Bottled Water Industry Analysis
& Recommendations
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I. Industry Introduction
The Bottled Water industry is still in an expansionary/growth stage. In 2005 the
bottled water industry accounted for $70 billion, and is expected to reach $140
billion by the year 2020.Advertising budgets are very heavy in companies such as
Pepsi (Aquafina), and are positive indicators of the current [growth] stage in the
product’s lifecycle. However, the bottled water industry is currently experiencing a
skewing of profitability numbers (compared with last-year-to-date numbers) due to
a shift in production from bulk to bottled water. A new and rapidly growing trend
in the bottled water industry is the production of premium-priced “enhanced
waters,” which competes on the product category level, and increases profits
dramatically when purchased over traditional [non-premium] bottles of water. The
aggressive advertising campaigns for bottled water and premium-priced “enhanced
waters” coupled with health-related trends provide for a greater proportion of
market-share for water companies who utilize their ability to expand their product
line on the generic competition level.
II. Four Types of Competition (& Competitors) for the Bottled Water Industry:
Competition is the driving force in any and every industry. There are four different
types of competition which, [each] in their own way, affect the sales of any given
industry. This section of this paper will analyze the four different types of
competition, and how each type affects the market share of the bottled water
industry.
The typical bottled drinking water’s product form competition includes but is not
limited to: Fiji, Evian, Arrowhead, Sparklett’s, Dasani, Dannone, and Aquafina
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water. All of these companies directly compete at the consumer level for the same
market-share of the same product line.
The typical bottled drinking water’s product category competition includes but is
not limited to: Cold drinks; “Health Oriented Thirst Quenchers:” [Almost any]
water, orange juice, VitaminWater, Sobe [sport] water, Propel, Gatorade,
SmartWater, etc. All of these products directly compete at the consumer level for
the same product category of [health- oriented] thirst quenchers.
The typical bottled drinking water’s generic competition of beverages includes but
is not limited to: lemon-limes, juices, sodas, diet soda, fruit flavored sodas, colas,
diet colas, coffee, tea, wine, beer, etc. All of these products directly compete at the
consumer level for the same generic beverages category.
The typical bottled drinking water’s budget competition includes but is not limited
to: fast-food, ice-cream, video rentals, magazines, video games, etc. All of these
products directly compete at the consumer level for the scarce resource that is
money which is spent by the consumer, on different categories of products to satisfy
his/her wants/needs.
The most important types of competition on which to focus are the most direct
types of competition: product form and product category. Generic competition and
budget competition may not be neglected, however, because they are still forms of
competition fighting for the same scarce dollar(s) in the consumer’s discretion. As
a result, when considering a new product line, the first two must be considered as
more direct forms of competition, and although the latter two must be considered,
advertising campaigns are not built primarily around them.
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III. Industry Analysis:
Bottled water category volume growth continued to be strong (+20.1%), despite a
+19.5% comparison last year. Category pricing growth was +.07% against a +1.6%
comparison last year. However, the overall water pricing category has been skewed
by the shift from bulk to bottled production, and by premium-priced “enhanced
waters” (such as Vitamin Water, Propel, and Life Water) which are increasing
rapidly as a percentage of category mix. Average water pricing for some of the
largest brands is down -6% this year-to-date, versus -7% in 2005, a -5% decline in
2004, and a +1% increase in 2000. Total Pepsi pricing was down 13.8% in the
period reflecting a 14% decline for Aquafina and an 8% decline for Propel.
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Aquafina pricing had shown signs of stabilizing over the previous few periods and
actually turned positive for two months in a row. Total Pepsi water volume grew
57%, driven by a 27% increase from propel and a 61% increase for Aquafina.
Total Coke pricing was down 9.8% (against a -6.8% comparison to last year) driven
by a 20.9% decline for Dasani. Total Coke volume increased 28.8% versus a very
tough +44.4% increase from last year-to-date. Sales for Dasani grew 26.2% (versus
a 38% increase last year-to-date) driven by a 59.6% volume increase.
The bottled water category continues to be driven by increasing promotional
activity, which hit a 5
Volume Sold On Promotion Coke vs.
Pepsi
year high in the most
recent period
85%
80%
75%
70%
65%
60%
Prev. Per.
Volume Sold on
Promotion Coke
reflecting the
Volume Sold on
Promotion Pepsi
Memorial Day
Curr. Per.
weekend promotions.
Pepsi’s volume sold
on promotion increased to 82% (an all-time high for Pepsi’s water business) from
74% in the previous period. Coke’s percentage of volume sold on promotion
declined slightly to 70% from 73% in the previous period, but was up versus the
company’s 66% average over the last year.
On a year-over-year basis, the percentage of volume sold on promotion in the water
category continues to trend higher. Given lower margins and packaging cost
pressures, this level of promotional activity my not be sustainable in order to
maintain water category profitability in the long run.
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From a historical perspective, Pepsi’s promotional activity in the water category has
been greatly more aggressive than Coke (in the same category), as these activities
have driven fairly consistent volume share gains for Pepsi (although not necessarily
at the expense of Coke).
Over the past five years, Pepsi’s promotional activity as a percentage of volume has
outpaced Coke’s by 6%, on average, and that has driven positive volume share
gains almost any month.
In the most recent period, Pepsi’s promotional activity as a percentage of volume
outpaced Coke by 12%, mainly sourcing from private label. While profitability of
this volume is another question, given the level of Pepsi’s promotion relative to the
closest competitor, it’s clear the company ahs no intention of ceding market share in
the water category.
Additionally, in order to better understand where/who to market the water to,
consumption on a regional level must be better understood. Below are the 2005
bottled water consumption figures [by region].
2005 Bottled Water Consumption
REGION
Northeast
South
East
Central
West
Central
West
Southwest
Pacific
Total
Population
NonSparkling
Sparkling
Total
Per
Capita
(Million)
(Million Gallons)
(Million
Gallons)
(Million
Gallons)
(Gallons)
61.6 (21%)
68.1
(23%)*
1,918.50
59.3
1,977.80
32.1
1,186.20
36.7
1,222.90
17.8
52.1 (18%)
571.1
17.7
588.8
11.3
19.8 (7%)
12.4 (4%)
34.3 (12%)
48 (16%)
219.7
153.7
1,266.70
2,006.30*
6.8
4.8
39.2
62*
226.5
158.5
1305.9
2068.3*
296.4
7,322.20
226.5
7548.7
11.4
12.8
38.1
43*
25.5
(Avg.)
*Highest number, comparatively.
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Water Consumption Per Capita/Year (Gal.), By Region
50
45
Consumption Per Capita/Year(Gal.)
40
35
30
25
Per Capita
20
15
10
5
0
Northeast
South
East Central
West Central
West
Southwest
Pacific
Region
As clearly noted in the above chart and graph, although the South has the highest
proportion of the total population (apparent only in chart), the Pacific region
consumes the most bottled water (sparkling and non-sparkling) per capita (apparent
in chart and graph). When deciding how to budget marketing dollars (generally
speaking), based on the above data one should allocate the most to the Pacific
region, then the Southwest, Northeast, South, West, West Central, and finally (the
least dollars should go to) the East Central Region.
Also, as the majority of marketing dollars target the 23-50 year old population,
much of the potential bottled water market is excluded.
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IV. S.W.O.T. Analysis:
Strengths
Consumers are richer and more
health-conscious
Consumption in the U.S. has
surpassed that of milk, coffee, and
beer
The fastest growing multi billion
dollar segment of the entire beverage
industry
Bottled water assumed “safer”
Opportunities
than tap
Increase brand awareness
Purity and safety
Continue product innovation
Introduce competing products
-Edge2O – Gen. X,Y
-Fun2O – Kids
-Fruit2O – Light Fruit Flavor
-Health2O – Fiber Supplement
Weaknesses
Plastic recycling element is subpar
10-24 oz “only” consistently growing
Negative growth for premium glass
and bulk product forms
Threats
Health threat due to lack of recycling
Tap water regulations increasing
Water filtration systems becoming more
popular
V. Five Forces Analysis:
Suppliers: Weak - Bottles and equipment are commodities. Water is readily
available from municipalities.
Threat of New Entrants: Low - Many strong players exist. Access to distribution
is strong barrier.
Buyers or Customers: High - Convenience stores, groceries, buy in quantity, low
switching costs.
Threat of Substitutes: Moderately Strong - Most non-alcoholic beverages
including tap water are substitutes.
Competitive Rivalry: Strong - Will get stronger when market growth slows.
Competition is based on branding and image and access to distribution. Second tier
producers compete heavily on price.
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VI. Strategies:
Product Strategy - Expand to appeal to more specialized markets and correct weak
or omitted product features.
Price Strategy - Lower price as costs fall, stabilize price if demand is strong and
there are few competitors.
Place Strategy - Fine tune distribution system, make sure physical distribution
system is efficient, and provides service adjustments and credit for defective parts.
Promotion Strategy - Stress brand loyalty, lower promotion costs as sales increase
VII. Recommendations:
Due to the fierce level of competition in and growth stage of the bottled water
industry, this market research team recommends expansion through four new
products which target the other potential target consumers: the largest proportion of
the population, 50-75+ year olds; a growing segment of the population 14-25 year
olds; the smallest now, but (expected) soon to be large proportion of the population
3-13 year olds; and anyone who marketers
are competing for
in the product category and generic forms of competition.
The new product targeting 50-75+ year olds is which contains added fiber as a
laxative supplement.
The new product targeting 14-25 year olds is
which contains
minor amounts of taurine, guarana, & creatine as energy supplements.
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The new product targeting 3-13 year olds is
, which is sold in a
variety of bottle colors & shapes, and contains an assortment of vitamins intended
to promote healthy bone, skin, joint, nail, and hair growth.
The fourth new product is not intended to penetrate a specific age group, rather to
provide an alternative in the product category and generic forms of competition. It
is called
and it contains traces of natural fruit flavoring providing
for a different taste at no calories, with no unnatural additives.
This market research team is confident any major company in the bottled water
industry could utilize these four concepts and their targets to gain greater market
share, thereby increasing their profits, and stock value.
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VIII. Sources:
1. JPMorgan’s company research website: www.MorganMarkets.com
2. Yahoo’s section related to finance:
http://finance.yahoo.com
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