Bottled Water Industry Analysis

& Recommendations
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I. Industry Introduction
The Bottled Water industry is still in an expansionary/growth stage. In 2! the
"ottled water industry accounted #or $% "illion& and is expected to reach $1'
"illion "y the year 22.Ad(ertising "udgets are (ery hea(y in companies such as
)epsi *A+ua#ina,& and are positi(e indicators o# the current -growth. stage in the
product/s li#ecycle. 0owe(er& the "ottled water industry is currently experiencing a
s1ewing o# pro#ita"ility num"ers *compared with last2year2to2date num"ers, due to
a shi#t in production #rom "ul1 to "ottled water. A new and rapidly growing trend in
the "ottled water industry is the production o# premium2priced 3enhanced waters&4
which competes on the product category level& and increases pro#its dramatically
when purchased o(er traditional -non2premium. "ottles o# water. The aggressi(e
ad(ertising campaigns #or "ottled water and premium2priced 3enhanced waters4
coupled with health2related trends pro(ide #or a greater proportion o# mar1et2share
#or water companies who utili5e their a"ility to expand their product line on the
generic competition le(el.
II. Four Types of Competition (& Competitors) for the Bottled Water Industry:
6ompetition is the dri(ing #orce in any and e(ery industry. There are #our di##erent
types o# competition which& -each. in their own way& a##ect the sales o# any gi(en
industry. This section o# this paper will analy5e the #our di##erent types o#
competition& and how each type a##ects the mar1et share o# the "ottled water
industry.
The typical "ottled drin1ing water/s product form competition includes "ut is not
limited to7 8i9i& :(ian& Arrowhead& ;par1lett/s& <asani& <annone& and A+ua#ina
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water. All o# these companies directly compete at the consumer le(el #or the same
mar1et2share o# the same product line.
The typical "ottled drin1ing water/s product category competition includes "ut is
not limited to7 6old drin1s= 30ealth >riented Thirst ?uenchers74 -Almost any.
water& orange 9uice& @itaminWater& ;o"e -sport. water& )ropel& Aatorade&
;martWater& etc. All o# these products directly compete at the consumer le(el #or
the same product category o# -health2 oriented. thirst +uenchers.
The typical "ottled drin1ing water/s generic competition o# "e(erages includes "ut
is not limited to7 lemon2limes& 9uices& sodas& diet soda& #ruit #la(ored sodas& colas&
diet colas& co##ee& tea& wine& "eer& etc. All o# these products directly compete at the
consumer le(el #or the same generic "e(erages category.
The typical "ottled drin1ing water/s budget competition includes "ut is not limited
to7 #ast2#ood& ice2cream& (ideo rentals& maga5ines& (ideo games& etc. All o# these
products directly compete at the consumer le(el #or the scarce resource that is
money which is spent "y the consumer& on di##erent categories o# products to satis#y
his/her wants/needs.
The most important types o# competition on which to #ocus are the most direct
types o# competition7 product form and product category. Generic competition and
budget competition may not "e neglected& howe(er& "ecause they are still #orms o#
competition #ighting #or the same scarce dollar*s, in the consumer/s discretion. As
a result& when considering a new product line& the #irst two must "e considered as
more direct #orms o# competition& and although the latter two must "e considered&
ad(ertising campaigns are not "uilt primarily around them.
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III. Industry Analysis:
Bottled water category (olume growth continued to "e strong *C2.1D,& despite a
C1E.!D comparison last year. 6ategory pricing growth was C.%D against a C1.FD
comparison last year. 0owe(er& the o(erall water pricing category has "een s1ewed
"y the shi#t #rom "ul1 to "ottled production& and "y premium2priced 3enhanced
waters4 *such as @itamin Water& )ropel& and Gi#e Water, which are increasing
rapidly as a percentage o# category mix. A(erage water pricing #or some o# the
largest "rands is down 2FD this year2to2date& (ersus 2%D in 2!& a 2!D decline in
2'& and a C1D increase in 2. Total )epsi pricing was down 1B.HD in the
period re#lecting a 1'D decline #or A+ua#ina and an HD decline #or )ropel.
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A+ua#ina pricing had shown signs o# sta"ili5ing o(er the pre(ious #ew periods and
actually turned positi(e #or two months in a row. Total )epsi water (olume grew
!%D& dri(en "y a 2%D increase #rom propel and a F1D increase #or A+ua#ina.
Total 6o1e pricing was down E.HD *against a 2F.HD comparison to last year, dri(en
"y a 2.ED decline #or <asani. Total 6o1e (olume increased 2H.HD (ersus a (ery
tough C''.'D increase #rom last year2to2date. ;ales #or <asani grew 2F.2D *(ersus
a BHD increase last year2to2date, dri(en "y a !E.FD (olume increase.
The "ottled water category continues to "e dri(en "y increasing promotional
acti(ity& which
hit a ! year high
in the most
recent period
re#lecting the
Iemorial <ay
wee1end
promotions. )epsi/s (olume sold on promotion increased to H2D *an all2time high
#or )epsi/s water "usiness, #rom %'D in the pre(ious period. 6o1e/s percentage o#
(olume sold on promotion declined slightly to %D #rom %BD in the pre(ious
period& "ut was up (ersus the company/s FFD a(erage o(er the last year.
>n a year2o(er2year "asis& the percentage o# (olume sold on promotion in the water
category continues to trend higher. Ai(en lower margins and pac1aging cost
pressures& this le(el o# promotional acti(ity my not "e sustaina"le in order to
maintain water category pro#ita"ility in the long run.
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8rom a historical perspecti(e& )epsi/s promotional acti(ity in the water category has
"een greatly more aggressi(e than 6o1e *in the same category,& as these acti(ities
ha(e dri(en #airly consistent (olume share gains #or )epsi *although not necessarily
at the expense o# 6o1e,.
>(er the past #i(e years& )epsi/s promotional acti(ity as a percentage o# (olume has
outpaced 6o1e/s "y FD& on a(erage& and that has dri(en positi(e (olume share
gains almost any month.
In the most recent period& )epsi/s promotional acti(ity as a percentage o# (olume
outpaced 6o1e "y 12D& mainly sourcing #rom pri(ate la"el. While pro#ita"ility o#
this (olume is another +uestion& gi(en the le(el o# )epsi/s promotion relati(e to the
closest competitor& it/s clear the company ahs no intention o# ceding mar1et share in
the water category.
Additionally& in order to "etter understand where/who to mar1et the water to&
consumption on a regional le(el must "e "etter understood. Below are the 2!
"ottled water consumption #igures -"y region..
2! Bottled Water Consumption
REGION Population
Non-
Sparkling Sparkling Total
Per
Capita
(Million) (Million Gallons)
(Million
Gallons)
(Million
Gallons) (Gallons)
Northeast 61.6 (21%) 1,918.50 59.3 1,977.80 32.1
South
68!
("#$)% 1,186.20 36.7 1,222.90 17.8
East
Central 52.1 (18%) 571.1 17.7 588.8 11.3
&est
Central 19.8 (7%) 219.7 6.8 226.5 11.4
&est 12.4 (4%) 153.7 4.8 158.5 12.8
South'est 34.3 (12%) 1,266.70 39.2 1305.9 38.1
Pa(i)i( 48 (16%) "*++6#+% 6"% "+68#% ,#%
Total "-6, .*#"""+ ""6/ ./,8.
"//
(01g)
J0ighest num"er& comparati(ely.
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As clearly noted in the a"o(e chart and graph& although the ;outh has the highest
proportion o# the total population *apparent only in chart,& the )aci#ic region
consumes the most "ottled water *spar1ling and non2spar1ling, per capita *apparent
in chart and graph,. When deciding how to "udget mar1eting dollars *generally
spea1ing,& "ased on the a"o(e data one should allocate the most to the )aci#ic
region& then the ;outhwest& Kortheast& ;outh& West& West 6entral& and #inally *the
least dollars should go to, the :ast 6entral Region.
Also& as the ma9ority o# mar1eting dollars target the 2B2! year old population&
much o# the potential "ottled water mar1et is excluded.
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I". #.W.$.T. Analysis:
". Fi%e Forces Analysis:
#uppliers7 Wea1 2 Bottles and e+uipment are commodities. Water is readily
a(aila"le #rom municipalities.
Threat of &e' (ntrants7 Gow 2 Iany strong players exist. Access to distri"ution
is strong "arrier.
Buyers or Customers7 0igh 2 6on(enience stores& groceries& "uy in +uantity& low
switching costs.
Threat of #u)stitutes7 Ioderately ;trong 2 Iost non2alcoholic "e(erages
including tap water are su"stitutes.
Competiti%e *i%alry7 ;trong 2 Will get stronger when mar1et growth slows.
6ompetition is "ased on "randing and image and access to distri"ution. ;econd tier
producers compete hea(ily on price.
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Wea+nesses
$pportunities Threats
#tren,ths
6onsumers are richer and more
health2conscious
6onsumption in the L.;. has
surpassed that o# mil1& co##ee& and
"eer
The #astest growing multi "illion
dollar segment o# the entire "e(erage
industry
Bottled water assumed 3sa#er4 than tap
)urity and sa#ety
)lastic recycling element is su"par
122' o5 3only4 consistently growing
Kegati(e growth #or premium glass
and "ul1 product #orms
Increase "rand awareness
6ontinue product inno(ation
Introduce competing products
2:dge
2
> M Aen. N&O
28un
2
> M Pids
28ruit
2
> M Gight 8ruit 8la(or
20ealth
2
> M 8i"er ;upplement
0ealth threat due to lac1 o# recycling
Tap water regulations increasing
Water #iltration systems "ecoming more
popular
"I. #trate,ies:
-roduct #trate,y 2 :xpand to appeal to more speciali5ed mar1ets and correct wea1
or omitted product #eatures.
-rice #trate,y 2 Gower price as costs #all& sta"ili5e price i# demand is strong and
there are #ew competitors.
-lace #trate,y 2 8ine tune distri"ution system& ma1e sure physical distri"ution
system is e##icient& and pro(ides ser(ice ad9ustments and credit #or de#ecti(e parts.
-romotion #trate,y 2 ;tress "rand loyalty& lower promotion costs as sales increase
"II. *ecommendations:
<ue to the #ierce le(el o# competition in and growth stage o# the "ottled water
industry& this mar1et research team recommends expansion through #our new
products which target the other potential target consumers7 the largest proportion o#
the population& !2%!C year olds= a growing segment o# the population 1'22! year
olds= the smallest now& "ut *expected, soon to "e large proportion o# the population
B21B year olds= and anyone who mar1eters are competing #or
in the product category and generic #orms o# competition.
The new product targeting !2%!C year olds is which contains added #i"er as a
laxati(e supplement.
The new product targeting 1'22! year olds is which contains
minor amounts o# taurine& guarana& & creatine as energy supplements.
E
The new product targeting B21B year olds is & which is sold in a
(ariety o# "ottle colors & shapes& and contains an assortment o# (itamins intended
to promote healthy "one& s1in& 9oint& nail& and hair growth.
The #ourth new product is not intended to penetrate a speci#ic age group& rather to
pro(ide an alternati(e in the product category and generic #orms o# competition. It
is called and it contains traces o# natural #ruit #la(oring pro(iding
#or a di##erent taste at no calories& with no unnatural additi(es.
This mar1et research team is con#ident any ma9or company in the "ottled water
industry could utili5e these #our concepts and their targets to gain greater mar1et
share& there"y increasing their pro#its& and stoc1 (alue.
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"III. #ources:
1. Q)Iorgan/s company research we"site7 www.IorganIar1ets.com
2. Oahoo/s section related to #inance7 http7//#inance.yahoo.com
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