Bottled Water Industry

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Case Study
3 Nov 2009
Bottled Water Industry

1. What are the strategy-shaping business and economic characteristics of the bottled water industry? What is the industry like? The global bottled water industry forecast is growing by 30% through 2010 to reach approximately $82 billion in revenue. Bottled water is thought to be safer than municipal tap water and an alternative choice to high calorie carbonated beverages. Focus on fitness, health, and the go-go lifestyle has made the United States’ the largest market for bottled water in the world. The single polyethylene terephthalate (PET) container has satisfied customers with its convenience and portability. The global and U.S. markets are controlled by a few food and beverage companies that sell the top 10 brands.

Table: The Top 10 Bottled Water Brands in the US by wholesale sales in 2007 Dasani (Coca-Cola) ($1.6bn) Aquafina (PepsiCo) ($1.5bn) Poland Spring (Nestle Waters) ($878m) Arrowhead (Nestle Waters) ($586m) Nestle Pure Life (Nestle Waters) ($545m) Source: Beverage Marketing Corporation

Crystal Geyser (CGWC) ($529m) Deer Park (Nestle Waters) ($500m) Ozarka (Nestle Waters) ($352m) Ice Mountain (Nestle Waters) ($292m ) ZephyrHills (Nestle Waters) ($272m)

There is fierce competition among these producers and they all have a similar “scale and scope” of operation. For instance, Pepsi and Coca Cola have developed a strategy and infrastructure that makes it hard for regional sellers to complete with them. However, there are many small producers that try to access the market with low price and differentiation strategies, but these businesses do not have the scale and scope of the huge bottled water production companies (Pepsi, Coca Cola, Nestle Waters, and Group Danone).

2. How is the bottled water industry changing? What are the underlying drivers of change and how might those driving forces individually or collectively change competition in the industry? Bottled water suppliers have consolidated over the past few years and the world-wide leaders are Pepsi, Coca Cola, Nestle Waters, and Group Danone. The industry is showing all the signs that it is reaching the stage of maturity because the market has consolidated and strategy is focused on lowering the price and increasing market share. The entry of CocaCola and Pepsi in the bottled water market substantially increased competition and forced smaller sellers out of the business. Newcomers and existing bottlers under $1 billion in revenue are competing against high cost marketing, strong distribution channels, and massive amounts of capital intensive infrastructure. The top four producers already have market share and can typically beat newcomers in price. Pepsi, Coca Cola, Nestle Waters, and Group Danone have consumer mass market strategies, their own bottling facilities with water sources, along with efficient distribution systems from their existing food and beverage business. Bottled water is a line extension for the top four producers versus other producers’ need to buy/lease water and bottling facilities. Large bottlers also gain competitive advantage with suppliers by negotiating large purchase order quantities. For example, the cost of PET bottles varies significantly by order quantities. The current driving force of the market is the consumer and their choice of beverage. Beverage companies vary and offer many different drinks from soft drinks, juices, beer, wine, or milk, instead of bottled water. Substitution of beverage types is the main competition, so pricing and producing a wide-range of choices to move through an existing distribution channel is important. Long-term success will come from selling a variety of beverage choices and not just being a bottled water company.

3. What key factors determine the success of bottled water producers? Product positioning and packaging design are essential factors and stores aim to place the leading brand that the consumer prefers. Positioning on the...
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