Ask AI · How does Nongfu Spring reshape the Yunnan tea industry chain through tea factory construction?

When both upstream and downstream “have money to make,” the entire system enters a positive cycle.

Author | Zhao Qing

Editor | Gao Yuanshan

Source | Yema Finance

In the current environment where most consumer goods companies desperately rush into e-commerce and compete for traffic through low prices, Nongfu Spring(9633.HK) is doing two seemingly “counter-cyclical” things: on one hand, it actively reduces its share of e-commerce, “braking” online growth; on the other hand, it invests money into remote mountainous areas of Yunnan, donating to build tea primary processing factories.

The former is akin to giving up traffic dividends; the latter appears to be a “short-term unprofitable” investment.

What kind of chess game is Nongfu Spring playing with these “counterintuitive” moves?

01

A Tea Factory

How to change an entire industry chain?

If we step back from financial reports and look at the bigger picture, truly understanding Nongfu Spring as a company requires starting from the tea mountains of Yunnan.

Yunnan has a history of over 1,200 years of tea planting, but for a long time, its tea industry has been stuck on an old problem: “Heavy on spring tea, light on summer and autumn tea.” Spring tea prices are high and sell easily, while summer and autumn teas suffer from poor market channels and low purchase prices, leading to large amounts being abandoned. Local tea farmers say: “Summer tea harvests cost more in labor than they earn.”

As a result, large quantities of summer and autumn teas are either sold at low prices or simply abandoned, wasting resources, and tea farmers’ incomes depend heavily on a single season.

In 2024, Nongfu Spring founder Zhong Shanshan repeatedly visited tea regions in Yunnan for field research. He saw some places where fresh summer and autumn leaves sold for only 3 yuan per jin (about 500 grams), barely covering harvesting labor costs. Later, in CCTV’s “Dialogue” program, he openly stated that the development of Yunnan’s tea industry needs to return to rationality: “We can’t have everyone doing luxury watches (like Rolex), but should produce mass-market products like Swatch.” He emphasized that Yunnan’s tea industry must expand through industrialization and standardization, so that high-quality tea truly benefits millions of tea farmers.

Thus, Nongfu Spring began donating to build tea factories in Yunnan, installing the country’s highest standard production lines. In its financial reports, Nongfu Spring explicitly mentions this layout: “We have always focused on building and upgrading the entire tea industry chain, constructing tea processing factories, and since December 2024, have donated to build five modern tea primary processing factories in core tea-producing areas such as Pu’er City and Lincang City in Yunnan.”

Beyond funding factory construction and equipment installation, Nongfu Spring also arranged experts to go on-site for debugging, providing comprehensive training from production team setup to technical key points, leaving behind standardized production concepts for local operators.

One year later, visible changes are evident.

Image source: CCTV “Dialogue” program screenshot

Data from Jingdong County, Pu’er City, shows that one year after Nongfu Spring’s factory was put into operation, it has purchased over 1,500 tons of fresh leaves, with summer and autumn tea accounting for as much as 81%. “Summer and autumn tea used to be ‘waste’ that no one wanted; now it has become our treasure for increased income,”** said Yang Jun, head of Jingdong County Tea Specialty Center. He noted that the factory’s average purchase price for fresh leaves is 1-2 yuan higher per kilogram than surrounding areas, giving it a clear price advantage, directly benefiting over 3,800 contracted tea farmers, and radiating to nearly 10,000 tea farmers in An Ding and Wen Long towns to increase their income.

More importantly, this factory has changed the planting mindset of tea farmers.

In the past, many tea farmers relied on experience: when to harvest, how to harvest, how to process—mostly based on traditional habits. Once integrated into a modern processing system, standards began to push upstream to change.

A person in charge of the An Ding Town Tea Warehouse Tea Factory in Jingdong said, “The most direct impact of the new factory’s operation is to motivate tea farmers’ production enthusiasm and promote standardized control of pesticide use in tea gardens. The donation factory has set strict, unified requirements for pesticide residues and harvesting standards for raw materials, which in turn forces the entire upstream of the tea industry chain to upgrade.”

According to Jingdong County officials, over the past year, more than 4,800 tea farmers have been trained, covering key techniques such as green control, scientific pesticide use, standardized harvesting, and mechanical pruning. “Before, we made tea purely based on experience—touching to see if it’s hot enough, smelling if it’s fragrant. Now, it’s different. Nongfu Spring’s purchase standards are very strict,” a tea farmer in An Ding told media.

Tea farmers are gradually realizing: only by “growing good tea and managing it well” can they “sell at a good price.” Duan Hongrui, a local tea enterprise leader in Jingdong, said that despite the recent decline in tea prices, the factory’s purchasing mechanism has formed an effective price protection.

This “enterprise + cooperative + farmer” model, through long-term orders, has established a stable production-sales relationship, fundamentally solving the “difficult to sell” problem for tea farmers.

For Nongfu Spring, this is not just a poverty alleviation effort. It is undertaking a more covert but crucial move—restructuring the upstream. The company explicitly states in its financial report: continuing to promote the construction of the entire tea industry chain, donating modern primary processing factories in core Yunnan production areas, and promoting “industry-driven agriculture, quality-driven agriculture, green-driven agriculture” to achieve integrated production and sales.

Chinese independent wine industry commentator and Wuhan Jingkui Technology Co., Ltd. Chairman Xiao Zhqing believes that this layout is essentially about reshaping agriculture with industrial thinking, copying the Gannan navel orange model: “Order binding for quality + market competition” creates a virtuous cycle. Zhong Shanshan’s goal is not only supply chain security but also to make “Yunnan tea farmers become industry masters,” increasing added value through standardized upgrading.

The so-called “teaching a man to fish” behind this is also about long-term supply chain binding.

02

Where will profits come from in 2025?

If solving the “source problem” is the role of the Yunnan tea factory, then another key move by Nongfu Spring occurs at the other end—channels.

By 2025, almost all consumer goods companies are desperately pushing online, competing on low prices, and doing live streaming. But Nongfu Spring has proactively slowed down e-commerce.

In an era where “online equals growth,” this is almost counterintuitive.

Nongfu Spring’s logic is clear: e-commerce brings not only sales but also disrupts pricing systems. Once online channels start large-scale promotions, low prices quickly transmit to offline, squeezing the profit margins of the entire distribution system. When distributors are unprofitable, channel efficiency drops rapidly: they are reluctant to stock, reluctant to expand, and payments slow down.

So Nongfu Spring chose a different path. Its annual report explicitly states that in 2025, the company’s high profitability was largely due to “actively controlling e-commerce scale and focusing on offline channels.” The company controls the proportion of e-commerce sales to better stabilize the pricing order within the distribution system, ensuring overall profitability and healthy development.

This strategy is directly reflected in the financial report. In 2025, Nongfu Spring achieved operating revenue of 52.55B yuan, a 22.5% increase; net profit attributable to parent was 15.87B yuan, up 30.9%; gross profit margin increased by 2.4 percentage points to 60.5%. Meanwhile, Kangshifu’s revenue declined by 2%, marking its first negative growth since 2017; Uni-President’s beverage business growth sharply slowed to 1.2%. In the highly competitive beverage industry of 2025, Nongfu Spring’s growth is undoubtedly a dark horse among the leading players.

While profitability improved, by controlling e-commerce and stabilizing offline distributor pricing, Nongfu Spring’s distributor payment willingness generally increased. In 2025, the company’s trade receivables and notes receivable turnover days further decreased from 4.8 days in 2024 to 4.1 days, contributing to healthier cash flow.

From the perspective of distributors, when they can earn reasonable profits, they are naturally willing to make payments actively and expand shelf space. Nongfu Spring’s channel efficiency thus improved, receivables turnover accelerated, and cash flow remained healthy. Meanwhile, upstream tea farmers’ incomes are stable and growing; downstream distributors have profit margins and are motivated to sell.

When both upstream and downstream “have money to make,” the entire system enters a positive cycle. And Nongfu Spring, in the middle, achieves higher-quality growth.

Chinese food industry analyst Zhu Danpeng pointed out that future corporate competition will focus on full industry chain layout. The higher the completeness of the industry chain, the stronger the company’s core competitiveness. Its comprehensive full-chain layout clearly maximizes profits. Meanwhile, using e-commerce as a means to cut costs is a very reasonable strategy. Relying on mature brand effects, scale effects, fan effects, and a complete supply chain system, companies can focus on nearby community e-commerce rather than distant e-commerce. The core of “nearby e-commerce” is community e-commerce, which causes the least erosion of profits and helps companies significantly increase profits.

03

Nongfu Spring’s “Shared Prosperity Growth”

Looking at the story of Yunnan tea mountains together with the channel strategy in the financial report reveals a clear logic: Nongfu Spring is building a “three-party win-win” business model.

Upstream are farmers and raw material suppliers. Nongfu Spring raises purchase prices, donates factories, and provides technical training, helping them shift from “selling raw materials” to “selling standards,” achieving stable income growth. In Jingdong, summer and autumn teas that were once “unwanted” are now “sought after,” with per-mu (per 666.7 square meters) income increasing by 200-500 yuan.

Midstream is the company itself. By controlling upstream quality and downstream channels, Nongfu Spring secures a stable supply chain and an efficient distribution network. The 2025 financial report proves that this approach works well and can be sustained.

Downstream are distributors and terminal stores. Nongfu Spring actively controls e-commerce share, strictly regulates prices, avoids low-price competition, and leaves reasonable profit margins for distributors. Distributors are willing to sell, and terminals are willing to stock, injecting vitality into the entire sales network.

The success of this model depends on Nongfu Spring not just “doing business,” but managing a “relationship network.”

For upstream, it builds trust through timely payments and long-term orders; for downstream, it maintains loyalty through price controls and profit guarantees. This is not a one-time transaction but a continuous, mutually beneficial partnership.

Some say Nongfu Spring’s moat is its water source. But from the Yunnan tea factory and channel strategies, Nongfu Spring’s real moat is its “distribution mechanism.”

Image source: Canned图库

As China’s consumer market shifts into stock competition, most companies are fighting over prices, channels, and traffic, pushing prices lower and profits thinner. Nongfu Spring’s answer is: redistributing profits, not re-pricing products.

It shares profits with upstream tea farmers, encouraging them to grow good tea and manage it well; it leaves profits for downstream distributors, motivating them to expand shelf space and sell more. The company itself benefits from the system’s healthy operation, achieving more sustainable growth.

This is a form of “shared prosperity growth,” not zero-sum but positive-sum win-win.

Nongfu Spring’s financial report states: “We promote industry-driven agriculture, quality-driven agriculture, green-driven agriculture, promote integrated production and sales, and help realize the beautiful vision of ‘farmers rich, China strong.’”

In Jingdong, Yunnan, this is becoming a reality. Summer and autumn teas are no longer wasted; each mu of tea garden yields hundreds of yuan more; the local tea industry has upgraded from “selling raw materials” to “selling standards”; the regional public brand “Tea from Yinsheng” is gradually gaining market value.

When the story of a beverage can start from Yunnan’s tea mountains and extend to shelves across millions of terminals nationwide, it carries not just a product but a whole system design of supply, channels, and distribution.

What do you think about Nongfu Spring’s “counter-cyclical” moves? Share your thoughts in the comments.