From 1996 to 2001 the bottle water industry worldwide sales went from 21 billion gallons to 32 billion gallons, with an annual growth rate average of 8.7%. The world’s largest market for bottled water, the United States attributes their 9.2% annual growth rate to consumer’s concerns regarding the purity of tap water, and a more health conscious society.
The convenience and portability of bottle water made it a perfect match for the active lifestyles of American consumers. The top competitors in both the U.S. and global market include Nestle Waters, Groupe Danone, Coca-Cola, and PepsiCo. The competition in the bottle water industry is intense. The driving forces of the bottle water industry are causing competitors to merge with one another, develop new product variations, and enhance production and distribution channels. PART 1. DRIVING FORCES
The growing assumption that we will no longer see the growth rates increase, as we have in the late 1990s and early 2000s is causing price competition. The slowdown in the rate is also causing the industry to become unattractive for smaller competitors. The smaller regional competitors have begun merging with larger competitors. Another attempt companies are making is differentiation. A pricing survey reported the strong price competition in the industry caused retail prices to decrease by 3.4 percent from July 2001 to July 2002.
The pricing survey also reported some brands to decrease as much as 9 percent. Some of this price decline can be attributed to the introduction to the multipacks of bottle water. The consumer’s demand for the packaging of the bottle water is changing. The demand for bulk water sold in 1 galloon or more containers is decreasing while the demand for water sold in one-liter or less is increasing. Nestle Waters started acquiring smaller regional companies in 2000 with Aberfoyle Springs and then in 2001 they acquired Black Mountain and Aqua Cool.
Groupe Danone acquired Naya and McKesson in 2000. Similar acquisitions were taking place with other leading bottle water competitors. This industry consolidation was creating a more global competitive environment for the bottle water industry. See the below exhibit that shows the top 5 U.S. Bottled Water Brands in 2001 Exhibit 2 Top 5 U.S. Bottle Water Brands, 2001
RankBrandParent CompanyMarket Share 1AquafinaPepsiCo10% 2DasaniCoca-Cola8.6% 3Poland SpringsNestle Waters8.4% 4ArrowheadNestle Waters6.2% 5SparklettsGroupe Danone5.6%
For the small businesses who wanted to stay in the bottle water industry and not fold under this competitive pressure had to focus their strategy on product differentiation. Small brands such as Fiji, Penta, and Aspen Puer started taking over the shelf space. The leading bottle water competitors didn’t give up their shelf space so easily. In return, what is said to be one of the most product innovations in the bottle water industry produced what is known as, enhanced waters.
Companies aggressively started introducing their variations of enhanced waters such as PepsiCo’s Aquafina Essentials which added vitamins, carbohydrates, electrolytes, and other supplements to the bottle water. The product innovation paid off, the consumers loved it. The market for enhanced bottled waters was expected to surpass $100 million in 2002 which came along way from the reported $20million in 2000. Coca-Cola and PepsiCo intensified and already intense U.S. bottle water market when they added bottle water to their production.
They were literally knocking the competition off the shelf. Small sellers who had little brand recognition or leverage with buyers would have to compete aggressively with price just to remain in the stores. The industry change in the long-term growth rate, industry consolidation, product innovation, and Coca-Cola and PepsiCo’s entry into the U.S. bottled water market are all driving forces changing the bottle water industry. Now we are going to review the Porter’s five forces model which will largely determine the type and level of competition in the bottle water industry.