COMPETITION IN BOTTLED WATER INDUSTRY IN 2006

Seminar #4Aditi | Aswathy | Alby | Cyril | Palak

OVERVIEW

• Bottled Water Industry - Trends and Competition

• Supply Chains in the Industry• Strategies adopted by major players• Learning from the case

INTRODUCTION

This case analysis is to show the emergence of bottled water industry, different strategies being taken by the three main competitors (Pepsi,Cocacola,Nestle) and other sellers to sustain in market during the period from 2000 to 2006.

About the Industry…

INDUSTRY CONDITIONS• $ 62 billion business and additional 30%

between 2005-2010• US-world’s largest market per capita

consumption is 25 gallons and in European market it is 40 gallons

• Controlled by few competitors• Strategies: Innovate product variation,

lowered prices in structured markets, acquiring of smaller sellers, use of strategic agreement

Emergence of bottled water industry:• Increased focus on health and fitness• Safety concerns of municipal drinking water• Hectic on the go lifestyle of American consumers• Convenience, purity and portability of bottled

water• Increased consumer awareness• Improved the appearance of skin and give more

energy• Chemical taste of tap water including chlorine

and fluoride that was a great problem to use

Distribution and Sale of Bottled Water

• Distribution of bottled water varied depending on producer and distribution channel

• Bottled water was distribution can be– Direct store delivery– Delivery by third parties

• Coca-Cola’s Dasani and PepsiCo’s Aquafina was done through companies vast beverage distribution system

Distribution and Sale of Bottled Water

• Bottled water producers other than Coke and Pepsi were required to compete aggressively on price to gain access to shelf space

• Supermarkets and discount stores accounted for 43.5 percent of U.S. industry sales

• Convenience stores were aggressive in pressing bottled water producers and food distributors for low prices and slotting fees

• Delis and restaurants accounted for only 6.5 percent of U.S. industry sales

Suppliers to the Industry

• It includes– Municipal water systems– Spring operators– Bottling equipment manufacturers– Deionization– Filtration equipment manufacturers– Manufacturers of PET and HDPE bottles,

plastic caps– Label printers– Secondary packaging suppliers

Key Competitive Capabilities in the Bottled Water Industry

• Did not enjoy the brand loyalty of other food and beverage products

• Since there was growing importance of brand recognition, successful sellers required to possess well-developed brand-building skills

• Need to have efficient distribution systems to– Supermarket – Wholesale club– Convenience store channels

Key Competitive Capabilities in the Bottled Water Industry

• It is critical for distributors and bottlers to– Provide on-time deliveries– Offer responsive customer service

• Price competition mandated high utility of large-scale plants

• Volume and market share were key factors in keeping marketing expenses at an acceptable per-unit level

Nestlé Waters

• “Good Life, Good Food”• Number 1 bottle water company in the

world• 99 production sites in 36 countries• 67(75) brands• Aggressive in building market by

introducing new brands and acquiring local brands.

• Acquired nearly 20 bottled water producers between 2001-2003

Nestlé Waters

• Two global brands, five international premium brands and local brands– Purified water products– Spring water– Sparkling water– Mineral water

• 4.8% Global growth in 2010

Nestlé Waters• Functional Water

– Fortified with vitamins and plant extracts – Calorie Free flavors

• Packaging innovations– Spill proof cap

• Aiming at “on the go life style of young”• One litter glass container for traditional

consumers• Home and office delivery

– 30% share– Acquired existing players

• Low cost leader strategy

Groupe Danone

• “Bringing Health through food to as many people as possible”

• Presence in – Diary products [#1]– Bottled Water [#2] :China , Euorop – Baked goods [#2]

• Number 2 in bottled waters• Strategies of Danone is based on “drink more

water because it’s the only drink the body really needs”

• Acquisition of companies• 6.9% growth in net sales in 2010

Groupe Danone

• Suffered due to the distribution agreement with Coca-Cola [ -20% in USA] – Responsible for production, marketing

and distribution• HOD agreement with Suntory Waters

– Sold to a private investment fund• Functional and Flavored water

Coca-Cola• In 1999, it created a new brand called ‘DASANI’ • It included a combination of magnesium sulfate,

potassium chloride and salt – which the company believed were the best attributes of spring water.

• Coca-Cola’s marketing expertise and vast distribution system allowed Dasani to became 2nd largest brand.

• Joint venture with Danone Waters provided Coke with products at all price points. – Evian premium priced– Dasani upper-mid priced– Dannon discount priced

• But the three-tier strategy failed as three brands collectivelly lost 2.2 marker share points berween 2003 and 2004.

• In 2006, Coca-Cola extended Dasani line– Fruit-flavored – Dasani Sensation: a flavored water with light

carbonation – powerade : in two flavor

• Coca-Cola produced and marketed bottled water In foreign countries under local brand names.

Coca-Cola

• It began efforts to make Dasani an international brand in 2004 with expansion in Africa, Brazil and the UK.

• They supported the launch in UK with $3.2 million advertising budget and a 4-million bottle sampling campaign.

• But it had to withdraw its entire stock of Dasani from UK market after unacceptable levels of bromate was detected in water. This was viewed as one of the all-time great marketing disasters.

• In 2006, the company acquired an Italian and a German mineral water company and two HOD water producers in Australia.

Coca-Cola

PepsiCo• Best selling brand in United States – Aquafina• Utilisation of the same water purification facilities

that were used to produce soft drinks• Stripped out all chlorine and other parts that

might impart unpleasant smell or taste. Then ozone gas was added to prevent bacteria growth.

• The product lines were developed around customer type and life style.– Propel : flavor and vitamin enriched water for physically

active customers– Gatorade: nutrient-rich water

PepsiCo• In 2006, Gatorade, Propel and Acuafina were all

number one in their categories, with market shares of 80%, 34% and 14%.

• In 2002, it acquired Mexico’s largest Pepsi bottler, wich was the number one producer of purified water in Mexico.

• PepsiCo expanded into international market by allowing foreign bottling facilities to lience the Aquafina brand.

• Aquafina was also number one brand in Russia and Vietnam.

Others

• Low Price Strategy [CG Roxane]• Differentiation Strategy [Trinity

Springs, Penta, Voss]– Based on water source [Trinity Springs]– Proprietary Purification System [Penta]– Distinctive Glass bottle and limited

channels of distribution [Voss]

CONCLUSION

• Convenience and portability are two features that makes the bottled water industry sustaining

• Bottlers use varied supply chains and integrated at different levels

• Companies leveraged on an existing brand or adopted a low price strategy by enhancing operational efficiency or differentiated the products

CONCLUSION

• Growth Strategy: Mainly inorganic and brand extension [Nestlé]

• Stiff competition existed in the industry [Palomer]

THANK YOU

"Thousands have lived without love, not one without water."W.H. Auden