Analyzing Bottled Water Industry

Presented by:HeddySahil

Essaid

Share of Stomach

Tea5%

Beer14%

Milk14%

Carbonated Soft Drinks

33%

Distilled Spirits1%

Bottled water10%

Coffee13%

Fruit Beverages9%

Wine1%

2000

Source: Beverage Marketing Corporation

Share of Stomach (Cont.)

Tea5.6%

Beer13.3%

Milk12.1%

Carbonated Soft Drinks

26.3%

Distilled Spirits1.6%

Bottled water17.4%

Coffee11.3%

Fruit Beverages10.4%

Wine2%

2007

Source: Beverage Marketing Corporation

Bottled Water Overview• Two Primary Market Segments

– Retail– Home and Office Delivery (HOD)

• On a global level, sparkling water accounts for an estimated 10 percent of the total volume, with still water accounting for the remaining 90 percent

• With regard to packaging trends, PET dominates over glass in almost every country, with the exception of Germany (one can assume because of Germany’s recycling laws)

• At about one-third of global volume, home and office delivery (HOD), or bulk water, still accounts for a minority of global bottled water sales.

Source: Beverage Marketing Corporation 2006

Packaging Mix- 2008

Source: Canadean intelligence

% Market Share

Bottled Water Industry Analysis

Dimensions of Bottled Water Industry:‒ The bottled water industry enjoyed substantial growth in the

last decade, especially in the United States.‒ Global consumption of bottled water more than doubled

between 1997 and 2005, and different customers were able to be targeted.

‒ The different customer groups included those concerned about:• Water safety• Fitness• Convenience

‒ Customers either purchased bottled water in bulk (the home and office ), or in single serve bottles.

Still Vs Sparkling Water- 2008

Still Water is growing faster than sparkling water in most regions

Source: Canadean liquid intelligence

Bottled Water Industry Analysis (Cont.)

‒ Bottled water is sold in a worldwide market and it is showing inclusive presence in the United States

• Nearly every location where food is sold now sells bottled water‒ Several manufacturers control the bottling process from

raw material to end distributor, otherwise, licensing agreements must be purchased.

• Companies such as Coca-Cola and Pepsi enjoy an advantage because they can use their established channels of distribution to include bottled water.

‒ It is very important in the industry to have distribution access to supermarkets, wholesale clubs and convenience stores and also necessary for competitors in the bottled water industry to manufacture in large volumes to obtain higher margins.

Bottled Water Industry Analysis (Cont.)

United States‒ U.S. is the world's largest

market and the bottled water has grown, and is projected to grow, faster than any other beverage on its market.

‒ But now bottled water is reaching the mature stage of the product life cycle and a few large firms dominate the industry.

‒ There are some small regional sellers, but the top five sellers have 75 percent of industry sales.

Consolidation in the Industry

Leading Country Markets for Bottled Water between 2003 and 2008 (in millions of gallons*)

*1 gallon= 3.8543 litersSource: Beverage Marketing Corporation as reported by the International Bottled Water Association, 2008

USA

Mexico

ChinaBrazil

Italy

Indonesia

Germany

France

Thailand

Spain

All Others

0

2000

4000

6000

8000

10000

12000

14000

16000

Sales 2003Sales 2008

CAGR: 2003-2008

Source: Beverage Marketing Corporation as reported by the International Bottled Water Association, 2008

USA Mexico China Brazil Italy Indonesia Germany France Thailand Spain All Others

6.7%8.3%

15.6%

5.8%

2.8%

9.6%

1.7%

-1.2%

5.5%

-0.8%

7.8%

Coumpound annual growth rate(CAGR)

Q1. What are the strategy-shaping business and economic characteristics of the bottled water

industry? What is the industry like?

The global bottled water industry forecast is growing by 30% through 2010 to reach approximately $82 billion in revenue.

Bottled water is thought to be safer than municipal tap water and an alternative choice to high calorie carbonated beverages.

United States are the largest market for bottled water in the world based on fitness, health, and the go-go lifestyle.

Q1. What are the strategy-shaping business and economic characteristics of the bottled

water industry? What is the industry like? (Cont.)

The global and U.S. markets are controlled by a few food and beverage companies that sell the top 10 brands.

46.2% of all bottled water revenues are generated through supermarkets and hypermarkets.

The Top 10 Bottled Water Brands in the US

Bottled Water Brands in the US wholesale sales in 2007Dasani (Coca-Cola) $1.6bn

Aquafina (PepsiCo) $1.5bn

Poland Spring (Nestle Waters) $878m

Arrowhead (Nestle Waters) $586m

Nestle Pure Life (Nestle Waters) $545m

Crystal Geyser (CGWC) $529m

Deer Park (Nestle Waters) $500m

Ozarka (Nestle Waters) $352m

Ice Mountain (Nestle Waters) $292m

Zephyrhills (Nestle Waters) $272m

Source: Beverage Marketing Corporation

Q1. What are the strategy-shaping business and economic characteristics of the bottled

water industry? What is the industry like? (Cont.)

There is fierce competition among these producers and they all have a similar “scale and scope” of operation. For instance, Pepsi and Coca Cola have developed a strategy

and infrastructure that makes it hard for regional sellers to complete with them.

There are many small producers that try to access the market with low price and differentiation strategies, but these businesses do not have the scale and scope of the huge bottled water production companies (Pepsi, Coca Cola, Nestle Waters, and Group Danone).

Q2. What is competition like in the bottled water industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of

new entrants?

• While much of the world’s bottled water market is still highly fragmented and controlled by local brands, consolidation is rapidly occurring.

• Key players dominating the global Bottled Water market include Aqua Gold International Inc, Boreal Water Collection Inc, China Water & Drinks Inc, Group Danone, Danone Naya Waters Inc, Isbre Holding Corp, Nestle SA, PepsiCo, Quilmes Industrials Sa-Adr, Saint Elie, San Miguel Corporation and The Coca-Cola Company.

• Four companies have come to be looked as market leaders- Nestle, Danone, Pepsico, and Coca Cola.

• Swiss food and beverage company Nestlé and French entity Danone are the traditional leaders of the bottled water pack.

17

 

SUPPLIER POWER Low - High vertical integration - Many suppliers for packaging-Water sources already owned companies.

 

BARRIERSTO ENTRY

Moderate - Threat of takeover by companies/ risk of survival for small player - Economies of Scale essential

DEGREE OF

RIVALRY High-Multinationals with good distribution-Local brands competing on price- Strong financial background

THREAT OFSUBSTITUTES High - Tap water amidst ethical consumerism

 

BUYER POWER -High bargaining power -Very low brand loyalty

Diagram of Porter's 5 Forces

Competitive Analysis

Q3. Driving Forces and Changes

- Geographic market shifts- Home and Office Delivery- Going Beyond Hydration

-Ethical Consumerism and the Carbon footprint

Changing Consumption Volumes• The value of the bottled water market in

Europe, the US and Japan is forecast to grow at an annual average rate of 5.3% between 2006 and 2012 and will be worth almost $76.4bn by the end of that period.

• Bottled water growth in the US market is expected to be double that in Europe, such that the US market will account for 32% of market revenue by value.

• However, Europe will remain the leading region, and will account for 61% of total market share by 2012. Within Europe, along with Italy, Germany is the most valuable market to target

Volume-driven growth, especially in undifferentiated still water, is likely to put prices under pressure

Shifting GrowthCanadean's recently published Global Bottled Water Report suggests that despite the economic downturn, final year figures for 2009 may see the worldwide market for bottled water increase by around 2%

North America, dropped from double digit growth the year before into decline. In 2009, without North America the global water market was forecast to increase by a healthier 4%.

The biggest market for waters, West Europe, which accounts for nearly 30% of world volumes, is also set for negative 2009 results. Spain and France, two of the heavyweight markets, are responsible for much of these losses.Canadean anticipates every region in the world to be

registering water growth in 2010.

Hydration or more?In the developing world, bottled water serves at least a partial solution to the problem of often-unsafe water found in many countries.

In developed countries—such as the United States and Canada—bottled water has become the fastest growing and most dynamic major commercial beverage category.

By tapping into a growing health and well-being consciousness on the part of consumers, the increased health awareness has helped position bottled water as an alternative to carbonated soft drinks and juice drinks.

Many in the developed world see bottled water as not only a way of achieving hydration, but also as a functional beverage. Functional waters continue to be a key area of growth in the bottled water market with a focus on how to offer functional health benefits and greater flavor without being seen to impair product purity and naturalness

Some of the most common functional propositions appearing in innovative bottled water products are:

- Weight management- Improvement in mental function;- Skin hydration and anti-ageing.

Weight and WatchOver half of the European and American populations are overweight

Marketdata projects 6 percent annual growth for the total U.S. weight loss market, to $68.7 billion by 2010.

Of this, diet soft drinks get the largest share at 29.6 % and was estimated to be valued at $19 billion in 2006.

Michelle Obama’s anti-obesity campaign Let’s Move has received assurances from the beverage industry

Environmental Consciousness

According to Food and Water Watch, “bottled water production and transport uses as much as 2,000 times more energy than it takes to produce tap water.”

Of the 13 billion plastic bottles of all type sold in the UK in 2009, only a third were recycled.

Additionally, it takes “more than 17 million barrels of oil — enough to fuel 1 million cars for a year” to produce the plastic water bottles sold annually in the United States.

Packaging Trends

Concerns over plastic bottle waste, the emission of greenhouse gases and wasted natural resources are continuing to impact New Product Development in the bottled water market.

Colorado-based Biota sells bottled water in biodegradable bottles that are produced using corn in order to attract consumers who are ecologically conscious.

Eliminating the plastic bottles would be like taking 100,000 cars off the road and 1 billion pounds of C02 out of the atmosphere.

-FWW

Return of the Tap water• According to US govt. estimates, about

1/4th of the bottled water is bottled tap water- sometimes additionally treated, sometimes not. (Source)

• Tap water is reported to be 500 times cheaper and produces 300 times less CO2 than bottled water. (Bottled water sold in most industrial countries costs $500–$1,000 per cubic meter)

• Bottled water sales may be threatened by campaigns and Government initiatives to increase the consumption of tap water.

Drinking fountains replace shop-bought mineral water in environmental initiative

The Evening Standard has launched a campaign to make London's tap water freely available in restaurants and bars.

Branded Bulk Water• It is a vital segment in

many countries, such as Mexico, where it accounts for more than 70 percent of the volume.

• Interest from the major water players has grown recently as HOD water becomes increasingly branded.

• A hotly contested race for HOD leadership will likely occur in the next few years.

Q 4. Strategic Group Map

-The Competition- The Mapping

Strategies of the Market Leaders

• Global bottled water consumption is estimated to have approached 53 billion gallons in 2008

• Nestle and Danone centered their operations around the core markets of Western Europe and the United States, but are now focusing on emerging markets

• Following their strong showings in the United States, both Pepsi and Coca-Cola have increasingly devoted resources and energy to developing their global bottled water businesses

• Nestle enjoyed a low cost leadership position in the US while Coca Cola leveraged its already well established distribution system across the globe.

Low

Small

HighEstablished Distribution/Geographical Reach

LargePr

oduc

t Por

tfol

io

Other

Brands

Other

Brands

Coca ColaCoca Cola

PepsiCoPepsiCo

NestleNestle

Groupe

Danone

Groupe

Danone

Per Capita ConsumptionRegional average does diverge dramatically from the global average.

Several Western European countries have per capita consumption levels far above 25 gallons, and two national markets exceeded 50 gallons per person in 2008. 13 of the top 20 bottled water consumers on a per person basis are European countries

Brazil, China, and India have doubled or even tripled consumption between 2000 and 2005, though per capita intake in China and India is still far below the global average.

Bottled water’s persistent global growth indicates demand for it in diverse markets.

Water growth is expected to increasingly come from the developing world.

Q5. Key Success Factors

• Reach and Display – Distribution of bottle water is highly important as most sales are through the retail sector. Additionally, display space plays a prominent role as in any other beverage.

• Purity and Provenance – Increasingly health aware and source conscious customers demand quality water.

• Positioning and Innovation– Developed markets offer scope for valuable growth in niche segments consisting of functionality and flavor.

• Low Costs and Economies of Scale – Volume driven growth and intense competition likely to put pressure on prices

Q6. Nestlé 2006-2007 Performance at a Glance

Europe43%

North Amer-ica

50%

Other Regions7%

2006

Europe42%

North Amer-ica

49%

Other Regions9%

Jan-Sept. 2007

Sales by Region

Source: Nestlé

Q6. Nestlé 2006-2007 Performance at a Glance (Cont.)

Sales by Channel

Take Home59.7%HOD

15.1%

Out of Home25.2%

2006

Take Home61%HOD

14%

Out of Home25%

Jan-Sept. 2007

Source: Nestlé

Q6. Nestlé 2006-2007 Performance at a Glance (Cont.)

Local63.1%

Inter-na-

tional22.4%

Nestlé

14.5%

2006

Local61%

International22%

Nestlé17%

Jan-Sept. 2007

Sales by Brand

Source: Nestlé

Nestlé Key Positions in 2006*

Source: Nestlé

Nestle Water

• Worldwide market share of bottled water market was 18.3 % in 2006

• Operates 75 bottled water brands in 130 countries• In 2006, company portfolio included two global

brands (Nestle Pure Life and Nestle Aquarel) and five international premium brands and 68 local brands.

• Key Resource Strength: Broad portfolio of local water brands and a low cost leadership.

Q6. What recommendations would you make to Nestlé improve its competitiveness in the

global bottled water industry?

• Sales by Region: Nestle should invest a little more to conquer emerging markets worldwide where opportunities to expand abound. Nestlé's market is currently concentrated in the US market which accounts for about 50% of its sales (price pressure and Cola giants’ competition).

• Sales by Channel: Expand HOD business in emerging markets.

• Innovate and Reposition: For the developed markets facing a backlash, it is essential to adapt itself to changing consumer concerns.

A large pile of Nestle Poland Spring bottles

Thanks