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Competition in the Bottled Water Industry in 2004

Essay by   •  November 17, 2011  •  Case Study  •  2,450 Words (10 Pages)  •  2,691 Views

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COMPETITION IN THE BOTTLED WATER INDUSTRY IN 2004

Identification

In this case there is intense competition in the bottled water market. Bottle water is the fastest growing beverage industry in the world. According to the international bottles water association, sales of bottles water have increased by 500 percent over the last decade (http: //www.designboom.com/eng.education/plasticbottle.html). In the last five years, the market for bottled water had continued to grow at rates of nearly 10 percent. The convenience, purity, and popularity of bottled water made it the natural solution to consumer's dissatisfaction with tap water and carbonated drinks. In the United States, bottle water sales are $7.7 billion and growing. In the global market, bottle water sales are $27 billion and growing.

Analysis and Evaluation

The growing popularity of bottled water in the United States was attributed to concerns over the safety of municipal drinking water, an increased focus on fitness and health, and the hectic on the go lifestyle of American consumers (Thompson, Gamble, & Strickland, 2006). The branding of bottled water has relied almost exclusively on the perception that it is purer and healthier than tap water. The bottle water industry does not only have to compete with other beverage products, they have to compete against themselves. There are five types of bottled water. Natural mineral water, spring water, purified water, artesian water, and sparkling water. Bottle water is the same and companies have to figure out ways to differentiate their brands. All bottled water is trying to have the image of purity and refreshment; there are limits to what they can claim. Natural mineral water is wholesome underground still water protected against pollution hazards and characterized by a constant level of minerals and trace elements. This water cannot be treated, nor added any exogenous elements, such as flavors or additives. Spring water is the water that comes from an underground formation and flows naturally to the surface of the earth. Purified water is tap water that has gone through distillation or other filtering processes and cannot be called spring water (http://www.signonsandiego.com/news/business/bottle.html.)

The worldwide total market for bottled water in 2003 was 38 billion gallons. The sales of bottled water in the U.S. during 2003 totaled 22 gallons, and were expected to grown to 26 gallons by 2005. The top five countries in the bottled water market were the United States, Mexico, Brazil, China, and Italy. The per capita consumption of bottled water on a global basis grew form 3.9 gallons in 1998 to 6 gallons in 2003. The competition in the bottle water market was considered to be global. All sellers in the bottled water market were required to develop low cost production and distribution capabilities or use differentiation strategies keyed to some unique product attributes. Coca-Cola, Nestle, and PepsiCo's use of discounted 12-24 bottle multi-packs helped boost unit volume in the United States during 2003. By mid 2004 none of the industry's chief participants had relied primarily on price to increase volume (Thompson, Gamble, & Strickland, 2006). In 1990, almost one-half of bottled water consumed in the United States was delivered to homes and offices (Thompson, Gamble, & Strickland, 2006).

"While the bottled water industry's revenue has grown by almost 800 percent in the last 20 years, so competition. Hundreds of brands large and small in the bottle water industry now fight for consumers' loyalty and attention" (http://signonsandiego.com/news/business/bottle.html). The bottle water industry is aimed at convincing consumers that not all water is created equal. Industry consolidation created a more globally competitive environment, in which the top sellers met each other in almost all the world's markets (Thompson, Gamble, & Strickland, 2006). Bottle water sellers have to market variations of their products to stay on top in the bottle water industry. The larger sellers have an easier time creating brand awareness, but smaller companies have to develop their niche.

Entering into the bottle water market can be hard. A bottle filling line can be purchased for about $125,000. The original investment to enter the bottled water industry was about $300,000. A $100 million investment could be required to acquire a large state of the art bottling plant. Producers that did not own springs are required to lease them for $20,000 to $30,000 per year. Bottle water producers in the United States were required to meet the standards of both the EPA and the United States Food and Drug Administration. The distribution of bottled water varied according to the producer and the distribution channel. The producers are required to compete on price to gain access to shelf space in supermarkets and convenience stores. Some supermarkets only carried three to five branded bottle water plus a private brand. So small producers were required to price compete to gain shelf space. Restaurants did not make the producers were required to price compete to gain shelf space. Restaurants did not make the producers compete for space. Bottle water seller had to develop brand-building skills. Since most major sellers were global food companies prior to entering the bottled water industry they did not have to do a lot of advertising. Smaller companies had to build their brand and advertise their products. It was difficult for food service distributors to restock vending machines and provide bottled water to special events. This made Coca-Cola and Pepsi Co. the dominate producers of bottled water. Both made contracts with sports stadiums, universities, and this made one of them the exclusive supplier. This made it very hard for other brands to gain access to the market. In 2003, Nestle was the global leader in the bottled water industry (Thompson, Gamble, & Strickland, 2006). One of the reasons for Nestlé's success is because of their bottled water portfolio. In 2004, their portfolio consisted of two global brands, five international premium brands, and seventy local brands (Thompson, Gamble, & Strickland, 2006). Nestle has many joint ventures with bottlers overseas for the production and distribution of their products. Their competitive strategy is a focused strategy based on lower cost and also focused differentiation. Their focused differentiation is focused at the premium market segment. Nestle has been a continuous late mover in the industry. It has worked to their advantage. Home and office delivery has become a more important component of Nestlé's strategy (Thompson, Gamble, & Strickland, 2006). Their market leading position

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