El Niño conditions are expected to prolong the peak season for packaged water consumption and drive a structural shift within the industry as core trends. Looking ahead to 2026, should a moderate or stronger El Niño event occur in the summer and autumn, widespread high temperatures across China and an extended beverage sales season are highly likely outcomes. The period from June to September already represents the annual sales peak for packaged water. Sustained high temperatures will further amplify demand for mid-to-large-sized packaging in household and food service channels. Coupled with the sector's existing long-term high-growth trajectory for these larger formats, mid-to-large packaged water is poised to receive a dual boost in demand.
Zhongtai Securities Co.,Ltd. presents its key views below:
El Niño Drives Total Volume Growth and Structural Shift for Packaged Water
Historical data from multiple El Niño cycles confirms that high temperatures directly elevate essential hydration needs among consumers. While precipitation may disrupt regional sales momentum, the overall impact on packaged water industry sales is a clear positive, with sales growth rates significantly improving during high-temperature years. During the historically strong 2014-2016 El Niño cycle, China's packaged water sales maintained a steady annual growth rate exceeding 8% for four consecutive years. The moderate El Niño of 2023-2024 similarly boosted industry sales growth, showing marked improvement over 2022, further evidencing the catalytic effect of rising temperatures on industry demand.
Mid-to-Large Packaged Water Benefits More Under El Niño Conditions
The impact of El Niño on the packaged water industry extends beyond overall sales volume expansion, more crucially driving a migration in product structure. Mid-to-large-sized packaged water (1-15L) exhibits stronger growth elasticity compared to small bottles under 1L and traditional 18.9L barrel water, positioning it as the core beneficiary category of the climate-driven dividend. Current consumption scenarios for packaged water in China are continuously shifting from outdoor immediate drinking to household, office, and food service settings. The proportion of household consumption has been steadily increasing from 2020 to 2023. Concurrently, the average household size in China has decreased to 2.52 persons, making the water needs of smaller households better suited for mid-to-large packaging: compared to small bottles, mid-to-large sizes offer a more cost-effective price per liter; compared to barrel water, they do not require a water dispenser, occupy less space, and have a controllable consumption period after opening, making them suitable for high-water-usage household activities like cooking rice, brewing tea, and making soup.
High temperatures lead to simultaneous increases in residents' daily water intake, water usage in restaurant kitchens, and demand for outdoor group stockpiling. These new water demands align well with the product positioning of mid-to-large packaging. From 2018 to 2023, the market size for mid-to-large packaged water grew from RMB 23.2 billion to RMB 42.4 billion, achieving a compound annual growth rate (CAGR) of 12.8%, significantly higher than the industry's overall CAGR of 7.1%, with this growth advantage continuing to expand.
Channel Evolution Further Amplifies Growth Advantage for Mid-to-Large Packaging During El Niño Cycles
Traditional barrel water relies on community water stations for offline ordering, which has relatively low fulfillment efficiency. In contrast, mid-to-large packaging is well-suited for new channels such as supermarkets, e-commerce, O2O instant retail, and forward warehouses. From 2018 to 2023, the market size via e-commerce channels grew at a CAGR of 16.1%, with its share continuously rising. Instant retail naturally fits the consumption characteristics of mid-to-large packaging as heavy, bulky goods and for emergency replenishment. During high temperatures, consumer demand for immediate stockpiling surges. Integrated online-to-offline delivery channels significantly enhance the reach and efficiency of mid-to-large packaging, continuously squeezing the market space for traditional barrel water. This channel dividend and high-temperature demand create a dual resonance effect.
Cost Perspective: El Niño Unlikely to Significantly Impact Core Production Costs
Packaging materials constitute the largest cost component for packaged water, accounting for approximately 75% of unit production costs. The price trend of the core raw material, PET, shows no positive correlation with El Niño events. During both the 2014-2016 super El Niño and the 2023-2024 moderate El Niño cycles, PET prices experienced significant declines. Simultaneously, international crude oil prices, a core factor influencing freight costs, did not show sustained upward trends during multiple El Niño cycles. Crude oil price fluctuations have no direct correlation with El Niño. Therefore, corporate transportation cost pressures are manageable. The sales volume increment driven by high temperatures can be fully converted into revenue growth, with no significant cost-side suppression factors present.
Risk Warnings
Risks include the potential impact of extreme weather on packaged water consumption, estimation errors, food safety issues, intensifying industry competition, weaker-than-expected terminal demand, slower-than-expected progress in channel transformation, subpar performance of new product launches, volatility in raw material prices, delays in research report information updates, and inaccuracies in third-party data.
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