competition in the bottled water industry in 2006

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Competition in the Bottled water Industry in 2006

Objectivey This Case analysis basically shows the emergence of

bottled water industry, different strategies being taken by three main competitors (Pepsi, coca cola, nestle )and other sellers to sustain in market during period from 2000 to 2006.Here we have also explained the Porters five force model

Introductiony $62 billion business in 2005 & additional 30% b/w 2005 and

2010 y United states the world largest market(from 1999-2004 increased by 8%) Other in top rank are united states and Mexico y Controlled by a few food and beverage companies .Three giant competitors Coca-cola, Pepsi co, Nestle. y Strategies : innovative product variation, lowered prices in structured markets, acquiring of smaller sellers ,use of strategic agreement

Emergence of bottled water industryy Increased focus on fitness and health y Safety concerns of municipal drinking water y Hectic on-the-go lifestyles of American consumers. y Convenience, purity and portability of bottled water y Improved consumer awareness of need for proper hydration y Improved the appearance of skin and give more energy y Chemical taste of tap water including chlorine and fluoride

that was a great problem to US people

SWOT Analysis of Bottled water IndustryySTRENGTHS

The lifestyle of people is changing Demand is increasing day by day in the bottle Water. Convenience, purity and portability can be the strengths of bottled water

y

WEAKNESSES The lack of awareness and the poverty

The lack of availability in the remote areas is also the strong reason

y

OPPORTUNITIES

People are becoming more health consciousTHREATS

y

Low Entry Barrier

Economical Uncertainty

Porters Five Force ModelBottled Water Industry

Hard to enter

Numerous

Fierce Low Average

Five Forces Analysisy Threat of substitute product:

Healthier and innovative products, such as flavored water, non calories water, and vitamin added water. Other substitute products are tea, coffee, milk, and beer, soft drink. Substitute products become more popular and can be considered as a threat

y Threat of the new entrants : y Profitable markets that yield high returns will draw firms.

But in this case, the biggest competitors have the majority of the global market, y A few small competitor are capable of maintain their consumers. y Just a competitor who is able to offer big quantities of bottled water at a low price is going to enter this industry y Vast beverage distribution systems of Coke and Pepsi enables them to have intimate relationships with retail channels and would be able to defend their positions effectively

The bargaining power of suppliers: y The suppliers to the bottled water industry include municipal water systems; spring operators; bottling equipment manufactures; deionization, reverse osmosis, and filtration equipment manufactures. y Manufactures of PET and HDPE bottles . Large bottlers - able to purchase bottles as little as 5 cents per bottle.y Due to large number of existing Suppliers ,bargaining

power of suppliers is low.

y The bargaining power of customers : y The price sensitivity of buyers around the globe is big

concern for the leading sellers of the industry y Principle Channels : - Convenience store, Food stores, Mass merchandisers, Vending machine y Consumers will not stop buying bottled water just because a high price, they may only change from one brand to another or in the best scenario form one flavor to another, because bottled water today is considered as a basic product. So bargaining power of buyers is medium

y Intense of competition:

There are a few global competitors in the industry, such as Nestl Waters, Group Danone, coca-cola ,pepsico. y Fierce competition - Compete aggressively on price - Making differentiation in developing products (focusing on health and fitness) Bottled waters sellers also needed to have efficient distribution systems to super market Maximize the number of deliveries and on-time deliveries per driver since distribution includes high fixed costs The competitors in the industry have not only bottled water but enhanced waters or functional waters available in every single market.

Value chain comparison for the bottled water operations of Nestle, pepsi co, and coca-colaNESTLE PEPSI CO COCA-COLA

RETAILER PRICE $8.44 PER CASE Retailers margin TOTLE BOTTLER REVENUE EXPENSES GROSS PROFIT EBITA MARGIN 35% $5.49

$8.52

$8.65

17.5% $7.03

17.6% $7.13

$2.63 $2.86 10.4%

$4.52 $2.92 9.0%

$4.62 $3.03 6.5%

WORLD MARKET SHARE OF BOTTLED WATER INDUSTRY IN 2006Pepsico Aquafina Coca-cola Dasani Nestle water Poland spring Nestle-Arrow head Nestle Deer Park Crystal geyser Ozarka(Nestle water) Ice mountain Evian(coco-cola) $936 million $834 million $649 million $546 million $356 million $335 million $236 million $208 million $145 million

Top four USA bottled water marketers 2003-2004RANK 1 COMPANY NESTLE WATERS LEADING BRANDS POLAND SPRING,DEER PARK,ICE MOUNTAIN DASANI,EVIA N,DANNON AQUAFINA CRYSTAL GEYSER 2004 MARKET 2003 MARKET SHARE SHARE 42.1 39.1

2 3 4

COCA-COLA PEPSI CO CG OTHERS/PRIV ATE

21.9 13.6 7.4 15

24.1 14.5 7 15.3

Strategies of nestley World s leading seller with market share of 18.3 %in y y y y y

2005 42% market share in USA and 20% in EUROPE Low-cost leader in United States. High speed, efficient and vertically-integrated manufacturing capabilities 75 brands in 130 countries in 2004 Strategy was, to be positioned by purchasing smaller regional brands, acquiring bottled water producers andentering into joint ventures.

y In 2006-two global brands(Nestle pure life and aquarrel),five

international premium brands and 68 local brands y Enhanced waters such as fruit flavored, Strawberry melba, contrex lemon meringue were innovative calorie-free flavors introduced in 2006. y Packaging innovations to differentiate its bottled water brands such as spill-proof cap for child-sized bottles, bubble shaped bottle for children,

y New PET container was part of strategy to revitalize the brand

intended to better match the on the go lifestyles of young consumers y Home and office delivery which nearly 30%of sales in US and 8 Acquisitions help it to grow from no presence to leading position. y Loyal consumer base y Nestle is very trusted brand and its product is considered of high quality world-wide.

Strategies by Coca-colay Dasani (create a recognizable brand by inventing an name

that sounds refreshing, soothing, and crispness)introduced in 1999 y Dasani is purified water includes combination of magnesium sulfate, potassium chloride, and salt best attributes of spring water. y Supported by $20 million advertising budget in 2005 and was distributed through all retail channels where coke available. y Vast distribution systems and negotiated contracts with universities, sports, made it easy to make Dasani available anywhere coke be purchased

y Coca-colas marketing expertise, vast US distribution

channels allowed dasani to become second largest brand of water in US y With vast global distribution they also have bottlers partially owned and completely owned by coca-cola that gives them cost -effectiveness y Coca-cola extended Dasani line in 2006-fruit flavored(successful), flavored water with light carbonations with no calories, powerade (unsuccessful)

y Joint venture with Danone in 2002 provided coke with

bottled water products at all price points. y Dasani-upper mid priced water, Evian-premium and Dannon-discount-priced. This joint venture would allow the company to protect Dasanis near premium pricing. y But the three tier strategy failed in some regards. Cokes three water brands had collectively lost 2.2 market share points which lead to growth of nestle and some private label

y In early 2004, Coke had to withdraw its entire stock of Dasani

from the market after unacceptable levels of bromate was detected in the water and they faced abandonment of Dasani brand in Europe y In 2006 coca-cola acquired the Italian and German mineral water company and two HOD water producers in 2006 y Coca-Cola supports nearly 70 public water projects in 40 countries, in partnership with such groups as CARE and the World Wildlife Fund y Using recycled resin to make plastic bottles and reducing the bottle's weight try to minimize the environmental impact of bottled water

Pepsi waters

Strategies by Pepsi-coy Best selling brand in United states Aquafina y Key strength-Utilization of same water purification facilities that

were used to produce soft drinks. y Stripped out all chlorine and unpleasant smell of tap water which was a great problem in US y Other brands-gatorade propel fitness, sobe life water ,and functional versions developed around customer type and lifestylesy Propel flavor and vitamin enriched water-physically active

consumers life water for image-driven consumers y Aquafina sparkling(a zero-calorie, lightly carbonated citrus ), Aquafina alive(vitamins and flavored juices),nutrient rich Gatorade.

y In 2006, aquafina was the number one brand of bottled water in y y y y

Russia and Vietnam Offered discounts on 12 and 24 multipacks to boost unit volume.. Pepsico expanded into international markets by allowing foreign bottling franchises to license the aquafina brand Aggressive distribution system of Pepsi is key strength for its bottled water Aquafina had launched a relatively environment friendly bottle which is thinner and leaves lesser carbon footprint than its earlier bottles to attract environment cautious customers.

Other suppliersy Crystal geyser fourth largest seller in USA in 2004-lower price

points and was bottled from springs in California at very low cost y Penta penetrate in market through distribution based on removing 100 % of impurities from tap water, sponsored large number of athletes, brand promotion through motion pictures, music videos y Fizi-super premium water-exposure through motion pictures y EON achieved its differentiation through anti-aging claims..each brand with unique characteristic

Learningy Although there is not much difference in the price level and

strategies opted by all the three brands Nestle remains the biggest player in the market, having large market share with low cost of production and large number of brands. y Pepsico having one single brand of bottled water(aquafina) is still able to compete with other two established brand because of its vast distribution network. y Coca Cola has not been able to maintain a consistent position in the market as it failed in its three tier strategy and because of its abandonment in Europe and US in 2006.