The consumption of bottled water has grown in recent years and the explosion of emerging markets allows new players to enter this market. To ensure sustainability, DANONE and Nestle are now constantly trying to do better in all strategic areas (communication, distribution... ). I. Presentation of the structural features of the bottled water industry Bottled water industry is becoming the world’s most attractive beverage categories. A heightened emphasis on healthy lifestyles and improved consumer awareness of the need for proper hydration led many consumers to
shift traditional beverage preferences for bottled water. I. 1. Strategic segmentation (market segmentation) The market is divided between 2 segments: the HOD segment & the purified water segment. 1) The HOD segment. HOD, Home and Office Delivery, concerns large bottles market and it is one of the fastest-growing segment in the water industry (28% of the bottled water market). Furthermore the growth rate is about 15% per year. Danone and Nestle, the two leaders made a lot of acquisitions, but also some joint ventures (Danone) and some local agreements.
Danone, the global leader in volume, leads with 80% of the demand in volume. HOD sales of bottled water represent 80% in South America, 35% in USA and 2% in Europe. Those sizes of bottled are mainly developed in South America and absolutely not in Europe where there are not allowed. However the market is difficult and costs a lot. Then it is critical to develop some logical skills. That is why it needs strict logistic cost control. 2) The purified water segment. The potential of growth is kind of important.
Indeed, water is much easier to produce. The different companies have higher margins with this kind of water than with mineral or spring water. The four challengers are present on this segment; nevertheless, Coca-Cola and Pepsi Co have better retail positions and geographical coverage. I. 2. Macro Environment PESTEL Political: The European law focused on: - The quality of microbiology - Water chemical quality - Taste of the water - General aspect. Political aspect can change in function of the country. Economical:
The kind of distribution network depends on the country. Economical crisis doesn’t impact on drink and food industry because of it vital aspect. Social: Social authorities cheer people to drink water. Developed countries (without USA) take care of the label and the quality of the water. Price is one of the main key factors in the purchase? in United Stated. The bottled water demand is high in emerging country, because of the poor quality of tape water but also due to expensive and difficult access of health care.
Technological: Company invest on Research and development to improve the quality of the water and to realize new products. Flavour water is one of the last innovations in this sector. Food industry launched new product that combine powder and water. Environment: Springs of water are vulnerable to pollution. ? Selling out of natural sources Legal: Specific standards in different countries (quality of the ingredients, labelling, sale... )? French law requires companies to provide drinking water to its employees?
Possibility of selling tap water retired / purified from the area of EU? In France: names and labels not controlled accreditation body? For fountains in France: no possibility of home delivery I. 3. Analysis of the competitive Industry | |DANONE |NESTLE |PEPSICO |COCA COLA | |Net sales 2002 (€bn) |13,5 |60,5 |23 |18 | |Net profit (€bn) |1,3 |5,2 |3 |2,8 | |Net Margin |9,5% |8,4% |13,1% |15,5% | |% of sales in water activities |36% |8,6% |NC |NC | |MARKET SHARE | |North America |12% |30% |10% |6% | |Latin America |14% |4% |10% |8% | |Asia |14% |6,5%
|1% |6% | |Europe |13% |16% |1% |2% | |HOD segment |Present (leader) |Present |Not present |Not present | |Purified water |Present |Present |Present |Present | |Acquisitions |Arco Iris, McKesson Water, |Powwow Opalia, Aqua, Spring | | | | |Chateau d’eau, Patrimoine des |Water, Saint Spring, | | | | |eaus du Quebec, Naya Inc, |Sparkling. | | | | |Sparkling Spring Water | | | | |Joint Venture |Suntory Water (in USA), Eden | | | | | |Springs, Coca-Cola, Polska Woda| | | | |Local agreements |Ultra Pura, Aqua pura | | | |
We can easily notice that Coca-Cola and Pepsi Co are aggressively entering in the market and are making a large number of acquisitions. Plus, Asia now represents the most attractive market with a growth in excess of 16%. I. 4. Assessment of the attractiveness of this industry using competitive forces analysis To assess the attractiveness of the bottled water sector using competitive forces we have to use the five forces framework analysis.
It is composed of the threat of entry into an industry; the threat of substitutes to the industry’s products or services; the power of buyers of the industry’s products or services; the power of suppliers into the industry; and the extent of rivalry between competitors in the industry. (Johnson, Scholes and Whittington, 2009, p. 30). So we will decompose each of those Porter’s forces to analyse the bottled water industry. • The threat of entry In the bottled water market the level of competition is not so high so the entry is easy.
However it is a mature market so there are a few new entrants. Besides, the launch costs are relatively high so there are barriers from the outset and brands’ image of existing players such as Nestle, Danone or even Coca-cola, are so strong that it is increasingly difficult to launch new products. (Brulhart & White, 2009, p. 4). • Substitute Product Many substitutes products are present in the beverage market. Water is the cheaper but soft drinks are more often consumed and very appreciated in most countries.
However, in the Figure 1, we can see that from 2003 to 2005 the annual growth in volume of non alcoholic drinks have less increase compare to the water growth. Indeed, it reached 7% whereas sodas, fruit juces and energy drinks reached in average 6%. (Brulhart & White, 2009, p. 4-5). • Power of Buyers For those companies buyers are retailers such as Carrefour or Tesco, which have a strong negotiating power because they can easily switch from one supplier to another. (Johnson, Scholes and Whittington, 2009, p. 34).
• Power of Suppliers The suppliers to the bottled water industry are municipal water systems, spring operators, bottling equipment manufacturers, deionization and filtration equipment manufacturers. Manufacturers of bottles and plastic caps or label printers and secondary packaging suppliers also represent them. • Competitive rivalry The bottled water market is concentrated in two major players, Nestle and Danone which account for 18% and 46% of market share depending oh the geographical area (Brulhart & White, 2009, p.
6). But due to the strong attractiveness of this market other giants in soft drinks such as Coca-Cola and Pepsico implant themselves, and also some local outsiders in different countries. Eventually, buyers are also becoming competitors within the market such as Casino or Intermache. We can talk about an oligopoly competition. It dominates by only several big players like Danone, Nestle, Coca-Cola and PepsiCo.