Source Perrier

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A PROJECT REPORT ON

SOURCE PERRIER

SUBMITTED TO

UNIVERSITY OF MUMBAI

BY

NIRMALADEVI MOHAN SINGH

T. Y. B.M.S.

YEAR 2005-2006

THROUGH

TOLANI COLLEGE OF COMMERCE

ANDHERI (EAST), MUMBAI – 400 093



CERTIFICATE

I, Mrs. Vijaya Krishna, hereby certify that Ms. Nirmala Singh of

Tolani College of Commerce, T.Y. B.M.S. (Semester V) has completed

her project titled SOURCE PERRIER in the academic year 2005-2006.

The information submitted herein is true and original to the best of my

knowledge.

Mrs. Vijaya Krishna Dr. A. Rashid Dr. Sheela Purohit

(Project Guide) (BMS Co-ordinator) (Principal)



DECLARATION

I, Nirmala Singh, of Tolani College of Commerce, T.Y. B.M.S.

(Semester V) hereby declare that I have completed my project titled

SOURCE PERRIER in the academic year 2005-2006. The information

submitted herein is true and original to the best of my knowledge.

Place: MUMBAI Nirmala Singh

Date:



Acknowledgement

At the outset I take the privilege to convey my gratitude to those who have

co-operated, supported, helped and suggested me to accomplish the project

work. This project work bears imprint, of many persons who are either directly

or indirectly involved in the completion of it.

I extend my thanks to Mr. Allwyn Fernandez for giving me an

opportunity to do this project in the company.

I am also desirous of placing on record profound indebtness to my guide

Prof. Mrs. Vijaya Krishna, Tolani College of Commerce, Andheri for the

valuable advice, guidance, precious time and support that she offered.



Contents

Introduction

History of Bottled WaterSource Perrier - the History

Source Perrier in United States

The Market Scenario Types of Bottled WaterSource Perrier & USExporting

Nestle Worldwide - an overview Brands Owned by the Group

Why Nestle Acquired Source PerrierSWOT Analysis

An Analysis of the company’s movesBenzene Incident

The ProtestsRecent Update about the Perrier Group

Source Perrier & India

Indian Market ScenarioLegal requirements

About Nestle IndiaEntry Strategy in IndiaLatest Happenings

The Shock Wave

Future Outlook of source perrierBibliography



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http://www.ucad.fr/pubgb/virt/mp/perrier/perrier10.html



INTRODUCTION Every firm, at every point in its history, faces a broad range of strategy

alternatives. In far too many cases, companies fail to appreciate the range of

alternatives open to them and, therefore, employ only one strategy – often to

their grate disadvantage. The same companies also fail to consider the strategy

alternatives open to their competitors and leave themselves vulnerable to the

dreaded ‘Titanic’ syndrome, or the thud in the night that comes without warning

and sinks the ship.

Entry into a new country-market is always a learning process during which a

firm continually commits resources in smaller or larger steps to establish an

intended position in the country-market. The intended position is determined

through a strategic positioning process. In this process, management defines a

company (product line or product) – specific set of benefits that is attractive to

chosen target customers, which are at least acceptable to important stakeholders

in the market, and at the same time positively differentiates the firm (its product

line or product) from competitors. If and how the intended position is reached

not only depends on the company’s actions but also on other stakeholders in the

local operating environment, their interests, powers and actions. All this allows

management to evaluate various ‘market entry modes’ concerning their potential

contribution in reaching the intended position in the country market. A market

entry mode is the general way the company plans to enter a new country market,

for example through selling its goods to an importer or through direct investment

in a production facility and a distribution system.The development of market entry strategy not only depends on market factors

but also on available production capacities, personnel and financial resources. It

is an organizational learning process.

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History of Bottled Water

The tradition of bottled water and mineral water is not very old. Even in westerncountries the practice of bottled drinking water started in 1950s. The trend of

having mineral water gained grounds in the market.

Since ancient time people have used water from

mineral springs, especially hot springs, for

bathing due to its supposed therapeutic value

for rheumatism, arthritis, skin diseases, andvarious other ailments. Depending on the

temperature of the water, the location, the

altitude, and the climate at the spring, it was

used to cure different ailments. This started the

trend of using mineral water for drinking

purpose to exploit the therapeutic value of the

water. This trend started gaining momentum in

mid 1970s and since then large quantities of bottled water from mineral springs

in France and other European countries are exported every year.

The concept of bottled water has been quite prevalent in western countries due

to greater health consciousness and higher awareness about health and hygiene.

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Source Perrier – The History

17 kilometers from Nimes, a fresh water spring in a small village called Vergèzedrew Romans in search of refreshment. This renowned spring continued to flow

after the French Revolution on land which then belonged to Alphonse Granier.

By the 19th century, it had been baptized "Bouillens", because of the way it

spurted out like boiling water, due to its' natural carbon gas content. The water,

whose source lies in limestone hills, has a strong trace of a carbon gas current of

volcanic origin. In year IX of the Republic, citizen Dax, a doctor from Sommières,

wrote the first thesis on Bouillens water and its' therapeutic properties. ProfessorCourcière proved that the gas it contained was natural carbon gas. .

1863

On the 23rd June, Napoleon III granted the right to

exploit this source by decree (before this, spring water

was free.) This was the heyday of thermal baths, and

Bouillens became a reputed spa. Alphonse Granier set up the "Société de

l'Etablissement Thermal des Eaux Minérale de Vergèze". The company's

statutes provided for cold baths, mud, carbon gas and inhalations, showers

and the sale of bottled water as a beverage

1869

Fire destroyed these installations and the company went bankrupt

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1870

The first advertisement for the spring water came out: "The Princess of Table

Waters".

1888

Monsieur Rouvire, a local farmer, acquired the source. He went into

partnership with a doctor from Nimes, Doctor Louis Perrier, also in charge of

the spa at Euzet-les-Bains in the Gard.

1898

Louis Perrier, a French doctor became sole owner of the domain called the

"Vergieze Company for mineral water, drinks and health products". He

analyzed the water's properties, and discovered its' therapeutic possibilities.

He perfected bottling techniques, and found a limited partner to finance his

operation. The source was officially recognized as a national asset.

1903

A young Englishman, Sir John Harmsworth bought the

company's shares and gave the source the name of the

man who had made it famous. Employees filled bottles

by hand, closing them with a capsule by pressing on a

pedal.

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1908

During the Anglo-French Exhibition in London, Perrier won the Grand Prix

for the record sale of mineral waters in the year, having sold five million

bottles.

1914

Perrier was better known in English-speaking cities (London, Delhi,

Singapore) than in Paris. This sparkling water was, it is said, the drink

favored by Her Royal Highness' officers throughout the Empire. Production

climbed to 10 million bottles.

1946

After the Second World War, Georges Leven and his

son Gustave, in association with his friends, Maurice

Epry (management) and Jean Davray (the company's

advertising executive, until his death in 1985), bought

up The Société Perrier's shares. The source was back in

French hands. Jean Davray adapted the very first

slogan: "The Princess of table Waters" by changing the

word princess with champagne, party, folly and product. Perrier was a chic

French drink, present on every media, but it now aimed to become a

massively popular consumer product. Poster artist Jean Effel designed the

"champagne" variation, and this poster became the company's leading image.

Perrier sponsored the Tour de France bicycle race.

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1949

A new campaign was based on the notion of sleep: "Naturally sparkling

Perrier water clears the digestion, and leaves your mouth fresh for the night!"

1952

Perrier's total sales were 100 million bottles.

1954

Production diversified, under G. Leven's influence, as sodas make their

appearance

1973

To counter diminishing glass bottle deposits, added to blocked prices, the

overall tendency to use plastic bottles ("wasted packaging") and their own

obligation to use glass because of the carbon gas, Perrier decided to produce

their own glass! Leven acquires a sand-works at Bédouin, at the foot of MontVentoux.

1976

While in the U.S. since the beginning of the century, Perrier's U.S. presence

exploded, as Americans were ready for new natural refreshment.

1977

G. Leven opened the market for carbonated water in the US, and soon

controlled 6% of the American market. To counter imitations launched by

plain mineral waters with added gas, Perrier was sold as "naturally

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sparkling" mineral water imported from the south of France, and presented

as a healthy drink. On TV, Orson Welles encouraged people to "enjoy and

good health."

1979

G. Leven launched flavored Perrier, trying it out first in the US. In view of

successful results, he acquired new springs locally. That year, 6000 runners

in the New York Marathon crossed Central Park wearing Perrier T-shirts.

Sales reached 200 million dollars (as opposed to 6 million in 1976).

1984

Perrier became the number one mineral water company world-wide, with

markets established in Canada, the Arab countries, South Africa, Germany,

Australia, Japan and in the United States 45% of its' turnover reinvested in

export. Perrier's strategy in creating a market abroad was to introduce the

product as a prestigious label, underlining the luxurious, "chic" French

aspect, and the 100% natural, ‘Zero’ calorie feature. The company conferred

advertising to a local agency, and acquired a local label. The next step was to

make the product available in bars, restaurants and hotels, where prices are

controlled, to create consumer habits.

1987

A marketing department opened. Perrier Zeste aromatisés (Flavoured Perrier

- lemon, lime and orange) appeared on the French market. In June, the

company bought the American BCI Arrowhead Drinking Water Company,

and became France's number one mineral water manufacturer. The company

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also took over Buxton Mineral water, controlling 75% of the British market of

carbonated waters.

1990

72 million bottles were taken off the market in the USA, after a few traces of

benzene were discovered in twelve bottles. Gustave Leven decided to

withdraw the entire US production (160 million bottles, then did the same in

five other countries (Germany, Canada, Denmark, Japan and Holland), thus

destroying a total of 280 million bottles world-wide. In April, Perrier – after

ten weeks absence - was back on the market.

1992

Perrier was bought by Nestle, and takes advantage of this group’s set-up in

South East Asia to conquer that market. In November, Publics FCB is granted

the world budget, to guarantee coherence in communications on a world-

wide level.

1999

The Vergèze plant produces 3,200,000 bottles a day and Perrier maintains its

position as the world's most popular sparkling mineral water.

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The United States Bottled

Water Market & Source

Perrier

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THE UNITED STATES MARKET SCENARIO

A 1998 poll of people who drink bottled water found that 35 percent of bottled

water drinkers used it primarily out of concern about tap water quality. Another

12 percent chose bottled water because of both safety and health concerns and

the desire for a substitute for other beverages. Thus, as of 1998 at least, nearly

half (47 percent) of bottled water drinkers used it at least partially out of concern

for their health and safety. Another 35 percent drank it as a substitute for soft

drinks and other beverages. Seventeen percent said they chose bottled water for

other reasons -- such as "taste" (7 percent) or "convenience."

It is absolutely clear, therefore, that a leading reason for the explosion in bottled

water sales is the public perception, fueled by heavy industry advertising, that

bottled water is pure and pristine, and thus a healthier choice than tap water.

Why People Drink Bottled Water

Source:

American

Water Works

Association

Research

Foundation,

Consumer

Attitude

The public is concerned about tap water safety and quality, and, with much

encouragement from the bottled water industry's aggressive marketing, views

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bottled water as a purer, safer option. As a key industry consultant put it, “water

bottlers are selling a market perception that water is 'pure and good for you’’.

News reports about crises involving municipal water supplies in many parts of

the United States heightened public awareness and concern about the safety of

tap water. Environmental groups and the Environmental Protection Agency

(EPA) sounded the safety alarm in several cities last year. As a result, consumers

began tochoose bottled water as a safe alternative for drinking water.

IN GENERAL, MORE PEOPLE DRINK WATER BECAUSE IT WORKS FOR

Thirst: No beverage satisfies thirst more completely, more simply than

water.

Refreshment: Crisp, light, super-cooling; enters the system quickly;

adjusts the body's temperature almost immediately.

Fluid replenishment: Far superior to soft drinks, coffee, tea, or beer -

this may act as diuretics, actually depleting rather than replenishing body

fluids.

Mental alertness: Nothing clears the head or enlivens the senses like a

crisp, cold drink of water.

Vitality: Water is nature's own way to deliver nutrients and oxygen tothe body - and to aid the conversion of food into active energy.

Dieting: Helps the body to metabolize fat naturally.

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THE INDUSTRY SCENARIO

The numbers tell the story…

Bottled water is the fastest growing segment of the entire beverage business. In

fact, in 2000:

Bottled water consumption experienced an unheard of growth of more

than Two gallons per person;

Wholesale revenues totaled $5.7 billion - and increase over 9.3% over

1999 figures;

Volume reached 5 billion gallons; growing 8.3% compare that with other

beverages: soft drink growth was flat, and beer, milk and fruit beverages

grew 0.5% only.

The PET segment of the market accounted for 95% of the industry's

volumetric gain and represents about 35 percent of all bottled water

sales. Products packaged in PET - the small plastic bottles - barely

appeared on the radar screen ten years ago!

Americans eat 34% of their food outside their homes and convenient

sized packages have given them an opportunity to drink the bottled

water they love.

Source: Beverage Marketing

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U.S. Bottled Water Market, 1976-1997, Gallon age

Source: Beverage Marketing Corporation, New York

Over half of all Americans (54 percent) drink bottled water, and about 36 percent

of them imbibe regularly (more than once a week). Sales have nearly tripled in

the last decade, to about $4 billion in 1997, rising from 4.5 gallons per year for the

average American in 1986 to 12.7 gallons per year per person in 1997. Americans

consumed a total of 3.43 billion gallons of bottled water in 1997. Globally, the

market was estimated in 1995 to be worth more than $14 billion annually in

wholesale sales, and it has certainly grown since then. According to a 1992

inventory, there were already 700 brands of bottled water produced by about 430

bottling facilities in the United States, a number that likely has grown since thattime, because of the enormous expansion in bottled water sales.

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PERRIER LEADS THE BOTTLED WATER BOOM ….

Here are some statistics about the growing popularity of bottled water and ThePerrier Group's continued market share leadership

Source: Beverage Aisle

Since expunging the blotches on its image of purity due to the Benzene incident

at Perrier, the industry has exploded, with the market now growing at a strong

rate of 8 to 10 percent per year -- about twice as fast as the rate for other

beverages.

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Source:

Beverage

Marketing

According to industry stock analysts, "the profit margins in the business arereally pretty good" -- for some bottlers in the neighborhood of 25 to 30 percent.

That means every $1.50 bottle of water brings around $0.50 in profit. The actual

cost of the water in the bottle purchased off a store shelf is generally just a

fraction of a cent to a few cents. Thus, typically 90 percent or more of the cost

paid by bottled water consumers goes to things other than the water itself --

bottling, packaging, shipping, marketing, retailing, other expenses, and profit. As

the then-chairman of the board of the Perrier Corporation stated in a remarkable

moment of candor, "It struck me . . . that all you had to do is take the water out of

the ground and then sell it for more than the price of wine, milk, or, for that

matter, oil."

The bottled water industry's rapid growth is surprising in light of the retail price

of bottled water: It costs from 240 to over 10,000 times more per gallon to

purchase bottled water than it does to purchase a gallon of average tap water.

For example, in California average tap water costs about $1.60 per thousand

gallons (about one tenth of a cent per gallon), while it has been reported that

average bottled water costs about $0.90 per gallon -- a 560-fold difference.

Expensive imported water sold in smaller bottles can cost several thousand times

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more than tap water: That $1.50 half-liter bottle of imported water may be

costing you 10,000 times more per gallon than American tap water.

While Americans with annual incomes of $60,000 per year or more are about 35percent more likely than those of lesser means to buy bottled water, the

purchasers of bottled water are hardly limited to high income yuppies. As was

put starkly in American Demographics recently,

Black and Asian and Hispanic households are more likely

than whites to use bottled water, even though blacks and

Hispanics as a group have lower-than-average household

incomes… Scares like the municipal water contamination that

occurred in Milwaukee in 1993 may have even low-income

families springing for bottled water. It's clear that many

households are still opting for bottled water, even though it

can be an expensive habit. A five-year supply of bottled

water at the recommended intake of eight glasses a day can

cost more than $1,000. An equivalent amount of tap water

costs about $1.65.

According to the industry analysts, “The success of bottled water essentially

stems from the human drive to have pure, great-tasting water. Bottled water is a

delightful, refreshing beverage. It can be an alternative to tap water, filtered

water, or to a consumer's choice of just about any beverage, whether it be an iced

tea, soft drink or a cocktail.”

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TYPES OF BOTTLED WATER

The bottled water industry is one of the few industries that have voluntarily

created its own standard of good manufacturing practices that go above and

beyond most other food products for purity and safety. The industry in United

States is regulated by the Food and Drug Administration (FDA), which regulates

the pharmaceutical and food industries. Bottled water is required to be tested for

the same contaminants as tap water.

FDA (FOOD AND DRUGS AUTHORITY) OF US HAS SET STANDARDS FOR

BOTTLED WATER.

Some of the standards governing the bottled water industry in US are:

• Water is classified as bottled water or drinking water, if it meets all

applicable federal and state standards, is sealed in a sanitary container

and is sold for human consumption.

• Bottled water cannot contain sweeteners or chemical additives (other than

flavors, extracts or essences) and must be calorie-free and sugar-free.

• Flavors, extracts and essences--derived from spice or fruit -- can be added

to bottled water, but these additions must comprise less than one percent

by weight of the final product.

• Beverages containing more than the one-percent-by-weight flavor limit

are classified as soft drinks, not bottled water.

• Bottled water may be sodium-free or contain "very low" amounts of

Sodium

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• Tap water uses Chlorine as disinfectant bottled water uses Ozone as a

disinfectant. Bottled water should not contain chlorine.

As per Encyclopedia Britannica, mineral water is defined as

water that contains a large quantity of dissolved minerals or

gases. The mineral water can be categorized into natural

mineral water and artificial mineral water. Natural mineral

water is obtained from natural springs and has a high content

of calcium carbonate, magnesium sulfate, potassium, and

sodium sulfate. It may also contain gases like carbon dioxide

or hydrogen sulfide. While mineral water produced artificially

It has categorized bottled or drinking water into 7 different types, namely:

ARTESIAN WATER / ARTESIAN WELL WATER:

Bottled water from a well that taps a confined aquifer (a water-bearing

underground layer of rock or sand) in which the water level stands at some

height above the top of the aquifer.

DISTILLED WATER:

Water that has been turned int3o steam so its impurities are left behind and the

steam is condensed to make pure water.

MINERAL WATER:

Bottled water containing not less than 250 parts per million of total dissolved

solids may be labeled as mineral water. Mineral water is distinguished from

other types of bottled water by its constant level and relative proportions of

mineral and trace elements at the point of emergence from the source. No

minerals can be added to this product.

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PURIFIED WATER:

Water that has been produced by distillation, de-ionization, reverse osmosis or

other suitable processes.

SPARKLING WATER:

Water that after treatment and possible replacement with carbon dioxide

contains the same amount of carbon dioxide that it had at emergence from the

source. (PS: soda water, tonic water etc. are not considered bottled waters as they

contain sugar & calories and are considered soft drinks.)

SPRING WATER: Bottled water derived from an underground formation from which water flows

naturally to the surface of the earth. Spring water must be collected only at the

spring or through a borehole tapping the underground formation finding the

spring. There must be a natural force causing the water to flow to the surface

through a natural orifice.

WELL WATER:

Bottled water from a hole bored drilled or otherwise constructed in the ground

that taps the water of an aquifer (a water-bearing underground layer of rock or

sand).

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SOURCE PERRIER & THE US

Source Perrier is the largest seller of bottled water in the United States. Its US

sales are more than double those of McKesson, the next largest bottled water

company in the U.S. market. Four of Perrier’s brands (Arrow-head, Poland

Spring, Perrier and the Great Bear) are among the top ten brands in the United

States. Other Nestle controlled brands sold in the United States include Vittel,

Calistogs, Zephyr Hill, Ozarka/Oasis, and Ice Mountain.

US bottled water sales have grown phenomenally. As recently as the 1960s

Americans complained when traveling abroad about having to purchase bottled

water, especially that with bubbles. By the 1990s, United States had become the

largest consumer of bottled water, much of which was bubbly and imported

from France.

A small niche market for French water existed in the United States long before

the recent growth period. One of the earliest customers was Benjamin Franklin,who, after returning from being ambassador in Paris, imported his drinking

water. Near the beginning of the twentieth century, Source Perrier set up U.S.

distribution; however, by 1976 sales were still very low. The so-called Perrier

fans, a small group of high-income people, had to pay high prices in gourmet

shops or upscale bars to quench their thirst.

By the early 1970s, Source Perrier, given its large share of the bottled water

market, was having trouble sustaining growth in France. The company sought to

increase sales by acquiring related French companies, including those producing

soft drinks, milk, chocolate and confectionery products.

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In 1972, it acquired Poland Spring, a US company producing ‘still (non

carbonated) spring water’. None of the ventures fared well under Source

Perrier’s leadership.

The company’s chairman met Bruce Nevins, who as an executive of Levi Strauss

had been instrumental in the upsurge of jeans sales. Nevins believed it was

possible to develop a mass market for a “non caloric, chic alternative to soft

drinks.” The US soft drink market at that time was about $10 billion wholesale.

Thus the stakes were high, so high in fact that in 1975 and 1976 Source Perrier

sold 70 percent of its acquisitions (including Poland Spring) to finance a US

marketing subsidiary headed by Nevins. Several trends made Nevins optimisticabout acceptance of Perrier water by US consumers.

The most important trend was growing diet consciousness. Miller

Brewing had had phenomenal success with its Lite Beer. Because

cyclamates had been banned in soft drinks, producers of low calorie sodas

had turned to ‘Saccharin’, which people found distasteful. Also, there was

no popular low-calorie drink that was considered chic. The use of the

adjective “diet” simply announced that the drinker had weight problems.

If people could be persuaded that Perrier tasted good, it could become a

preferred low-calorie alternative.

A second trend Nevins observed was a movement towards natural foods

for health reasons. Even tap water and the 75 percent of the bottled water

processed from tap water had become suspect because in the process of

purification, suspected cancer-causing chlorine

derivatives were added. Further, certain viruses,

sodium and heavy metals were still found in most

purified water and soda water. Perrier came from

natural springs and contained high levels of calcium, very little sodium

and no additives. It could be promoted as a natural drink with healthy

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properties, even though it was not completely natural because some of the

bubbles were lost when the water was removed from the springs and

replaced during the bottling process.

There was a growing US preference for imports, apparent not only in therising ratio of imports to gross national expenditures but also in the

acceptance of “foreignness.” In terms of food, so-called gourmet

restaurants, cookbooks, dinner clubs, ingredients, and wines were

becoming commonplace and French items were practically synonymous

with the word “gourmet.” Perrier might be able to capitalize successfully

on these attitudes.

The US marketing program began in 1977. The company first had to decide in

which part of the market to position itself. The three trends just discussed clearly

would lead to different pricing, promotional and distributional strategies. For

example, in seeking the diet conscious market segment, Source Perrier would

come face to face with Coca-Cola and Pepsi-Cola, which between them

controlled 45 percent of the soft drink market. These companies, along with

many others, fought vigorously in the market by keeping prices fairly low,

advertising heavily and clamoring for shelf space in supermarket soft drink

sections. The difficulty of competing in this segment was evident from the

experience of Schweppes, which despite establishing US bottling facilities and

engaging in heavy marketing outlays failed to get even 1 percent of the market.

Competing in this heavy mass-market segment also might have caused Perrier

to lose the snob appeal it held for high-income buyers.

Entering the natural or health-food segment would pit Perrier against other

bottled waters and various tonics that contained healthful additives. This market

in 1976 was only $189 million. Of this, 93 percent was from purified domestic still

water, which was sold largely in five-gallon containers at low prices through

..23..



home or commercial delivery. Less than 20 percent of bottled water was sold in

retail stores, and there was little brand identification. To expand retail sales

probably would mean concentrating on gaining shelf space in the health food

sections of stores. Since bottled water sales were determinant be much moreconcentrated geographically (about 50 percent in California) than were soft drink

sales, it would be far easier for Source Perrier to target its promotion and

distribution for this segment.

Although Source Perrier was already selling to the gourmet market, usage and

distribution gaps undoubtedly existed in this market. The total sales of mineral

water in 1976 were only $ 15 million. Primary demand might be increaseddistribution to specialty stores and new distribution to the growing gourmet

sections of supermarkets.

Source Perrier decided to stress the soft drink market segment. However, price

was a problem. Through massive distribution, the retail price could be cut about

30 percent from what it was when the company emphasized the gourmet

segment of the market, however the price was still about 50 percent higher than

the average soft drink price partly due to cost of transporting water across the

Atlantic. Further, the price included a higher retail gross margin 27.6 percent

compared to 22.6 percent on soft drinks which was necessary in order to induce

the supermarkets to handle the product. The company kept its price at ‘ROCK

BOTTOM’ not only to become more price competitive with domestic soft drinks

but also to dissuade other European companies from exporting to the United

States.

To get people to pay what was still a high price, the company had to segment

the soft drink market differently than anyone had done so far by aiming at an

adult population and using the higher price to gain snob appeal.

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The company felt distribution was the key to success and so hired a sales force of

forty people who formerly worked with soft drink companies. It initially

targeted New York, San Francisco and Los Angeles because they had consumers

with the largest penchant for food items. The company made a film designed toconvey to distributors and super-market chains that Perrier had long-term

viability. The film showed that the springs had been popular as far back as 218

B.C., when Hannibal partook of the waters, and that Source Perrier dated back to

1903, supplied 400 million bottles a year, and outsold the leading cola in Europe

by two to one. Source Perrier sought out the most aggressive distributors,

including soft drink bottlers, alcoholic beverage distributors and food brokers in

different areas. For the company’s success, it was essential that distributors beable to get supermarket space in the soft drink sections, replenish stocks

frequently and set up point of purchase displays. One of the first distributors,

Joyce Beverage Management, bought fifty-five trucks and hired a hundred

additional people to handle the Source Perrier account. During the introductory

period, arrangements were made for secondary display stacks and in-store

testing. The company also gave cents-off coupons with purchases. Within a year

Source Perrier had moved from three into twenty major markets; this latter

figure doubled in the second year.

Source Perrier developed 11-ounce and 6.5-ounce bottles, the latter sold in

multipacks. It also developed a modern logo on the bottles, which was later

replaced by the original label design to be more in line with the old

world image the company wanted to project. With initial

distribution assured, it was necessary to sell the bottles that

were on the shelves. To do so necessitated advertising messages different from

those the company used in Europe. In Europe, the company could make

therapeutic claims; however, US law strictly forbade this. In US test marketing,

Source Perrier tried such themes as “Formerly heavy drinkers such as Richard

..25..



Burton and Ed McMahon are now ‘hooked’ on Perrier” and “Perrier contains no

sodium which causes heartburn”. These claims were abandoned in favour of

messages emphasizing the water’s qualities as a natural thirst quencher with no

calories and no additives.

The advertising budget was high. Initial promotion was regional relied heavily

on the print media. Food and Beverage writers were courted at dinners and

exhibitions so that they would write about Perrier. The company sponsored

marathons so that the product would be associated both with ‘healthiness’ and

‘thirst quenching’. As distribution became national, Source Perrier switched to

TV spots on major networks. It was able to maintain snob appeal by gettingtidbits in gossip columns about celebrities being seen sipping Perrier in the

‘Right Places’.

The resultant rapid increase in sales did not go unnoticed by competitors. In

1979, a bottling executive said, “Everyone with water seeping from a rock is

buying glass, slapping label on it, and marketing a new bottled water.” One

market research group, SANI, reported 104 brands of bottled waters in its

territory. Some of the established bottled spring water companies promoted

blind tasting comparisons to emphasize that US water was just as tasty as the

imports. Deer Park issued a challenge with spring water priced 35-K percent

below Perrier. Hincley and Schmitt introduced ‘Premier’ in a bottle with a label

that “unashamedly” copied Perrier. Its theme was “Let your guests think it’s

imported.” Norton Simon’s Canada Dry began repositioning its club soda to be

more competitive with Perrier.

In 1980, Bruce Nevis believed the “US market for sparkling water is in the

process of maturing.” Source Perrier’s US sales peaked in 1980 and then began

falling along with overall imported water sales, largely because of competition

..26..



from domestic seltzer (carbonated tap water) and domestic club soda

(carbonated tap water to which mineral salts are generally added). To combat US

domestic competition, Source Perrier subsequently re-purchased Poland Spring

in 1980 for $10million. After buying Poland Spring in 1976 for $1million, thatcompany’s new owners had carbonated the still water, modernized the facilities,

and captured 6 percent of the bottled water market. In addition to the problem of

domestic competition, the Perrier name was becoming practically generic as

customers increasingly asked for Perrier when they simply wanted some kind of

sparkling water.

TOWARDS THE NEW SEGMENT……

In 1982 Source Perrier devised a new US strategy. It decided to begin handling

specialized imports that could be sold to market

segments similar to those to which Perrier seemed to

appeal. This segment was described as different

company executives as “aspirant people who try to

improve their quality of life,” as “households with incomes of $30000 or more,”

and as “the same people who tend to buy better fashions, better cars, and the

like.” Source Perrier took on Lindt chocolate from Switzerland and Bonne

Mamac preserves from France and substantially increased their US sales. In 1985,

in an attempt to shore up its US water sales, the company began marketing the

water with traces of lemon, lime, or orange flavoring.

But what had appeared to be a maturing of the US bottled water market turned

out to be a mere blip. By the mid 1980s, industry sales were growing between 15

and 20 percent pr year. GROWING FASTEST WAS THE IMPORTED

MINERAL WATER SEGMENT. But the US market continued to be fragmented,

for two reasons. First, the cost and technology to enter the market are low; thus

..27..






new companies star up each year. Second, transportation costs lead to regional

distribution. Perrier is distributed nationally because it is cheaper to ship the

water from France than to ship domestic waters across the United States by truck

or rail. By the late 1980s, the following industry trends seemed apparent toSource Perrier’s management:

Growth in all sectors of the bottle water market would be robust over the

next ten years, especially in geographic areas not yet accounting for a

large amount of sales.

Big competitors increasingly would get involved. Coca-Cola, PepsiCo,

Anheuser-Busch and Japan’s Suntory had recently become involved in

some aspect of the market through ownership, bottling, and/ordistribution.

Because of the capital-intensive nature of distribution (for example, the

cost of adding trucks), growth would more likely come from acquisitions

by the bigger competitors than from new company start-ups.

New importers would attack Source Perrier by targeting specific US

market niches. For example, Rambosa (Sweden) targeted snobbish

consumers, Eau Canada Sparcal (Canada) played up its high calcium

content to appeal to women fearful of developing weak bones, and Heart

of Tuscany (Italy) promoted its low mineral content for therapeutic

purposes.

Consequently Source Perrier chose to reemphasize the bottled water market in

the United States as opposed to the handling of related products. It did this

largely through acquisitions. However, the company has made no attempt to

connect the acquired brands to the Perrier name. Similarly, Nestle has made no

attempt to combine the Perrier brand with any of the other thirty-four bottled

water brands it now produces in ten different countries.

..28..



In 1990, Source Perrier was hit by two unforeseen events that had a negative

impact on its US sales. First because of a bottling worker’s error in France, some

bottles reaching the US were contaminated with benzene. A worldwide recall

resulted. Second, the Federal Food and Drug Administration (FDA) required twochanges in Perrier’s labels: the terms “naturally sparkling water” and “calorie

free” had to be dropped because carbonation was added and “calorie free”

implied that other water contains calories. Prior to the recall, Perrier held 5.7

percent of the US bottled water market and 44.8 percent of the imported market;

afterwards, sales fell 42 percent in 1990 and the company’s major French

competitor, BSN’s non-bubbly Evian, number-one US water import. Despite

these problems, Source Perrier owned brands, which at the time collectively held18.2 percent of the US bottled water market, increased their sales so that their

overall US sales went up by 3 percent.

Many US analysts openly questioned whether Perrier would ever regain the

market share that had made it the best selling bottled water in the United States.

Although US supermarket sales rebounded to their earlier level in the first year

after the recall, sales in restaurants and bars, which earlier had accounted for 35

percent of Perrier sales in the United States, had not recovered completely. In

contrast, Perrier regained its French market share for bubbly water (in number

two position after BSN’s Badoit) almost immediately after the company

relaunched the water in 1990.

In 1991 Source Perrier’s new chairman Jacques Vincent, announced a long term

strategic change for Perrier. The company planned to position the water as a

more exclusive product to be sold mainly in restaurants. Supermarket sales

were to focus on locally produced, less expensive brands that are not readily

associated with the Perrier name. To this end, Perrier acquired Volvic and

Contrex, two brands popular in Europe outside France.

..29..



Exporting

Exporting is the most traditional and well-established form of operating

internationally. A company may engage in direct exporting, that is, sales between

the company and a second country distributor or customer that functions as the

importer.

A company engaging in indirect exporting sells trough an intermediary located in

a home country.

Companies doing business in foreign markets use exporting precisely because it

is a low cost alternative as :

It requires no investment in manufacturing operations abroad

Expenditure incurred (in most of the countries) to obtain an export

license is minimal

It allows manufacturing operations to be concentrated in a single

location, which generally leads to scale economies

Source Perrier adopts only ‘Exporting’ as its entry strategy in the

international markets. However the reason for this is far from the ones

mentioned above. The unique aspect of the product is that it is obtained

from a spring in France hence the product has to be exported and cannot be

manufactured anywhere else.

However, if it is done effectively and well, exporting requires significant

investments in marketing. This investment begins with intensive marketing

study leading to the development of a ‘country marketing strategy’. The

hallmarks of this strategy maybe, products adapted to customer needs and

preferences in the market (or left unchanged if appropriate) and price,

..30..



distribution and communication policies that are an integrated part of the

country marketing strategy. Many companies in a variety of industries have

concluded that concentrated manufacturing operations give them cost and quality

advantages over the alternative of decentralized manufacturing. But thisapproach has a potential downside : Managers at factories located far from

export customers may not be responsive to customers needs and wants.(and to

other factors)

All Perrier products are exported from France. Indeed an important

part of the positioning of the product is that the water is from the

‘Source.’

POSITIONING IN THE NEW MARKET

The attractiveness of target segments in a country-markets and the firm’s

promising competitive position concerning the success factors in those segments

are not enough to determine final segment choice. Management must make sure

that the firm will be able to attractively differentiate itself or its offer from

competitors’ for its customers. It has to analyse which customer and stakeholder

aspirations the company should focus on and define the differential benefits that

should be provided.

..31..



NESTLE WORLDWIDE

Nestle S A Switzerland, is one of the leading companies in the global foods

industry. The principal activities of the group encompass beverages (with

Nescafe as the flagship brand), milk products, processed foods, cooking aids,

bakery products, chocolates, confectioneries, pharmaceutical products

(ophthalmic, surgical instruments etc).

Nestle has a presence in 83 countries worldwide. It has a total number of 509

factories out of which 220 are located in Europe, 153 in America and 136 in

Africa, Asia and Oceania

The former Managing Director of Nestle, Pierre Loitard-Vogt, once said,“Perhaps we are the only real multinational company existing.” Although this

may be something of an exaggeration, it is difficult to find other companies with

such a high dependence on foreign involvement. UNCTAD’s composite index on

trans-nationality ranks Nestle as the most international of the worlds 100 largest

manufacturers.

Throughout most of its history, Nestle has concentrated on manufacturing,

marketing and wholesale distribution and has avoided vertical expansion into

plantations or supermarkets. To maintain this control, its corporate management

handles all acquisition decisions as well as those regarding, which products will

be researched at the centralized facilities in Switzerland. This decision making is

..32..

http://www.nestle.com/

http://www.nestle.com/



handled through product groups, such as the chocolate and confectionery

products group. To support these functions, each geographic group is expected

to provide a positive cash flow to the parent. In fact, Nestle tries to move almost

all cash to Switzerland, where a specialized staff decides in which currencies itwill be held and to what countries it will be transferred.

The company is heavily dependent on introducing new products that may take

several years to become profitable, so it must ensure that the more established

products remain sufficiently profitable to generate needed funds. If a new

product does not become profitable within a reasonable time, such as mineral

water in Brazil, or if it has run its cycle of profitability, such as Libby’s vegetable-

canning operations, or if its development potential seems low, such as Beech

Nut’s baby food, management in Switzerland decides to divest the business.

Other divestments occur because certain activities of acquired companies do not

fit the corporate development strategy. For example, Nestle spun off a printing

and packaging business that was part of the acquired Buitoni-Perugina

operations.

Despite the centralized directives described above, Nestlé’s country and/or area

managers have a great deal of discretion in certain matters, especially marketing.

Product research is centralized so that duplication of efforts is kept to a

minimum. When a new product is developed, corporate management does not

find the changes harmful. For example, one of Nestlé’s best selling products,

Nescafe instant coffee, is blended and colored slightly differently from country to

country.

..33..

Various Bottled water brands owned by Nestle are:



BRANDS OWNED BY THE PERRIER GROUP OF

AMERICA OTHER THAN SOURCE PERRIER

ARROWHEAD

Principal Markets:

California and Arizona Perrier

Group brand: 1987

Founded: 1894

Bottled water has long been part of the culture of the well-developed Californiaand Arizona markets, where Arrowhead has been a favorite brand since 1894.

Today, Arrowhead ranks in the top three among America's most popular spring

water brands.

CALISTOGA

Principal Markets:

California and other Western states The

Perrier Group brand: 1982

Founded: 1924

Natural, non-sparkling spring water was added to the line in the early 1990's

from other spring sources in California. Bringing even more consumer choice to

this brand name are sparkling varieties with fruit flavors.

DEER PARK

Principal Markets: New

..34..



York to Florida

The Perrier Group brand: 1993

Founded: 1873

In the late 19th century, Deer Park was served to passengers aboard theBaltimore & Ohio Railroad. Demand for it grew throughout the East as families

looked for bottled water they could trust for high quality and good taste. The

original source is a pristine spring 3,000 feet above sea level. It is located in the

lush Allegheny region of the Appalachian Mountains, just outside Deer Park,

Maryland. Other Deer Park sources are found along the Appalachian chain.

GREAT BEAR

Principal Markets: New

York to Washington, D.C. The


Founded: 1888

Great Bear is one of the bottled water industry's oldest and best-known

companies. It is a leader in all of its regional home and office and retail channels.

ICE MOUNTAIN

Principal Markets: Midwest


Founded: 1987

Ice Mountain brand spring water, as its name implies, is a crisp-tasting natural

spring water. The brand is available nationally at foodservice outlets serving the

increasingly mobile American consumer including airport cafes, hotel mini-bars

and health clubs. The brand is also gaining popularity in the Midwest. A 1992

addition was a sweetened sparkling beverage in fruit flavors.

..35..



OASIS

Principal Markets: Texas


Founded: 1946

Legend has it that Butch Cassidy sipped Oasis spring water. Today, Oasis is not

only found in Texas homes and offices. Its convenience- sized bottles are

becoming a popular consumer choice in retail stores.

OZARKA

Principal Markets: Texas,

Oklahoma and Arkansas The


Founded: 1905

Ozarka is the leading bottled water in the state of Texas. "Trusted by families

since 1905" is a reputation it continuously upholds. Ozarka is a familiar staple

throughout the region in stores, homes, offices - and around town.

..36..



POLAND SPRING

Principal Market: Northeast

The Perrier Group brand: 1980Founded: 1845

The Poland Spring brand is famous for its naturally pure and crisp tasting spring

water. Poland Spring was first bottled in 1845. Its long history and high quality

have made this brand the most recognizable in America and number one in sales

of all bottled waters.

UTOPIA

Principal Market: Texas The


Founded: 1983

ZEPHYRHILLS

Principal Market: Florida The


Founded: 1960

Zephyrhills Natural Spring Water comes from carefully protected sources in the

state of Florida. In fact, the town of Zephyrhills, located in central Florida, isaptly named "The City of Pure Water." Zephyrhills is the most popular bottled

water among Floridians.

..37..



WHY NESTLE ACQUIRED SOURCE

PERRIER?In 1992, Nestlé realized that nearly all-major sources of Nestlé, Perrier and BSN

are working close to their maximum capacity and consequently cannot maintain

their market share in a strongly growing market. Nestlé recognized that the

growth rate of the French bottled water market is likely to slow down and

indeed did not reach 1 % in 1991. Nestlé spoke of a realistic growth rate of 5 %

over the next years. In the still water segment Nestlé has the following mineralwaters – Vittel, Hepar, Abatilles. Nestlé also owns the spring water Pierval.

Whereas, Perrier owned two major still mineral water sources with considerable

free capacities, i.e. Contrex and Volvic. The free capacity of both sources

combined exceeded the total still-water market volume. Perrier in addition

owned other still mineral water sources. E.g.: Thonon. Perrier further owned a

number of important sparkling mineral waters: Perrier, Saint-Yorre, Vichy and

several smaller sources. The first two sources had a considerable overall and free

capacity. Finally, Perrier owned a large number of local spring water sources, in

particular the sources Castel, Saint-Roch, Les Ormes, Carola, Saint-Lambert,

Montegut, Regina and Sergentale.

BSN had one major still mineral water source, i.e. Evian and one major sparkling

mineral water source, i.e. Badoit, which had reached its maximum capacity. BSN

was at that time developing a new sparkling mineral water source called

Salvetat.

..38..



The merger between Perrier and Nestle required the sale of the brand Volvic to

BSN. After the merger and the sale of Volvic to BSN, the two suppliers would

have a considerable number of sources, the overall free capacity of which would

by far exceed the total water market volume (5 – 250 million liters) and each oneof these two suppliers would have at least one major still mineral water source

with huge free capacities compared to the overall market volume and all other

local water suppliers. They would thus be in a position to respond to an increase

in demand without any capacity limitation, even if one were to assume a

constant growth rate of demand of 5 % per year.

..39..



SWOT ANALYSIS OF PERRIER

STRENGTHS

- The product is Natural water - which is highly sought

- The brand has entered United States decades back and therefore has

sufficiently high recall value, faith, clear positioning.

- The product is imported from France and hence has elite image associated

with it.

-

The company can afford heavy advertising and other promotion budgets

due to the huge Financial support from the Parent company

- Other brands of the company

not associated with the name

Perrier, avoids ambiguity in

positioning.

- The company has undertaken a

project for restoring the old site

of Poland Spring.

Unused buildings at the old

Poland Spring site. Bath house

and "water temple" are in the

background.

WEAKNESSES

- Soft-drink market is well

developed – soft drinks are a

substitute for water to some

extent.

- The company is highly dependent on ‘Natural Sources’

- The extraction of water from the natural springs is observed as ‘Damage

to ecology’ by some extremists

..40..



- Source is limited so cost increases.

OPPORTUNITIES

-

The consumption of bottled water is increasing phenomenally.

- People are becoming more health conscious.

- Tap water is perceived as being impure.

- Possibility of creating brand value in the health segment

- The industry depends upon image engineering

THREATS

- Growing ecology consciousness among people – this is further explained

in the Chapter ‘ Protests

- Low entry barriers in the industry – costs & Technology needed are not

exclusive

- Fragmented market due to regionality of brands

- Gaylord Nelson – EARTH DAY and other such movements

..41..



WHAT WENT WRONG... ANALYSIS OF THE

COMPANY’S MOVES

The trends in the soft-drink market were no doubt appealing, the sheer size of

the market would have perhaps given the picture that there is enough cake for

everybody, but it proved to be an illusion in Source Perrier’s case. Source Perrier

because of various reasons needed to be priced quite high which was contrasting

as the major competitive edge required by any company entering this segment

would have to be low price.

The company could have positioned itself

in the health food segment. The following

points justify the above statement:

Could have created a huge market

Perrier could have created a huge market

for ‘healthy water’ and could have

capitalized on the growing health

consciousness and preference for health

and natural foods among American people.

Absence of strong competition

At that time, there were no national players in the bottled water market

because of high degree of fragmentation. There were small regional

producers scattered in different pockets of the country and catering toniche segments.

In contrast, it had to fight big players like Pepsi and Coca Cola in the soft

drink market.

..42..



First brand in this segment

The market was very small compared to the soft drinks. It was $189

million compared to $10 billion. In addition to this, there was no brandidentification in the market. The focus primarily was only on gaining

more shelf-space to increase visibility. Perrier could have concentrated on

this segment and through it’s aggressive marketing and distribution,

developed a huge market for itself.

It could have taken advantage of being the first-mover by being the first

national brand in the segment.

People willing to pay more

As identified by Bruce Nevins himself, there was a movement towards

natural foods due to growing health consciousness. The higher segment of

the market was willing to pay substantial premiums for a reputed brand

offering quality water.

As mentioned in the beginning, many times companies fail to identify the

range of alternatives open to them and, therefore, concentrate on only one

strategy – presuming that there is no other way.

This is precisely what happened to Source Perrier. None of the three markets

that existed, when Source Perrier was about to enter US, were ‘Best Fit’ for

the company.

..43..



“THE COMPANY SHOULD HAVE IDEALLY CREATED ITS OWN

NICHE.”

The company could have positioned Perrier as a premium brand meant forthe elite especially health conscious segment.

The following observations & facts elucidate this:

The product was ‘expensive & exclusive’. It wasn’t really meant for the mass

market. Besides the high costs of packaging the company had to face high

transportation costs. Glass bottle packing was essential because of the nature

of the product (carbonated) and ‘exporting’ was the only strategy that could

be used because of the exclusivity of manufacturing or rather ‘sourcing’ of the

product. As mentioned formerly the high retail margins also added to the

cost.

The product had therapeutic values, which would have opened the option to

launch the product in the health segment.

About 93% of the health market was selling bottled water at low prices which

leaves only 7% at exceptional prices. Source Perrier could have been a market

leader in this segment.

All the French products including Source Perrier were associated by the US

population to the ‘Gourmet’ class.

Finally ‘no price cutting’ would enable Perrier to retain high margins.

..44..



THE OTHER BLUNDERS

Misunderstood buying behavior

According to a study by the European Commission, bottled water has a

distinct market and the demand is basically led by brand awareness and

health concerns rather than the desire for “low cal” drinks.

Very high cost as compared to soft drinks

In spite of applying all possible cost cutting measures Perrier remained

50% costlier as compared to its closest competitors. This was primarily

due to the following reasons:

1. Spring and mineral water has to be bottled at the source. Location

of bottling plants is therefore subject to a major legal constraint,

which manufacturers of soft drinks do not have. Producers of soft

drinks can locate their bottling plants according to an adequate

balance between economies of scale and transport costs, - rationale

water bottlers are not able to follow.

2. Water is a low-value/high-volume product, which in general

cannot bear transport costs over long distances.

THE YEAR 1980

Loss of focus

Sales grew rapidly till 1980.

However they started falling in

1980 due to high competition from

domestic players. A number of

competitors started entering the

..45..



market. This was the growth phase of the market for bottled water.

However, the company misunderstood it as the “maturity” phase. This

was a big mistake as the company lost focus.

In order to sustain growth, the company diversified into handling specialized

imports and took on Lindt Chocolate and Bonne Mamac. However in 1985, the

company realized that the market was not maturing but was actually growing

phenomenally.

The US market was highly fragmented due to low entry barriers and high

transport cost. This is where Perrier had the opportunity to be distributednationally because of cheaper shipping cost to various US ports as compared to

the local manufacturers.

In 1990, Perrier’s image was tarnished because a few traces of benzene were

found in 12 bottles. This led to massive global recall of its bottled water. Perrier

recovered within one year in US supermarket sales but sales in restaurant and

bars did not recover completely.

However, Perrier recovered its French market share almost immediately after its

re-launch. This is due to the following reasons:

Food and Drug Administration rules are very strict in the US. FDA

required changes in the label – the terms “naturally sparkling water” and

“calorie free” had to be dropped.

Presence in France since many years and the consequent goodwill among

people.

..46..



BENZENE INCIDENT

The water used for Perrier production spring comes from two sources. One

source is a highly permeable aquifer made up of sand and gravel. The second

source is from the limestone areas referred to as the "Garrigue". These waters rise

from subterranean pressure to the Nimes fault where they hit against

impermeable clays. The third source is a highly mineralized hot water with a

high carbonic gas content. It rises from the fracture in the Nimes fault system.

According to Perrier's geologist, Dr. Avias from the University of Montpellier,

this mineralized carbonic gas rises up, forced to the head spring by volcanic gas

and heat. It is in this source that Perrier's consultant identified the benzene. Since

1956, Perrier has collected the gaseous water from drilling into an underground

reservoir. In August of 1990, Perrier drilled a second bore hole for additional

exploitation of the source water. The water from this bore whole was found to be

contaminated with benzene.

In February 1990, 72 million bottles were taken off the market in the USA, after a

few traces of benzene were discovered in twelve bottles. Gustave Leven decided

to withdraw the entire US production (160 million bottles, then did the same in

five other countries (Germany, Canada, Denmark, Japan and Holland), thus

destroying a total of 280 million bottles world-wide. In April, Perrier – after ten

weeks absence - was back on the market.

..47..



THE PROTESTS

"Sustainability" doesn't lend itself well to sound bites. But it's a concept that

commands Gaylord Nelson's passion even 30 years after he founded Earth Day.

"We have to reduce pollution to the point where nature can manage itself so that

future generations receive an ecosystem that is sustainable. We've had two

international conferences on it, and every scientist will tell you that the most

important challenge we face is sustainability," Nelson said. “It is a simple matter

of not using resources beyond their capacity,” he said.

One area of concern is The Perrier Group of America's desire to locate pumpingand bottling facilities in Mecosta or Osceola counties, a request that has met

opposition in Nelson's home state. Nelson said Wisconsin residents fear tapping

would harm the natural springs. Besides that, however, Nelson said he disagrees

with bottled water sales for the sole reason that it's based on "propaganda and

nonsense."

According to a report of a Washington, D.C.-based policy research center, Fresh

water systems around the world are so environmentally degraded they are

losing their ability to support human, animal and plant life. "The findings are

very disturbing," said Jonathan Lash, president of the research center. "We're just

using way more water than the earth can afford to give us."

The report is part of a comprehensive study by the institute on how human

activity is changing the world's ecosystems. It was released during the national

meeting of the Society of Environmental Journalists at Michigan State University.

Only about 1 percent of the water on the planet is fresh water available for

human use, Lash said. Agriculture accounts for 93 percent of fresh water use,

producing runoff that degrades water quality with silt and chemicals, the report

says.

..48..



The more water a private company takes from a spring, the less is left for nature.

Environmentalists worry that if Perrier consumes too much spring water, it

might damage a fragile natural wonder.

SOME FACTS FROM THE COMPANY’S POINT OF VIEW

Both the soft drink and beer industries use more water to produce their products

than the bottled water industry does. As unlikely as it seems, it's true. The

bottled water industry is a clean industry with little wastewater and

comparatively small consumption of water. Take a look at the chart below for thespecifics. They might surprise you!

Source:

Professor I. A. Shiklomanov -State Hydrological Institute, St. Petersburg, Russia

..49..



RECENT UPDATE ABOUT THE

PERRIER GROUP

Perrier Group of America, based in Greenwich, Conn., now controls nearly a

third of the market, and has five of the top eight brands in the United States,

including the No. 2 seller, Arrowhead, distributed in the West. The company's

other leading brands include Zephyrhills, Deer Park and Ozarka.

The industry is likely to see increased consolidation, according to GaryHemphill, vice president of Beverage Marketing. He predicts that Perrier Group

will remain among the leaders because of its brands and its low-cost production.

But the company faces stiff competition. As sales growth for soft drinks has

slowed, the nation's biggest bottlers are putting their marketing and distribution

muscle behind their entries in the bottled water field. Pepsi-Cola's Aquafina was

launched in 1995 and has become the No. 3 seller; Coca-Cola weighed in last May

with Dasani, also off to a fast start.The national brands, bottled at plants throughout the country, are purified

waters, as opposed to the Perrier Group's spring waters that are linked to a

specific location, lending an aura of authenticity.

"For the most part, people are buying refreshment and they're buying purity,"

Hemphill said.

..50..



HIGH TOUCH POSITIONING

In 1991, Source Perrier’s new Chairman Jacques Vincent announced a long-term

strategic change for Perrier. Since then, Perrier has been positioned as a veryexclusive product to be sold mainly in restaurants. The emphasis is now on

creating the image for Perrier as being “lively, refreshing and exclusive” product.

Perrier is globally positioned this way.

The Perrier Group, with 2000 revenues of $1.67 billion, is comprised of two

business segments: retail, and home and office delivery.

Today, the retail business represents 55% of Perrier's revenues and involves

extensive distribution in all retail channels.

The home & office business, which accounts for the remaining 34% of revenues,

distributes their water products to 1.2 million customers spread across 650,000

homes and 550,000 businesses Imports and Canadian businesses, while relatively

small, are increasingly important at the Perrier Group. Imports are lead by strong

brands such as Perrier and San Pellegrino. Canadian sales have been reinforced

by the addition of the Aberfoyle brand to their portfolio as well as the growth of

the Canadian club store business.

“Indeed, the whole bottled water industry is booming. It is the fastest growing

beverage in terms of popularity in the United States, according to industry

studies, outpacing soda, fruit juice and beer. In some ways, bottled water's

..51..



success has been too much of a good thing, some company owners say. As sales

increase, companies such as Perrier hustle to find new sources of water. That can

be hard, and it can also anger environmentalists.

..52..



The Indian Bottled Water

Market & Source Perrier

..53..



INDIAN MARKET

SCENARIO

In 1967 Bisleri set up a bottling plant for manufacturing and marketing its

mineral water but failed. The brand was later sold off to Parle in 1968-69. Mineral

water market had its seeding as early as 1968-69 when Parle Group acquired the

Bisleri brand from Bisleri of Italy for launching Soda water but later launched

bottled water also. The launch at that time was a big flop as concept of buying

water that too in bottled form was not accepted by the Indian public. The market

remained dormant for quite long (for a period of 20 years or so). The market

through out this period was formed only by the premium products that too

available through 5-star hotels. In early 1990s with onset of liberalization policy

by the Indian government, coming in of cola majors, sell off of local soft drink

brands of Campa, Thumps up, Gold Spot etc by Parle to Coke and other factors

led Bisleri to test waters again. Bisleri re-launched its bottled water in 1994. By

this time with exposure of media and exposure to international life styles,deteriorating levels of potable water, increase in a number of water borne cases,

increase in awareness about health and hygiene and other related factors led to

acceptability of concept of mineral water. The market has not looked back ever

since then and has grown leaps and bounds to such an extent that a number of

genuine as well as fly-by -night operators have entered it to milch it.

MARKET CATEGORIZATION:

The market initially had only one SKU of 1 liter this was followed a by a number

of smaller and bigger SKUs. Based on these SKUs we can divide the entire

market into two segments:

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− Retail consumption market

− Household & Institutional consumption market

Each of these consumption markets has a number of SKUs under it. Some of themost consumed SKUs in retail market are 500ml, 1 liter, 1.2 liter, 1.5 liters, 2

liters, and 5 liters. Recently many of the bottled water companies have launched

330ml (or even smaller) pack targeted against 330ml pack size of soft drinks

especially the aluminum-can drinkers.

The institution market is largely constituted by the

hotel industry, caterers, offices, parties, travel,

tourism, hospitals etc. The SKUs that are

available in this market are 10 liters and above

besides this we have pack size of 250ml plastic cups.

The market can also be divided on the basis of the price at which this bottled

water is available into three categories:

−

Super premium mineral water

− Premium local natural mineral water

− Popular or plain bottled water

Presently, Evian of Danone group; Perrier and San-Pellegrino of Nestle belong to

super premium category. Catch, Himalayan, Brilliant etc. belong to premium

local natural mineral water category. All other brands like Bisleri, Bailley, Kinley,

AquaFina etc. belong to popular or plain bottled water category.

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MARKET SIZE AND GROWTH RATE:

The mineral water market is still maintaining the pace at which it has been

growing over past few years. The market is witnessing launch of a number of

player with every passing day. Presently the market is skewed towards regional

players and has more than 250 players in the fray. Besides these we have a

number of fly-by-night operators who enter the market in summers, reap

benefits by packaging tap water and selling as pure mineral water, and then

leave once the season is over. The problem in the market is not with the players

but with the consumers. Poverty levels, illiteracy has led these players to take full

advantage of consumers by selling even the tap water as mineral water. The fault

also lies with the government for being lackadaisical in setting up norms for

entry into the industry and also for being lackadaisical in taking proper care of

health of its public.

Total bottled market has a size of Rs11-12bn of this around Rs7bn is in the hands

of organized sector and rest is with unorganized sector. In the organized sector

Bisleri is the market leader with 45% market share followed by Bailey with 23-

24% market share. PepsiCo and Coca-Cola too have market share in the range of

8-9% individually. Rest of the organized market is well distributed among small

regional players. The market for the past three years has been growing at

unimaginable rates of more than 80%, this can be explained on account of the

lower base of previous years. This strong double digit growth rate of the

industry has attracted a number of global players in the market In the recent past

some the major players like Coke, PepsiCo have launched their products in the

market. Many more like Nestle, Britannia, HLL have evinced interest in the

market. With changing consumer preferences from carbonated drinks towards

bottled water the growth rate is expected to stabilize at 25-30 % for next 4-5

years.

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COMPETITION:

The bottled water industry has two other industries as its biggest competitors in

from of Water purifiers industry and

the soft drinks industry. Though the water

purifier industry should be credited to

have done the spadework, for

setting up the foundation of bottled water

industry but still it acts as

competitors especially in the

household and institutional

consumption market and the soft drinks market is a strong rather very strong

competitor in the retail consumption market.

MARKETING PRACTICES:

Presently most of the players in the Indian market are selling their product

claiming it to be mineral water. All the players are vying to grab a few points of

market share and they are trying to get their brands endorsed by some or other

authority. Recently Coca-Cola has got its brand, Kinley, endorsed by the

Federation of Family Physicians Associations of India (FFPAI) to create an image

of being recommended by doctors and thus of the product being safe and

healthy.

Similarly other companies do claim to have purified their water "n" number of

times to show the superiority of their product. Many players are pitching their

product against water purifier industry by claiming their product to be superior

to that purified by these water purifiers. Many players are marketing on the price

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factor as well as the size factor. While others are focusing on particular target

segment.

PLAYERS:PepsiCo: Pepsi has AquaFina brand of mineral water in the market. The

company entered into bottled water business in September '99 the company has

targeted its product towards youth segment and has so far focuses only on one

SKU, that too 750ml. Though the company is present only in selected market as

of now, it has plans of increasing share in the market by expanding its SKUs

portfolio as well as its distribution reach.

Coca-Cola: The company has entered in the business in May'00 through its

brand, Kinley. The Kinley brand is already being used for its soda water. The

company has tied up with Kothari Beverages, of Yes brand of mineral water, for

manufacturing coke's brand at Yes' facilities.

Bailley: The brand is a product of Parle Agro, the company of Frooti fame. The

company presently is the second largest player in the market with share of 20%.

The company has recently extended its Bailley brand name for its soda water. It

is also credited with forming a new segment of 330ml SKU in the market.

Bisleri: The brand is a product of Parle International and presently is the market

leader with more than 45% market share. The company pioneered the concept of

bottled water in the Indian market as early as 1967. The company is also creditedwith SKUs of 500ml, 1.2 lts, 1.5 lts and 2 lts in the Indian market.

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Other players in the market with strong regional presence are: Brilliant, Yes,

Hello, Purette, Fountain, Himalayan, Golden Eagle, Prime, Pure Natural Aqua,

Ganga, Florida, Metro etc

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LEGAL REQUIREMENTS

The PFA rule on mineral water is that it must be free from dirt, foreign matter orany other ingredients injurious to health and has to be packed in clean and sterile

containers.

The Bureau of Indian Standards (BIS) has provided standards for both drinking

water and mineral water but compliance of these standards till now was

voluntary.

To regulate the quality and price of bottled water, BIS approval has been made

mandatory w.e.f. end of 1999. Mineral water shall be packed in clean, colorless,

transparent and tamper-proof bottles made of polyethylene conforming to the IS

10146 standards. The standards laid down under PFA Act do not prescribe any

minimum quantity of minerals to qualify as mineral water.

Hitherto Indian laws do not stipulate the

minimum mineral content level required

for water to be labeled as a mineral

water. The BIS does not lay down any

guideline or practice for processing

water. There is no specific industrial

licensing policy for the bottled-water

sector. Thus any one can set up a plant

can do so without establishing the source

of the water and the technology used to

purify it. Both the PFA Act and BIS state that the water must be completely free

of bacteria like salmonella, E-coli, faecal streptococci, v. cholera and shigella that

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cause a range of illnesses such as cholera, typhoid, dysentery and various types

of gastro-enteritis.

Both the PFA and BIS lay down standards for metals like lead, mercury, arsenic,aluminum and barium which cause a range of disorders. The BIS lays down a

minimum of 150mg/l and a maximum of 700 mg/l of TDS for mineral water.

The PFA rules do not prescribe any minimum TDS levels but does mention the

maximum of 1500mg/l. There are no government laboratories for testing water

samples for all the parameters involved.

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ABOUT NESTLE INDIA

Nestle was promoted by Nestle Alimentana, Switzerland, a wholly owned

subsidiary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the

oldest food MNC operating in India, with a presence of over a century. For a

long time, Nestle India’s operations were restricted to importing and trading of

condensed milk and infant food. Nestle was incorporated as a limited company

in 1959. In 1978, the Company issued 0.4mn new shares and 0.38m of existing

shares of Nestle Holdings Ltd. to Indian public to reduce its foreign holdings to

40%. Its name was changed from Foods Specialties Ltd. to the current name in

1981. Over the years, the Company expanded its product range with new

products in instant coffee, Maggie noodles, sauces, pickles and other culinary

aids, chocolates and confectionery.

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ENTRY STRATEGY IN INDIA

Nestle India, had announced its entry into the Rs 300-crore Indian mineral water

market with the launch of its premier brand Perrier, in Delhi and Mumbai. This

launch of the food major was later followed by launch of its bottled water brand

Nestle Pure Life-targeted at the mass market-during the previous year. Nestle

expected to sell about half-a-million bottles of Perrier every year though it

maintained that Perrier is not a volume or market share game.

``Perrier strategy is not mass market, the market share gain will come from Pure

Life,'' Nestle India's Spokesperson was reported quoting on

www.Indiainfoline.com.

While Perrier was imported from its source in Verges in the south of France, Pure

Life bottled water was manufactured in the country. Available in the iconic pear-

shaped green bottle, Perrier priced at Rs 55 for a 330ml and Rs 90 for a 750ml was

clearly targeted at the premium end. However, the premium segment of the Rs

300-crore mineral water is estimated to be a tiny Rs 1 crore with a single brand

Danon's Evian brand marketed by Britannia.

Nestle, planed to differentiate itself from Evian or any other brand as Perrier's

competitor by presenting Perrier as the only mineral water of its kind in the

country.

Owing to its premium positioning, Perrier's launch was limited to select cities

only. The brand was launched in Bangalore initially. According to the Brand

Manager for Specialty Imports, Mr. Siddharth Apaya, ``a latent demand exists

for these premium products in the cosmopolitan cities and we want to provide a

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genuine Nestle product.'' The product was made available in select outlets. The

marketing thrust was on institutional sales, especially in the hospitality sector.

The company did not intend to advertise the Perrier brand immediately butplanned to embark on a relationship building exercise with its core target

audience. The first such initiative was flagged off on June 17 in Delhi where it

was announcing its association with golf through an event-Perrier Invitation Golf

2000. The event was particularly targeted at the hospitality industry and the

diplomatic corps amongst others. Globally, Perrier has been actively involved

with tennis and has been associated with French Open, Wimbledon and the

Olympics since 1928.

The mineral water market is pretty crowded with as many as 114 brands. Parle's

two brands Bisleri and Bailey are currently dominating the market with the two

commanding 81 per cent market share, the rest-19 per cent-is shared by other

small brands. Pepsi, has recently entered the market with its Aquafina brand

For its entry in India, Perrier will have to export its water from France. With their

worldwide positioning in the premium segment market, it will be logical for

Nestle, to position Perrier in the same segment in India.

Since the company was embarking on a relationship building exercise with its

core target audience, in order to create a market for the product, Nestle could do

the following

-

Establish a strong distribution network through direct sales force reaching

the hospitality sector and supplying to hotels, restaurants, airlines, clubs

and high-end super markets in cosmopolitan cities.

- Awareness of the brand can be done by direct mailers of impressive

catalogues to potential customers.

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- Syndicate articles in airlines, etc. can also increase awareness

- Press releases and articles informing the customer about the product can

be published in magazines.

-

Sponsoring events to reach the target segment like sponsoring Golftournaments, Derby, etc. which they are already practicing

- The company should also target foreign officials and tourists who are

aware of Perrier and may create a demand for it.

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LATEST HAPPENINGS

Hitherto under Indian laws the there were standards or norms only for mineral

water and even the standards set under PFA or BIS were very different fromthose in the international markets. But now government has set norms separately

for natural mineral water and packaged drinking water in accordance with the

international standards.

Internationally the standards for drinking water that have to complied by, by the

bottled water manufacturers to ensure quality of their products are HACCP

(Hazard Analysis Critical Control Points). Though Indian companies in themineral water business are complying with these standards for exports but due

to lack of mandatory conditions in domestic markets, companies are lax.

As per the notification of October'00 there are 48 specifications to be met for any

water to be called mineral water while for packaged drinking water there are 43

such specifications to be complied with.

Some of the specifications as per the notification (effective from April'01):

− The location of packaging should be close to the source or place of origin

of water.

− Only water obtained directly from natural or drilled underground sources

can be sold as mineral water.

−

For water to be called mineral water it should also not be subjected to any

chemical treatment.

− For water to be categorized as packaged bottle water, it can be sourced

from any place.

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− The water has to be treated and disinfected in accordance with

specifications for it to be categorized as packaged bottle water.

− Till December'00 only six players have applied for license for packaged

drinking water and no company has applied for a license in mineral watercategory. But around 16 applications in packaged water category and 6

applications in the mineral water category are still in the pipeline.

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THE SHOCK WAVE

The latest Ministry of Health (MoH) notification [No. GSR759(E)}, made it

mandatory for all packaged and mineral drinking water to sport the ISI

(Indian Standards Institute) mark.

The notification was essentially to bring a semblance of order into the

packaged water industry. The notification had laid out requirement

parameters for packaged and mineral water, carbonated water was merely

defined. “In the absence of requirement parameters for carbonated water, thesegment is required to adhere to the mineral water standards, as it was

packaged without treatment after extracting from the source.” Carbonated

water is unable to meet some of the standards laid down by the notification

for packaged water -- like the PH stipulation (6.5 to 8.5). Carbonated water,

from Nestle for instance, has PH a little less than prescribed for packaged

water by the notification. If imported carbonated water is to sport the ISI

mark, it would first require that BIS officials check the source. This wouldmean Italy for San Pellegrino and France for Perrier. But the products will

still not meet the PH stipulations, unless different stipulations are laid out for

the carbonated water segment. And while carbonated soft drinks are allowed,

it is unfair to block out carbonated water, which is essentially sought after by

tourists.

Nestle is not the only one affected. Danone Group was on its was to launchits Carbonated water brand Farrarelle. The launch now would have to wait

until the Ministry becomes a little generous. The two companies have found

that they were unable to further import carbonated water as a result of some

of the stipulations in the notification that came into effect in March this year.

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Nestle and Danone have made a joint representation to the Health Ministry

and the Bureau of Indian Standards (BIS) seeking different parameters for

carbonated water, as against the present status, where they have to adhere to

parameters laid out for packaged drinking/mineral water.The argument put by them is “these products are very important and are

packed at natural sources and under conditions which guarantee the original,

chemical and microbiological purity.” The appeal was signed by the

Executive Vice President of Nestle India and Area Manager South Asia of

Danone Group.

Industry analysts are sure about a favorable verdict.

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FUTURE OUTLOOK

While the unimaginable growth rates of more than 60% and even 100% can be

explained due to lower base the present growth rate of 25-30% is sustainable for

another 5-6 years. Today the demand of bottled water is increasing at a much

higher rate that that of carbonated soft drinks. The market size of bottled water

too is expected to surpass the size of soft drinks market in near future.

The last entry in the bottled water market was Nestle. It launched its premium

brands Perrier and San Pellegrino in Mid-1999. Nestle also launched its mass-

market brand Pure-Life early in 2001 after having tasted success with it in

developing countries like Pakistan and Mexico

Britannia too evinced some initial interest in the market but now seems to have

postponed its plans. They are concentrating on marketing Evian- a brand of the

Danone group. Danone Group as mentioned earlier intends to launch it’scarbonated water brand ‘Farrarelle’ very soon.

The next in queue seems to be HLL, which too has identified the bottled water as

a growth area for future. The company is presently looking for some suitable

brand for acquisition. The existing players too are set to expand their distribution

network to have their presence across the country. The market is also expected

to undergo a major consolidation phase. As one of the major factors that areimportant for success in the market is the distribution network, the players with

deep pockets are expected to go for acquisition of existing small regional players

to spread their network across the country. Already Coke has tied up with Yes

for manufacturing of its brands in areas where it doesn’t have presence. Though

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Coke and Pepsi have both, well established distribution network as well as

bottling & manufacturing plants, they seem to be at an advantage, but players

like HLL and Nestle with strong financial muscle can easily turn the tables in

their favor through acquisition. It is expected that the market would continue togrow at a healthy rate of 25-30% for few years from now and the market size too,

is expected to increase to Rs17 billion by 2004-5.

Though many people claim water to be a resource which should be available to

them for free, there are more than those ‘many’ people who are ready to buy it.

With all these statistics and data we can definitely conclude that the future of

Bottled Waters Certainly looks bright.

““SSSooo lll eeetttsss dddr r r iiinnnkkk tttooo ttthhheee SSSuuucccccceeessssss ooof f f ttthhheee WWWaaattteeer r r IIInnnddduuusss ttt r r r yyy!!!!!!!!!””

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BIBLIOGRAPHY

REFERENCE BOOKS

International Business - Environments and Operations John. D. Daniels, Lee. H. Radebaugh

Global Marketing ManagementWarren J Keegan

International marketing - A Global perspectiveHans Muhlbacher, Lee Dahringer, Helmuth Leihs

WEBSITES VISITED FOR THE PROJECT

www.perrier.com www.google.comhttp://www.saveamericaswater.com/news.htmlhttp://www.friendsofthemecan.com/perrier.htmlabcnews.go.com

archive.davin.ottawa.on.caauto.search.msn.com www.bottledwaterweb.com www.citt.gc.ca www.clui.org www.detnews.com www.fft.fr www.friendsofthemecan.com www.grmlive.com www.jsonline.com

Source Perrier

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