retail price of Mass-market bottled mineral water (500ml) is less than 5CNY (0,81USD; 0,6EUR). Distribution channels are diverse for bottled mineral water, the retailing price is not the only criteria applied to identify a brand’s positioning in either the premium or mass-market segment, consumer perception is also a key consideration. Premium bottled mineral water in China is primarily consumed by middle to high income consumers and institutional purchasers such as major corporations and government organizations with a large middle to high income customer base and significant bulk purchase demand.3 Premium bottled mineral water is characterized by a premium brand image and generally has a retail price of not less than CNY5 per 500 ml bottle. Mass-market bottled mineral water is characterized by a mass-market image and generally has a retail price of generally less than CNY5 per 500 ml bottle. 3. Source: Bottled Water in China,Euromonitor International, 2011

Sales Volume of Premium Market and Mass-Market Bottled Mineral Water 2007-2014E (in thousands of tonnes) CAGR - Compound Annual Growth Rate – Il Tasso di Crescita Annuale Composto è il tasso di crescita annuale medio di investimento su un periodo di tempo specificato 2012E, 2013E, 2014E – Forecast (previsione)

Retail Sales Value of Premium and Mass-Market Bottled Mineral Water 2007-2014E (CNY in Millions)4 CAGR - Compound Annual Growth Rate – Il Tasso di Crescita Annuale Composto è il tasso di crescita annuale medio di investimento su un periodo di tempo specificato 2012E, 2013E, 2014E – Forecast (previsione)

Main Leaders of Mass-Market Bottled Mineral Water Wahaha, Master Kong, and Nongfu Spring Hangzhou Wahaha Group was the clear leader of bottled water by capturing 13% volume share in 2012.5 Mainly benefited from advantages in distribution networks especially in low-tier cities and rural areas Is affordable to consumers with low disposable income High quality of the products The three brands Master Kong, Wahaha, and Nongfu Spring account for the overwhelming shares of the bottled drinking water market, according to the investigations; while Coca Cola, C-estbon and Runtian belong to the second group. Hangzhou Wahaha Group was the clear leader of bottled water by capturing 13% volume share in 2012. This company mainly benefited from advantages in distribution networks, especially in low-tier cities and rural areas. The company positions Wahaha as an economy brand to make its bottled water affordable to consumers with low disposable income. However, the low-end brand position of Wahaha could make it difficult to cater for the premiumisation trend of soft drinks, although the company tried to improve the position of the brand towards the mid- and high-end market. This could impact the future growth of Wahaha bottled water and its leadership position. 5. Source: Bottled Water in China,Euromonitor International, Apr 2013

Brand Shares of Bottled Water by Off-trade Value 2006-2010 1. Source:China Bottled Water - Market Report, New Zealand Trade and Enterprise, 2012

Brand Shares of Mass-Market Bottled Water by Off-trade Value 20103 4. Source: Tibet 5100 Water Resources Holdings Ltd., Global offer, 2011

Main Leaders of Premium-Market bottled Mineral Water Tibet 5100, Evian, Perrier, Vittel, San Pelegrino. Tibet 5100 (Market share by sales is 28,5%) Positioned as a premium brand by emphasizing the uniqueness and purity of a glacial spring mineral water, which is sourced from a unique glacial spring at 5,100 meters above sea level. Highest quality standards Is consumed primarily by middle to high income consumers and institutional purchasers such as corporations and government organizations in China3 3. Source: Tibet 5100 Water Resources Holdings Ltd., Global offer, 2011

Top Six Manufactures of Premium Mineral Water Ranked by Sales Volume (%), 20103 3. Source: Tibet 5100 Water Resources Holdings Ltd., Global offer, 2011

Top Ten Brands of Premium Mineral Water Ranked by Sales volume, 2010 3. Source: Tibet 5100 Water Resources Holdings Ltd., Global offer, 2011

Top Six Manufactures of Premium Mineral Water Ranked by Sales Volume, 20103

Key Growth Drivers of China’s Premium Bottled Mineral Water Market Increase in urban population and urban disposable income in China. Growing health consciousness. Change in consumer behavior. Growth in the number and scale of large corporations. Procurement behavior of large institutional purchasers Drive to improve customer service

Pricing of Premium and Mass-Market Bottled Water Premium market bottled water Overage price (500 ml) 1-2CNY7 0,16-0,33USD (0,12-0,24EUR) Overage price (500 ml) 10-30CNY6 1,65-4,95USD (1,2-3,6EUR) Wahaha (596 ml) Evian 8,80-9 CNY6,8 1,40-1,48USD (1,05-1,08) Nongfu 1CNY8 0,16USD (0,12EUR) Tibet 5100 (330 ml) 8,5-10,5CNY7,9 1,40-1,73USD (1,02-1,2EUR) Sources: 6. Want China Times,11/2013 7. Olans, 2013 8. China Daily, 2012 9. Global Times (China), 2012

Distribution area of Acqua Norda products Chengdu Fuzhou Nanchang10 Kunming Population (2012) Urban Rural 7,677,100 14,047,625 4,468,076 2,707,294 5,042,565 (Prefecture level city) 3,583,429 6,432,212 GDP(2012) Per capita (Billions) (Total GDP - CNY 373.478 bln USD 59.22 bln) 43,417CNY 6,442 USD (5,225EUR) 52,144 CNY 8,268 USD 53,250CNY 8,719USD (6,408EUR) 28,894CNY 4,731USD (3,477EUR) Area Urban Prefecture-level 2,129 km2 12,132 km2 12,177 km2 12,177 km2 617 km2 7,372 km2 2,622 km2 21,473 km2 GDP-Gross Domestic Product - Prodotto Interno Lordo 10. Source: Nanchang Economic Information Center, 11.Wikipedia – free encyclopedia, 2014 12. Source: Forbes, 11/2013

Key Factors of Acqua Norda Promotion in China Premium Market Target audience: middle to high income consumers and institutional purchasers Distribution area: industrial cities Distribution channels: institutional sales, food service and retail Beautiful design of the bottle According to the analysis of the Bottled Mineral Water Market, we can conclude that Acqua Nord could promote its brand in the premium segment of the market, due to the high quality of the produced water and the good image of Italy as a country with high quality food and beverages. CAGR of the Premium Bottled Mineral water is higher (20,5%) than CAGR of the Mass-Market Bottled (11,8%) Target audience - middle to high income consumers and institutional purchasers such as major corporations and government organizations with a large middle to high income customer base and significant bulk purchase demand.

Key Factors of Acqua Norda Promotion in China Mass-Market Target audience: low income consumers Distribution area: rural zones Distribution channels: food service and retail Competitive price of the product

Acqua Norda SWOT Analysis Strengths Weaknesses High quality of the product We have a net of the distributors Good image of Italy as a country with high quality standards of food and beverages The brand Acqua Norda is not known in China Opportunities Threats CAGR of Mass-Market and Premium Bottled Mineral water is very high Increase in urban population and urban disposable income in China Change in consumer behavior High level of competition We may be unable to manage future rapid growth. The bottled water industry could face slower growth.

Conclusion Population growth and accelerating urbanisation are expected to be key driving factors for the growth of bottled water over the forecast period. Chinese-style healthy drinks booming Increasing importance of branding in the fierce competitive environment Packaging change affects consumer choice Food safety problem continues to challenge the confidence of local consumers

References China Bottled Water - Market Report, New Zealand Trade and Enterprise, 2012, http://www.prclive.com/pdf/uploads/Bottled%20water%20in%20China%20-%20September%202011.pdf Water Supply Market Research Report, IBISWorld, 2013, http://www.ibisworld.com/industry/china/water-supply.html Bottled Water in China, Euromonitor International, 2011, Tibet 5100 Water Resources Holdings Ltd., Global offer, 2011, http://hk.5100.net/files/pdf/Tibet%205100%20Water%20%20(1115.HK)_Prospectus%20ENG.pdf Bottled Water in China,Euromonitor International, Apr 2013 , http://www.euromonitor.com/bottled-water-in-china/report Want China Times ,11/2013, http://www.globaltimes.cn/content/749313.shtml Olans, 2013, http://webcache.googleusercontent.com/search?q=cache:9u3uKd6ZNkcJ:www.gzolans.com/en/shownews.asp%3Fid%3D167+&cd=10&hl=ru&ct=clnk&gl=ru China Daily, 2012, http://chinabevnews.wordpress.com/category/china-mineral-water/ Global Times (China), 2012, http://www.globaltimes.cn/content/749313.shtml Wikipedia – free encyclopedia, 2014, http://www.wikipedia.org Nanchang Economic Information Center, http://english.nc.gov.cn/aboutnanchang/economy/ Forbes, 11/2013, http://www.chinainternetwatch.com/category/economy-trade/

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