BOTTLED WATER INDUSTRYTEAM 4(PEPSICO)

Shin, Hyun-jung , Shraddha, Raghu

Contents

What is the industry like? Porter’s 5 force model and its

analysis Driving factors and its impact Market positions (Group map) Key factors for future competi-

tive forces Recommendation for Pepsi

What is the industry like?

Growing by 30% through 2010 to reach approximately $82 billion in revenue

Thought to be safer than municipal tap water and an alternative choice to high calorie carbonated beverages

PET container helps customers satisfied with its convenience and portability

Controlled by a few food and beverage companies

What is the industry like?

Fierce competition among producers (they have a similar “scale and scope” of op-

eration) Focus on fitness, health, and the go-go life-

style has made the industry booming Leaving the growth stage, and entering the

mature stage Competitors are looking to defend and in-

crease market share Given the amount of competitors, industry

members are forced to protect market share

Porter’s Five Force Model

Bottled Water Industry

Fierce

Low Aver-age

Numer-ous

Hard to enter

1. Rivalry

4 major industry players ( Danone, Coca-cola, Pepsi, Nestle) Fierce competition - Compete aggressively on price - Making differentiation in develop-

ing products (focusing on health and fitness)

Attacking each other (tough competi-tion)

Hampered profitability

2. Substitute Products

Existence of substitute products - teas -beers -pow-

ered drink - coffee -wine -milk - Juice -Sport drink -Soft drink

This occurred due to the declining pricesSubstitute products become more popular

and can be considered as a threat

3. New entrants

Barriers to entry Establish brand names of global industry members New entrants need to overcome the

tremendous marketing muscle and market presence of Coke, Pepsi and others

Vast beverage distribution systems of Coke and Pepsi enables them to have intimate re-lationships with retail channels and would be able to defend their positions effectively

4. Power of suppliers

Suppliers to the industry - municipal water systems, spring operators, bottling

equipment manufacturers, deionization, etc. Large bottlers - able to purchase bottles as little as 5 cents per bottle Regional bottlers - have to purchase bottles as much as 15 cents per

bottle Secondary packaging suppliers - Numerous and aggressively competed for the busi-

ness Power of suppliers might be low

5. Buyer Power

Principle Channels : - Convenience store, Food stores, Foun-

tain, Mass merchandisers, Vending ma-chine

Bargaining power of buyer is high for convenience store and supermarketRequired to compete aggressively on price to

gain access to shelf space for low prices and slotting fees

Bargaining power of buyer is none for vending

Industry Key Trends

Social increasing health concerns Concerns about the quality of the water Increase in demand for convenient Economic World becoming a global economy,

increasing the market competitors need to cul-tivate international markets and make the most of a global economy

The industry is still a profitable industryHowever, difficult industry to enter, given the

large number of competitors already in the market

Recent trends in Bottled water Industry

Underlying drivers of change

Following are the un-derlying drivers of change in the Bottled water Industry.

1. Environmental Con-cerns

2. Taste and Conve-nience

3. Increase in number of local players

4. Marketing innovation

5. M&As and Strategic Alliances.

6. Functional Waters

Increase in Environmental concerns

Increase in Envi-ronmental con-cerns is a potential driving force to stall the growth of bottled water in-dustry.

People have started realizing the ill effects of us-ing pet bottles.

Aquafina has launched a rela-tively environment friendly bottle which is thinner and leaves lesser car-bon footprint than its earlier bottles to attract environment cautious customers.

Taste and Convenience

Many reports suggest the major reason for use of bottled water was

1. Taste 2. Convenience

Some other sited reasons were perceived health benefits, but people are not sure about “what” health benefits they receive!

Increase in number of Lo-cal Players The profit margins in the industry are very

lucrative. The sales price may be even 125 times the cost of the contents and packag-ing of the product.

This has attracted many local players into the industry.

Though they do not establish internation-ally but do well locally especially in coun-tries where the distribution infrastructure is not well developed and consumer is very price cautious.

Marketing Innovation

Pepsi Co’s Aqua-fina is not just a bottled water brand but has ex-tended its brand to Skincare Products which associates health and beauty with Aquafina. This can be a wise marketing tactic to attract more users.

M&As and Strategic Alliances

To facilitate entry into various parts of the globe many companies enter into Strategic Alliances. For example Danone and Coca Cola.

Also many companies acquire local players to facilitate production and reduce competition.

Functional Waters

Functional waters provide health benefits.

They are enriched with vitamins, minerals etc. and available in differ-ent flavors to attract health con-scious and physically active con-sumers.

Some of the Pepsi CO’s brands with functional benefits are SoBe Life, Flavor Splash, Aquafina Sparkling etc.

Strategic Group Map

Pepsi Co’s global presence extends to 200 countries and its price for a 24 bottle pack is about $5.01.

Coca Cola is in a bet-ter position in terms of both Global pres-ence (300 Countries) and price (4.35$ for 24 bottle pack)

Pri

ce

Geographic Cov-erage

Coca ColaPepsi Co.

Nes-tle

Reasons why people prefer bottled wa-ter

Recommendations

Lower prices to gain market share Investing in innovation to find alter-

natives to plastic bottles is important – people are becoming more con-scious about the environment.

Be more transparent & honest re-garding the source of water