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UNIVERSITY OF MUMBAI
NIRMALADEVI MOHAN SINGH
T. Y. B.M.S.
TOLANI COLLEGE OF COMMERCE
ANDHERI (EAST), MUMBAI – 400 093
I, Mrs. Vijaya Krishna, hereby certify that Ms. Nirmala Singh of Tolani College of Commerce, T.Y. B.M.S. (Semester V) has completed her project titled SOURCE PERRIER in the academic year 2005-2006. The information submitted herein is true and original to the best of my knowledge.
Mrs. Vijaya Krishna (Project Guide)
Dr. A. Rashid (BMS Co-ordinator)
Dr. Sheela Purohit (Principal)
I, Nirmala Singh, of Tolani College of Commerce, T.Y. B.M.S. (Semester V) hereby declare that I have completed my project titled SOURCE PERRIER in the academic year 2005-2006. The information submitted herein is true and original to the best of my knowledge.
Place: MUMBAI Date:
At the outset I take the privilege to convey my gratitude to those who have co-operated, supported, helped and suggested me to accomplish the project work. This project work bears imprint, of many persons who are either directly or indirectly involved in the completion of it.
I extend my thanks to Mr. Allwyn Fernandez for giving me an opportunity to do this project in the company.
I am also desirous of placing on record profound indebtness to my guide Prof. Mrs. Vijaya Krishna, Tolani College of Commerce, Andheri for the valuable advice, guidance, precious time and support that she offered.
Introduction History of Bottled Water Source Perrier - the History
Source Perrier in United States
The Market Scenario Types of Bottled Water Source Perrier & US Exporting Nestle Worldwide - an overview Brands Owned by the Group Why Nestle Acquired Source Perrier SWOT Analysis An Analysis of the company’s moves Benzene Incident The Protests Recent Update about the Perrier Group
Source Perrier & India
Indian Market Scenario Legal requirements About Nestle India Entry Strategy in India Latest Happenings The Shock Wave Future Outlook of source perrier Bibliography
Every firm, at every point in its history, faces a broad range of strategy alternatives. In far too many cases, companies fail to appreciate the range of alternatives open to them and, therefore, employ only one strategy – often to their grate disadvantage. The same companies also fail to consider the strategy alternatives open to their competitors and leave themselves vulnerable to the dreaded ‘Titanic’ syndrome, or the thud in the night that comes without warning and sinks the ship. Entry into a new country-market is always a learning process during which a firm continually commits resources in smaller or larger steps to establish an intended position in the country-market. The intended position is determined through a strategic positioning process. In this process, management defines a company (product line or product) – specific set of benefits that is attractive to chosen target customers, which are at least acceptable to important stakeholders in the market, and at the same time positively differentiates the firm (its product line or product) from competitors. If and how the intended position is reached not only depends on the company’s actions but also on other stakeholders in the local operating environment, their interests, powers and actions. All this allows management to evaluate various ‘market entry modes’ concerning their potential contribution in reaching the intended position in the country market. A market entry mode is the general way the company plans to enter a new country market, for example through selling its goods to an importer or through direct investment in a production facility and a distribution system. The development of market entry strategy not only depends on market factors but also on available production capacities, personnel and financial resources. It is an organizational learning process.
History of Bottled Water
The tradition of bottled water and mineral water is not very old. Even in western countries the practice of bottled drinking water started in 1950s. The trend of having mineral water gained grounds in the market.
Since ancient time people have used water from mineral springs, especially hot springs, for bathing due to its supposed therapeutic value for rheumatism, arthritis, skin diseases, and various other ailments. Depending on the temperature of the water, the location, the altitude, and the climate at the spring, it was used to cure different ailments. This started the trend of using mineral water for drinking purpose to exploit the therapeutic value of the water. This trend started gaining momentum in mid 1970s and since then large quantities of bottled water from mineral springs in France and other European countries are exported every year.
The concept of bottled water has been quite prevalent in western countries due to greater health consciousness and higher awareness about health and hygiene.
Source Perrier – The History
17 kilometers from Nimes, a fresh water spring in a small village called Vergèze drew Romans in search of refreshment. This renowned spring continued to flow after the French Revolution on land which then belonged to Alphonse Granier. By the 19th century, it had been baptized "Bouillens", because of the way it spurted out like boiling water, due to its' natural carbon gas content. The water, whose source lies in limestone hills, has a strong trace of a carbon gas current of volcanic origin. In year IX of the Republic, citizen Dax, a doctor from Sommières, wrote the first thesis on Bouillens water and its' therapeutic properties. Professor Courcière proved that the gas it contained was natural carbon gas. .
1863 On the 23rd June, Napoleon III granted the right to exploit this source by decree (before this, spring water was free.) This was the heyday of thermal baths, and Bouillens became a reputed spa. Alphonse Granier set up the "Société de l'Etablissement Thermal des Eaux Minérale de Vergèze". The company's statutes provided for cold baths, mud, carbon gas and inhalations, showers and the sale of bottled water as a beverage
1869 Fire destroyed these installations and the company went bankrupt
1870 The first advertisement for the spring water came out: "The Princess of Table Waters".
1888 Monsieur Rouvire, a local farmer, acquired the source. He went into partnership with a doctor from Nimes, Doctor Louis Perrier, also in charge of the spa at Euzet-les-Bains in the Gard.
1898 Louis Perrier, a French doctor became sole owner of the domain called the "Vergieze Company for mineral water, drinks and health products". He analyzed the water's properties, and discovered its' therapeutic possibilities. He perfected bottling techniques, and found a limited partner to finance his operation. The source was officially recognized as a national asset.
1903 A young Englishman, Sir John Harmsworth bought the company's shares and gave the source the name of the man who had made it famous. Employees filled bottles by hand, closing them with a capsule by pressing on a pedal.
1908 During the Anglo-French Exhibition in London, Perrier won the Grand Prix for the record sale of mineral waters in the year, having sold five million bottles.
1914 Perrier was better known in English-speaking cities (London, Delhi, Singapore) than in Paris. This sparkling water was, it is said, the drink favored by Her Royal Highness' officers throughout the Empire. Production climbed to 10 million bottles.
1946 After the Second World War, Georges Leven and his son Gustave, in association with his friends, Maurice Epry (management) and Jean Davray (the company's advertising executive, until his death in 1985), bought up The Société Perrier's shares. The source was back in French hands. Jean Davray adapted the very first slogan: "The Princess of table Waters" by changing the word princess with champagne, party, folly and product. Perrier was a chic French drink, present on every media, but it now aimed to become a massively popular consumer product. Poster artist Jean Effel designed the "champagne" variation, and this poster became the company's leading image. Perrier sponsored the Tour de France bicycle race.
1949 A new campaign was based on the notion of sleep: "Naturally sparkling Perrier water clears the digestion, and leaves your mouth fresh for the night!"
1952 Perrier's total sales were 100 million bottles.
1954 Production diversified, under G. Leven's influence, as sodas make their appearance
1973 To counter diminishing glass bottle deposits, added to blocked prices, the overall tendency to use plastic bottles ("wasted packaging") and their own obligation to use glass because of the carbon gas, Perrier decided to produce their own glass! Leven acquires a sand-works at Bédouin, at the foot of Mont Ventoux.
1976 While in the U.S. since the beginning of the century, Perrier's U.S. presence exploded, as Americans were ready for new natural refreshment.
1977 G. Leven opened the market for carbonated water in the US, and soon controlled 6% of the American market. To counter imitations launched by plain mineral waters with added gas, Perrier was sold as "naturally
sparkling" mineral water imported from the south of France, and presented as a healthy drink. On TV, Orson Welles encouraged people to "enjoy and good health."
1979 G. Leven launched flavored Perrier, trying it out first in the US. In view of successful results, he acquired new springs locally. That year, 6000 runners in the New York Marathon crossed Central Park wearing Perrier T-shirts. Sales reached 200 million dollars (as opposed to 6 million in 1976).
1984 Perrier became the number one mineral water company world-wide, with markets established in Canada, the Arab countries, South Africa, Germany, Australia, Japan and in the United States 45% of its' turnover reinvested in export. Perrier's strategy in creating a market abroad was to introduce the product as a prestigious label, underlining the luxurious, "chic" French aspect, and the 100% natural, ‘Zero’ calorie feature. The company conferred advertising to a local agency, and acquired a local label. The next step was to make the product available in bars, restaurants and hotels, where prices are controlled, to create consumer habits.
1987 A marketing department opened. Perrier Zeste aromatisés (Flavoured Perrier - lemon, lime and orange) appeared on the French market. In June, the company bought the American BCI Arrowhead Drinking Water Company, and became France's number one mineral water manufacturer. The company
also took over Buxton Mineral water, controlling 75% of the British market of carbonated waters.
1990 72 million bottles were taken off the market in the USA, after a few traces of benzene were discovered in twelve bottles. Gustave Leven decided to withdraw the entire US production (160 million bottles, then did the same in five other countries (Germany, Canada, Denmark, Japan and Holland), thus destroying a total of 280 million bottles world-wide. In April, Perrier – after ten weeks absence - was back on the market.
1992 Perrier was bought by Nestle, and takes advantage of this group’s set-up in South East Asia to conquer that market. In November, Publics FCB is granted the world budget, to guarantee coherence in communications on a worldwide level.
1999 The Vergèze plant produces 3,200,000 bottles a day and Perrier maintains its position as the world's most popular sparkling mineral water.
The United States Bottled Water Market & Source Perrier
THE UNITED STATES MARKET SCENARIO
A 1998 poll of people who drink bottled water found that 35 percent of bottled water drinkers used it primarily out of concern about tap water quality. Another 12 percent chose bottled water because of both safety and health concerns and the desire for a substitute for other beverages. Thus, as of 1998 at least, nearly half (47 percent) of bottled water drinkers used it at least partially out of concern for their health and safety. Another 35 percent drank it as a substitute for soft drinks and other beverages. Seventeen percent said they chose bottled water for other reasons -- such as "taste" (7 percent) or "convenience."
It is absolutely clear, therefore, that a leading reason for the explosion in bottled water sales is the public perception, fueled by heavy industry advertising, that bottled water is pure and pristine, and thus a healthier choice than tap water. Why People Drink Bottled Water
Source: American Water Works Association Research Foundation, Consumer Attitude
The public is concerned about tap water safety and quality, and, with much encouragement from the bottled water industry's aggressive marketing, views
bottled water as a purer, safer option. As a key industry consultant put it, “water bottlers are selling a market perception that water is 'pure and good for you’’. News reports about crises involving municipal water supplies in many parts of the United States heightened public awareness and concern about the safety of tap water. Environmental groups and the Environmental Protection Agency (EPA) sounded the safety alarm in several cities last year. As a result, consumers began to choose bottled water as a safe alternative for drinking water.
IN GENERAL, MORE PEOPLE DRINK WATER BECAUSE IT WORKS FOR Thirst: No beverage satisfies thirst more completely, more simply than
Refreshment: Crisp, light, super-cooling; enters the system quickly;
adjusts the body's temperature almost immediately.
Fluid replenishment: Far superior to soft drinks, coffee, tea, or beer this may act as diuretics, actually depleting rather than replenishing body fluids.
Mental alertness: Nothing clears the head or enlivens the senses like a
crisp, cold drink of water.
Vitality: Water is nature's own way to deliver nutrients and oxygen to
the body - and to aid the conversion of food into active energy.
Dieting: Helps the body to metabolize fat naturally.
THE INDUSTRY SCENARIO
The numbers tell the story…
Bottled water is the fastest growing segment of the entire beverage business. In fact, in 2000:
Bottled water consumption experienced an unheard of growth of more than Two gallons per person; Wholesale revenues totaled $5.7 billion - and increase over 9.3% over 1999 figures; Volume reached 5 billion gallons; growing 8.3% compare that with other beverages: soft drink growth was flat, and beer, milk and fruit beverages grew 0.5% only. The PET segment of the market accounted for 95% of the industry's volumetric gain and represents about 35 percent of all bottled water sales. Products packaged in PET - the small plastic bottles - barely appeared on the radar screen ten years ago! Americans eat 34% of their food outside their homes and convenient sized packages have given them an opportunity to drink the bottled water they love. Source: Beverage Marketing
U.S. Bottled Water Market, 1976-1997, Gallon age
Source: Beverage Marketing Corporation, New York
Over half of all Americans (54 percent) drink bottled water, and about 36 percent of them imbibe regularly (more than once a week). Sales have nearly tripled in the last decade, to about $4 billion in 1997, rising from 4.5 gallons per year for the average American in 1986 to 12.7 gallons per year per person in 1997. Americans consumed a total of 3.43 billion gallons of bottled water in 1997. Globally, the market was estimated in 1995 to be worth more than $14 billion annually in wholesale sales, and it has certainly grown since then. According to a 1992 inventory, there were already 700 brands of bottled water produced by about 430 bottling facilities in the United States, a number that likely has grown since that time, because of the enormous expansion in bottled water sales.
PERRIER LEADS THE BOTTLED WATER BOOM ….
Here are some statistics about the growing popularity of bottled water and The Perrier Group's continued market share leadership
Source: Beverage Aisle
Since expunging the blotches on its image of purity due to the Benzene incident at Perrier, the industry has exploded, with the market now growing at a strong rate of 8 to 10 percent per year -- about twice as fast as the rate for other beverages.
Source: Beverage Marketing
According to industry stock analysts, "the profit margins in the business are really pretty good" -- for some bottlers in the neighborhood of 25 to 30 percent. That means every $1.50 bottle of water brings around $0.50 in profit. The actual cost of the water in the bottle purchased off a store shelf is generally just a fraction of a cent to a few cents. Thus, typically 90 percent or more of the cost paid by bottled water consumers goes to things other than the water itself -bottling, packaging, shipping, marketing, retailing, other expenses, and profit. As the then-chairman of the board of the Perrier Corporation stated in a remarkable moment of candor, "It struck me . . . that all you had to do is take the water out of the ground and then sell it for more than the price of wine, milk, or, for that matter, oil."
The bottled water industry's rapid growth is surprising in light of the retail price of bottled water: It costs from 240 to over 10,000 times more per gallon to purchase bottled water than it does to purchase a gallon of average tap water. For example, in California average tap water costs about $1.60 per thousand gallons (about one tenth of a cent per gallon), while it has been reported that average bottled water costs about $0.90 per gallon -- a 560-fold difference. Expensive imported water sold in smaller bottles can cost several thousand times
more than tap water: That $1.50 half-liter bottle of imported water may be costing you 10,000 times more per gallon than American tap water.
While Americans with annual incomes of $60,000 per year or more are about 35 percent more likely than those of lesser means to buy bottled water, the purchasers of bottled water are hardly limited to high income yuppies. As was put starkly in American Demographics recently, Black and Asian and Hispanic households are more likely than whites to use bottled water, even though blacks and Hispanics as a group have lower-than-average household incomes… Scares like the municipal water contamination that occurred in Milwaukee in 1993 may have even low-income families springing for bottled water. It's clear that many households are still opting for bottled water, even though it can be an expensive habit. A five-year supply of bottled water at the recommended intake of eight glasses a day can cost more than $1,000. An equivalent amount of tap water costs about $1.65. According to the industry analysts, “The success of bottled water essentially stems from the human drive to have pure, great-tasting water. Bottled water is a delightful, refreshing beverage. It can be an alternative to tap water, filtered water, or to a consumer's choice of just about any beverage, whether it be an iced tea, soft drink or a cocktail.”
TYPES OF BOTTLED WATER
The bottled water industry is one of the few industries that have voluntarily created its own standard of good manufacturing practices that go above and beyond most other food products for purity and safety. The industry in United States is regulated by the Food and Drug Administration (FDA), which regulates the pharmaceutical and food industries. Bottled water is required to be tested for the same contaminants as tap water.
FDA (FOOD AND DRUGS AUTHORITY) OF US HAS SET STANDARDS FOR BOTTLED WATER.
Some of the standards governing the bottled water industry in US are: • Water is classified as bottled water or drinking water, if it meets all applicable federal and state standards, is sealed in a sanitary container and is sold for human consumption. • Bottled water cannot contain sweeteners or chemical additives (other than flavors, extracts or essences) and must be calorie-free and sugar-free. • Flavors, extracts and essences--derived from spice or fruit -- can be added to bottled water, but these additions must comprise less than one percent by weight of the final product. • Beverages containing more than the one-percent-by-weight flavor limit are classified as soft drinks, not bottled water. • Bottled water may be sodium-free or contain "very low" amounts of Sodium
Tap water uses Chlorine as disinfectant bottled water uses Ozone as a disinfectant. Bottled water should not contain chlorine.
As per Encyclopedia Britannica, mineral water is defined as water that contains a large quantity of dissolved minerals or gases. The mineral water can be categorized into natural mineral water and artificial mineral water. Natural mineral water is obtained from natural springs and has a high content of calcium carbonate, magnesium sulfate, potassium, and sodium sulfate. It may also contain gases like carbon dioxide or hydrogen sulfide. While mineral water produced artificially
It has categorized bottled or drinking water into 7 different types, namely: ARTESIAN WATER / ARTESIAN WELL WATER: Bottled water from a well that taps a confined aquifer (a water-bearing underground layer of rock or sand) in which the water level stands at some height above the top of the aquifer. DISTILLED WATER: Water that has been turned int3o steam so its impurities are left behind and the steam is condensed to make pure water.
MINERAL WATER: Bottled water containing not less than 250 parts per million of total dissolved solids may be labeled as mineral water. Mineral water is distinguished from other types of bottled water by its constant level and relative proportions of mineral and trace elements at the point of emergence from the source. No minerals can be added to this product.
PURIFIED WATER: Water that has been produced by distillation, de-ionization, reverse osmosis or other suitable processes.
SPARKLING WATER: Water that after treatment and possible replacement with carbon dioxide contains the same amount of carbon dioxide that it had at emergence from the source. (PS: soda water, tonic water etc. are not considered bottled waters as they contain sugar & calories and are considered soft drinks.)
SPRING WATER: Bottled water derived from an underground formation from which water flows naturally to the surface of the earth. Spring water must be collected only at the spring or through a borehole tapping the underground formation finding the spring. There must be a natural force causing the water to flow to the surface through a natural orifice. WELL WATER: Bottled water from a hole bored drilled or otherwise constructed in the ground that taps the water of an aquifer (a water-bearing underground layer of rock or sand).
SOURCE PERRIER & THE US
Source Perrier is the largest seller of bottled water in the United States. Its US sales are more than double those of McKesson, the next largest bottled water company in the U.S. market. Four of Perrier’s brands (Arrow-head, Poland Spring, Perrier and the Great Bear) are among the top ten brands in the United States. Other Nestle controlled brands sold in the United States include Vittel, Calistogs, Zephyr Hill, Ozarka/Oasis, and Ice Mountain.
US bottled water sales have grown phenomenally. As recently as the 1960s Americans complained when traveling abroad about having to purchase bottled water, especially that with bubbles. By the 1990s, United States had become the largest consumer of bottled water, much of which was bubbly and imported from France.
A small niche market for French water existed in the United States long before the recent growth period. One of the earliest customers was Benjamin Franklin, who, after returning from being ambassador in Paris, imported his drinking water. Near the beginning of the twentieth century, Source Perrier set up U.S. distribution; however, by 1976 sales were still very low. The so-called Perrier fans, a small group of high-income people, had to pay high prices in gourmet shops or upscale bars to quench their thirst.
By the early 1970s, Source Perrier, given its large share of the bottled water market, was having trouble sustaining growth in France. The company sought to increase sales by acquiring related French companies, including those producing soft drinks, milk, chocolate and confectionery products.
In 1972, it acquired Poland Spring, a US company producing ‘still (non carbonated) spring water’. None of the ventures fared well under Source Perrier’s leadership.
The company’s chairman met Bruce Nevins, who as an executive of Levi Strauss had been instrumental in the upsurge of jeans sales. Nevins believed it was possible to develop a mass market for a “non caloric, chic alternative to soft drinks.” The US soft drink market at that time was about $10 billion wholesale. Thus the stakes were high, so high in fact that in 1975 and 1976 Source Perrier sold 70 percent of its acquisitions (including Poland Spring) to finance a US marketing subsidiary headed by Nevins. Several trends made Nevins optimistic about acceptance of Perrier water by US consumers. The most important trend was growing diet consciousness. Miller Brewing had had phenomenal success with its Lite Beer. Because cyclamates had been banned in soft drinks, producers of low calorie sodas had turned to ‘Saccharin’, which people found distasteful. Also, there was no popular low-calorie drink that was considered chic. The use of the adjective “diet” simply announced that the drinker had weight problems. If people could be persuaded that Perrier tasted good, it could become a preferred low-calorie alternative. A second trend Nevins observed was a movement towards natural foods for health reasons. Even tap water and the 75 percent of the bottled water processed from tap water had become suspect because in the process of purification, suspected cancer-causing chlorine
derivatives were added. Further, certain viruses, sodium and heavy metals were still found in most purified water and soda water. Perrier came from natural springs and contained high levels of calcium, very little sodium and no additives. It could be promoted as a natural drink with healthy
properties, even though it was not completely natural because some of the bubbles were lost when the water was removed from the springs and replaced during the bottling process. There was a growing US preference for imports, apparent not only in the rising ratio of imports to gross national expenditures but also in the acceptance of “foreignness.” In terms of food, so-called gourmet restaurants, cookbooks, dinner clubs, ingredients, and wines were becoming commonplace and French items were practically synonymous with the word “gourmet.” Perrier might be able to capitalize successfully on these attitudes.
The US marketing program began in 1977. The company first had to decide in which part of the market to position itself. The three trends just discussed clearly would lead to different pricing, promotional and distributional strategies. For example, in seeking the diet conscious market segment, Source Perrier would come face to face with Coca-Cola and Pepsi-Cola, which between them controlled 45 percent of the soft drink market. These companies, along with many others, fought vigorously in the market by keeping prices fairly low, advertising heavily and clamoring for shelf space in supermarket soft drink sections. The difficulty of competing in this segment was evident from the experience of Schweppes, which despite establishing US bottling facilities and engaging in heavy marketing outlays failed to get even 1 percent of the market. Competing in this heavy mass-market segment also might have caused Perrier to lose the snob appeal it held for high-income buyers.
Entering the natural or health-food segment would pit Perrier against other bottled waters and various tonics that contained healthful additives. This market in 1976 was only $189 million. Of this, 93 percent was from purified domestic still water, which was sold largely in five-gallon containers at low prices through
home or commercial delivery. Less than 20 percent of bottled water was sold in retail stores, and there was little brand identification. To expand retail sales probably would mean concentrating on gaining shelf space in the health food sections of stores. Since bottled water sales were determinant be much more concentrated geographically (about 50 percent in California) than were soft drink sales, it would be far easier for Source Perrier to target its promotion and distribution for this segment.
Although Source Perrier was already selling to the gourmet market, usage and distribution gaps undoubtedly existed in this market. The total sales of mineral water in 1976 were only $ 15 million. Primary demand might be increased distribution to specialty stores and new distribution to the growing gourmet sections of supermarkets.
Source Perrier decided to stress the soft drink market segment. However, price was a problem. Through massive distribution, the retail price could be cut about 30 percent from what it was when the company emphasized the gourmet segment of the market, however the price was still about 50 percent higher than the average soft drink price partly due to cost of transporting water across the Atlantic. Further, the price included a higher retail gross margin 27.6 percent compared to 22.6 percent on soft drinks which was necessary in order to induce the supermarkets to handle the product. The company kept its price at ‘ROCK BOTTOM’ not only to become more price competitive with domestic soft drinks but also to dissuade other European companies from exporting to the United States. To get people to pay what was still a high price, the company had to segment the soft drink market differently than anyone had done so far by aiming at an adult population and using the higher price to gain snob appeal.
The company felt distribution was the key to success and so hired a sales force of forty people who formerly worked with soft drink companies. It initially targeted New York, San Francisco and Los Angeles because they had consumers with the largest penchant for food items. The company made a film designed to convey to distributors and super-market chains that Perrier had long-term viability. The film showed that the springs had been popular as far back as 218 B.C., when Hannibal partook of the waters, and that Source Perrier dated back to 1903, supplied 400 million bottles a year, and outsold the leading cola in Europe by two to one. Source Perrier sought out the most aggressive distributors, including soft drink bottlers, alcoholic beverage distributors and food brokers in different areas. For the company’s success, it was essential that distributors be able to get supermarket space in the soft drink sections, replenish stocks frequently and set up point of purchase displays. One of the first distributors, Joyce Beverage Management, bought fifty-five trucks and hired a hundred additional people to handle the Source Perrier account. During the introductory period, arrangements were made for secondary display stacks and in-store testing. The company also gave cents-off coupons with purchases. Within a year Source Perrier had moved from three into twenty major markets; this latter figure doubled in the second year.
Source Perrier developed 11-ounce and 6.5-ounce bottles, the latter sold in multipacks. It also developed a modern logo on the bottles, which was later replaced by the original label design to be more in line with the world image the company wanted to project. With initial distribution assured, it was necessary to sell the bottles that were on the shelves. To do so necessitated advertising messages different from those the company used in Europe. In Europe, the company could make therapeutic claims; however, US law strictly forbade this. In US test marketing, Source Perrier tried such themes as “Formerly heavy drinkers such as Richard old
Burton and Ed McMahon are now ‘hooked’ on Perrier” and “Perrier contains no sodium which causes heartburn”. These claims were abandoned in favour of messages emphasizing the water’s qualities as a natural thirst quencher with no calories and no additives.
The advertising budget was high. Initial promotion was regional relied heavily on the print media. Food and Beverage writers were courted at dinners and exhibitions so that they would write about Perrier. The company sponsored marathons so that the product would be associated both with ‘healthiness’ and ‘thirst quenching’. As distribution became national, Source Perrier switched to TV spots on major networks. It was able to maintain snob appeal by getting tidbits in gossip columns about celebrities being seen sipping Perrier in the ‘Right Places’.
The resultant rapid increase in sales did not go unnoticed by competitors. In 1979, a bottling executive said, “Everyone with water seeping from a rock is buying glass, slapping label on it, and marketing a new bottled water.” One market research group, SANI, reported 104 brands of bottled waters in its territory. Some of the established bottled spring water companies promoted blind tasting comparisons to emphasize that US water was just as tasty as the imports. Deer Park issued a challenge with spring water priced 35-K percent below Perrier. Hincley and Schmitt introduced ‘Premier’ in a bottle with a label that “unashamedly” copied Perrier. Its theme was “Let your guests think it’s imported.” Norton Simon’s Canada Dry began repositioning its club soda to be more competitive with Perrier. In 1980, Bruce Nevis believed the “US market for sparkling water is in the process of maturing.” Source Perrier’s US sales peaked in 1980 and then began falling along with overall imported water sales, largely because of competition
from domestic seltzer (carbonated tap water) and domestic club soda (carbonated tap water to which mineral salts are generally added). To combat US domestic competition, Source Perrier subsequently re-purchased Poland Spring in 1980 for $10million. After buying Poland Spring in 1976 for $1million, that company’s new owners had carbonated the still water, modernized the facilities, and captured 6 percent of the bottled water market. In addition to the problem of domestic competition, the Perrier name was becoming practically generic as customers increasingly asked for Perrier when they simply wanted some kind of sparkling water.
TOWARDS THE NEW SEGMENT……
In 1982 Source Perrier devised a new US strategy. It decided to begin handling specialized imports that could be sold to market segments similar to those to which Perrier seemed to appeal. This segment was described as different company executives as “aspirant people who try to improve their quality of life,” as “households with incomes of $30000 or more,” and as “the same people who tend to buy better fashions, better cars, and the like.” Source Perrier took on Lindt chocolate from Switzerland and Bonne Mamac preserves from France and substantially increased their US sales. In 1985, in an attempt to shore up its US water sales, the company began marketing the water with traces of lemon, lime, or orange flavoring.
But what had appeared to be a maturing of the US bottled water market turned out to be a mere blip. By the mid 1980s, industry sales were growing between 15 and 20 percent pr year. GROWING FASTEST WAS THE IMPORTED MINERAL WATER SEGMENT. But the US market continued to be fragmented, for two reasons. First, the cost and technology to enter the market are low; thus
new companies star up each year. Second, transportation costs lead to regional distribution. Perrier is distributed nationally because it is cheaper to ship the water from France than to ship domestic waters across the United States by truck or rail. By the late 1980s, the following industry trends seemed apparent to Source Perrier’s management: Growth in all sectors of the bottle water market would be robust over the next ten years, especially in geographic areas not yet accounting for a large amount of sales. Big competitors increasingly would get involved. Coca-Cola, PepsiCo, Anheuser-Busch and Japan’s Suntory had recently become involved in some aspect of the market through ownership, bottling, and/or distribution. Because of the capital-intensive nature of distribution (for example, the cost of adding trucks), growth would more likely come from acquisitions by the bigger competitors than from new company start-ups. New importers would attack Source Perrier by targeting specific US market niches. For example, Rambosa (Sweden) targeted snobbish consumers, Eau Canada Sparcal (Canada) played up its high calcium content to appeal to women fearful of developing weak bones, and Heart of Tuscany (Italy) promoted its low mineral content for therapeutic purposes.
Consequently Source Perrier chose to reemphasize the bottled water market in the United States as opposed to the handling of related products. It did this largely through acquisitions. However, the company has made no attempt to connect the acquired brands to the Perrier name. Similarly, Nestle has made no attempt to combine the Perrier brand with any of the other thirty-four bottled water brands it now produces in ten different countries.
In 1990, Source Perrier was hit by two unforeseen events that had a negative impact on its US sales. First because of a bottling worker’s error in France, some bottles reaching the US were contaminated with benzene. A worldwide recall resulted. Second, the Federal Food and Drug Administration (FDA) required two changes in Perrier’s labels: the terms “naturally sparkling water” and “calorie free” had to be dropped because carbonation was added and “calorie free” implied that other water contains calories. Prior to the recall, Perrier held 5.7 percent of the US bottled water market and 44.8 percent of the imported market; afterwards, sales fell 42 percent in 1990 and the company’s major French competitor, BSN’s non-bubbly Evian, number-one US water import. Despite these problems, Source Perrier owned brands, which at the time collectively held 18.2 percent of the US bottled water market, increased their sales so that their overall US sales went up by 3 percent.
Many US analysts openly questioned whether Perrier would ever regain the market share that had made it the best selling bottled water in the United States. Although US supermarket sales rebounded to their earlier level in the first year after the recall, sales in restaurants and bars, which earlier had accounted for 35 percent of Perrier sales in the United States, had not recovered completely. In contrast, Perrier regained its French market share for bubbly water (in number two position after BSN’s Badoit) almost immediately after the company relaunched the water in 1990.
In 1991 Source Perrier’s new chairman Jacques Vincent, announced a long term strategic change for Perrier. The company planned to position the water as a more exclusive product to be sold mainly in restaurants. Supermarket sales were to focus on locally produced, less expensive brands that are not readily associated with the Perrier name. To this end, Perrier acquired Volvic and Contrex, two brands popular in Europe outside France.
Exporting is the most traditional and well-established form of operating internationally. A company may engage in direct exporting, that is, sales between the company and a second country distributor or customer that functions as the importer. A company engaging in indirect exporting sells trough an intermediary located in a home country.
Companies doing business in foreign markets use exporting precisely because it is a low cost alternative as :
It requires no investment in manufacturing operations abroad Expenditure incurred (in most of the countries) to obtain an export license is minimal It allows manufacturing operations to be concentrated in a single location, which generally leads to scale economies
Source Perrier adopts only ‘Exporting’ as its entry strategy in the international markets. However the reason for this is far from the ones mentioned above. The unique aspect of the product is that it is obtained from a spring in France hence the product has to be exported and cannot be manufactured anywhere else.
However, if it is done effectively and well, exporting requires significant investments in marketing. This investment begins with intensive marketing study leading to the development of a ‘country marketing strategy’. The
hallmarks of this strategy maybe, products adapted to customer needs and preferences in the market (or left unchanged if appropriate) and price,
distribution and communication policies that are an integrated part of the country marketing strategy. Many companies in a variety of industries have concluded that concentrated manufacturing operations give them cost and quality advantages over the alternative of decentralized manufacturing. But this approach has a potential downside : Managers at factories located far from export customers may not be responsive to customers needs and wants.(and to other factors)
All Perrier products are exported from France. Indeed an important part of the positioning of the product is that the water is from the ‘Source.’
POSITIONING IN THE NEW MARKET
The attractiveness of target segments in a country-markets and the firm’s promising competitive position concerning the success factors in those segments are not enough to determine final segment choice. Management must make sure that the firm will be able to attractively differentiate itself or its offer from competitors’ for its customers. It has to analyse which customer and stakeholder aspirations the company should focus on and define the differential benefits that should be provided.
Nestle S A Switzerland, is one of the leading companies in the global foods industry. The principal activities of the group encompass beverages (with Nescafe as the flagship brand), milk products, processed foods, cooking aids, bakery products, chocolates, confectioneries, pharmaceutical products
(ophthalmic, surgical instruments etc).
Nestle has a presence in 83 countries worldwide. It has a total number of 509 factories out of which 220 are located in Europe, 153 in America and 136 in Africa, Asia and Oceania The former Managing Director of Nestle, Pierre Loitard-Vogt, once said, “Perhaps we are the only real multinational company existing.” Although this may be something of an exaggeration, it is difficult to find other companies with such a high dependence on foreign involvement. UNCTAD’s composite index on trans-nationality ranks Nestle as the most international of the worlds 100 largest manufacturers. Throughout most of its history, Nestle has concentrated on manufacturing, marketing and wholesale distribution and has avoided vertical expansion into plantations or supermarkets. To maintain this control, its corporate management handles all acquisition decisions as well as those regarding, which products will be researched at the centralized facilities in Switzerland. This decision making is
handled through product groups, such as the chocolate and confectionery products group. To support these functions, each geographic group is expected to provide a positive cash flow to the parent. In fact, Nestle tries to move almost all cash to Switzerland, where a specialized staff decides in which currencies it will be held and to what countries it will be transferred. The company is heavily dependent on introducing new products that may take several years to become profitable, so it must ensure that the more established products remain sufficiently profitable to generate needed funds. If a new product does not become profitable within a reasonable time, such as mineral water in Brazil, or if it has run its cycle of profitability, such as Libby’s vegetablecanning operations, or if its development potential seems low, such as Beech Nut’s baby food, management in Switzerland decides to divest the business. Other divestments occur because certain activities of acquired companies do not fit the corporate development strategy. For example, Nestle spun off a printing and packaging business that was part of the acquired Buitoni-Perugina operations. Despite the centralized directives described above, Nestlé’s country and/or area managers have a great deal of discretion in certain matters, especially marketing. Product research is centralized so that duplication of efforts is kept to a minimum. When a new product is developed, corporate management does not find the changes harmful. For example, one of Nestlé’s best selling products, Nescafe instant coffee, is blended and colored slightly differently from country to country. Various Bottled water brands owned by Nestle are:
BRANDS OWNED BY THE PERRIER GROUP OF AMERICA OTHER THAN SOURCE PERRIER
Principal Markets: California and Arizona Group brand: 1987 Founded: 1894 Bottled water has long been part of the culture of the well-developed California and Arizona markets, where Arrowhead has been a favorite brand since 1894. Today, Arrowhead ranks in the top three among America's most popular spring water brands. Perrier
Principal Markets: California and other Western states Perrier Group brand: 1982 Founded: 1924 Natural, non-sparkling spring water was added to the line in the early 1990's from other spring sources in California. Bringing even more consumer choice to this brand name are sparkling varieties with fruit flavors. The
Principal Markets: New
York to Florida The Perrier Group brand: 1993 Founded: 1873 In the late 19th century, Deer Park was served to passengers aboard the Baltimore & Ohio Railroad. Demand for it grew throughout the East as families looked for bottled water they could trust for high quality and good taste. The original source is a pristine spring 3,000 feet above sea level. It is located in the lush Allegheny region of the Appalachian Mountains, just outside Deer Park, Maryland. Other Deer Park sources are found along the Appalachian chain.
Principal Markets: York to Washington, D.C. Perrier Group brand: 1987 Founded: 1888 Great Bear is one of the bottled water industry's oldest and best-known companies. It is a leader in all of its regional home and office and retail channels. New The
Principal Markets: The Perrier Group brand: 1989 Founded: 1987 Ice Mountain brand spring water, as its name implies, is a crisp-tasting natural spring water. The brand is available nationally at foodservice outlets serving the increasingly mobile American consumer including airport cafes, hotel mini-bars and health clubs. The brand is also gaining popularity in the Midwest. A 1992 addition was a sweetened sparkling beverage in fruit flavors. Midwest
Principal Markets: Texas The Perrier Group brand: 1982 Founded: 1946 Legend has it that Butch Cassidy sipped Oasis spring water. Today, Oasis is not only found in Texas homes and offices. Its convenience- sized bottles are becoming a popular consumer choice in retail stores.
Principal Markets: Oklahoma and Arkansas Perrier Group brand: 1987 Founded: 1905 Ozarka is the leading bottled water in the state of Texas. "Trusted by families since 1905" is a reputation it continuously upholds. Ozarka is a familiar staple throughout the region in stores, homes, offices - and around town. Texas, The
Principal Market: Northeast
The Perrier Group brand: 1980 Founded: 1845 The Poland Spring brand is famous for its naturally pure and crisp tasting spring water. Poland Spring was first bottled in 1845. Its long history and high quality have made this brand the most recognizable in America and number one in sales of all bottled waters.
Principal Market: Texas Perrier Group brand: 1993 Founded: 1983 The
Principal Market: Florida Perrier Group brand: 1987 Founded: 1960 Zephyrhills Natural Spring Water comes from carefully protected sources in the state of Florida. In fact, the town of Zephyrhills, located in central Florida, is aptly named "The City of Pure Water." Zephyrhills is the most popular bottled water among Floridians. The
WHY NESTLE ACQUIRED SOURCE PERRIER?
In 1992, Nestlé realized that nearly all-major sources of Nestlé, Perrier and BSN are working close to their maximum capacity and consequently cannot maintain their market share in a strongly growing market. Nestlé recognized that the growth rate of the French bottled water market is likely to slow down and indeed did not reach 1 % in 1991. Nestlé spoke of a realistic growth rate of 5 % over the next years. In the still water segment Nestlé has the following mineral waters – Vittel, Hepar, Abatilles. Nestlé also owns the spring water Pierval.
Whereas, Perrier owned two major still mineral water sources with considerable free capacities, i.e. Contrex and Volvic. The free capacity of both sources combined exceeded the total still-water market volume. Perrier in addition owned other still mineral water sources. E.g.: Thonon. Perrier further owned a number of important sparkling mineral waters: Perrier, Saint-Yorre, Vichy and several smaller sources. The first two sources had a considerable overall and free capacity. Finally, Perrier owned a large number of local spring water sources, in particular the sources Castel, Saint-Roch, Les Ormes, Carola, Saint-Lambert, Montegut, Regina and Sergentale.
BSN had one major still mineral water source, i.e. Evian and one major sparkling mineral water source, i.e. Badoit, which had reached its maximum capacity. BSN was at that time developing a new sparkling mineral water source called Salvetat.
The merger between Perrier and Nestle required the sale of the brand Volvic to BSN. After the merger and the sale of Volvic to BSN, the two suppliers would have a considerable number of sources, the overall free capacity of which would by far exceed the total water market volume (5 – 250 million liters) and each one of these two suppliers would have at least one major still mineral water source with huge free capacities compared to the overall market volume and all other local water suppliers. They would thus be in a position to respond to an increase in demand without any capacity limitation, even if one were to assume a constant growth rate of demand of 5 % per year.
SWOT ANALYSIS OF PERRIER
The product is Natural water - which is highly sought The brand has entered United States decades back and therefore has sufficiently high recall value, faith, clear positioning. The product is imported from France and hence has elite image associated with it. The company can afford heavy advertising and other promotion budgets due to the huge Financial support from the Parent company Other brands of the company not associated with the name Perrier, avoids ambiguity in positioning. The company has undertaken a project for restoring the old site of Poland Spring.
Soft-drink market is well developed – soft drinks are a substitute for water to some extent. -
Unused buildings at the old Poland Spring site. Bath house and "water temple" are in the background.
The company is highly dependent on ‘Natural Sources’ The extraction of water from the natural springs is observed as ‘Damage to ecology’ by some extremists
Source is limited so cost increases.
The consumption of bottled water is increasing phenomenally. People are becoming more health conscious. Tap water is perceived as being impure. Possibility of creating brand value in the health segment The industry depends upon image engineering
Growing ecology consciousness among people – this is further explained in the Chapter ‘ Protests Low entry barriers in the industry – costs & Technology needed are not exclusive Fragmented market due to regionality of brands Gaylord Nelson – EARTH DAY and other such movements
WHAT WENT WRONG... ANALYSIS OF THE COMPANY’S MOVES
The trends in the soft-drink market were no doubt appealing, the sheer size of the market would have perhaps given the picture that there is enough cake for everybody, but it proved to be an illusion in Source Perrier’s case. Source Perrier because of various reasons needed to be priced quite high which was contrasting as the major competitive edge required by any company entering this segment would have to be low price. The company could have positioned itself in the health food segment. The following points justify the above statement:
Could have created a huge market Perrier could have created a huge market for ‘healthy water’ on the and could have health
consciousness and preference for health and natural foods among American people.
Absence of strong competition At that time, there were no national players in the bottled water market because of high degree of fragmentation. There were small regional producers scattered in different pockets of the country and catering to niche segments. In contrast, it had to fight big players like Pepsi and Coca Cola in the soft drink market.
First brand in this segment The market was very small compared to the soft drinks. It was $189
million compared to $10 billion. In addition to this, there was no brand identification in the market. The focus primarily was only on gaining more shelf-space to increase visibility. Perrier could have concentrated on this segment and through it’s aggressive marketing and distribution, developed a huge market for itself. It could have taken advantage of being the first-mover by being the first national brand in the segment.
People willing to pay more As identified by Bruce Nevins himself, there was a movement towards natural foods due to growing health consciousness. The higher segment of the market was willing to pay substantial premiums for a reputed brand offering quality water.
As mentioned in the beginning, many times companies fail to identify the range of alternatives open to them and, therefore, concentrate on only one strategy – presuming that there is no other way. This is precisely what happened to Source Perrier. None of the three markets that existed, when Source Perrier was about to enter US, were ‘Best Fit’ for the company.
“THE COMPANY SHOULD HAVE IDEALLY CREATED ITS OWN NICHE.”
The company could have positioned Perrier as a premium brand meant for the elite especially health conscious segment. The following observations & facts elucidate this: The product was ‘expensive & exclusive’. It wasn’t really meant for the mass market. Besides the high costs of packaging the company had to face high transportation costs. Glass bottle packing was essential because of the nature of the product (carbonated) and ‘exporting’ was the only strategy that could be used because of the exclusivity of manufacturing or rather ‘sourcing’ of the product. As mentioned formerly the high retail margins also added to the cost.
The product had therapeutic values, which would have opened the option to launch the product in the health segment. About 93% of the health market was selling bottled water at low prices which leaves only 7% at exceptional prices. Source Perrier could have been a market leader in this segment. All the French products including Source Perrier were associated by the US population to the ‘Gourmet’ class. Finally ‘no price cutting’ would enable Perrier to retain high margins.
THE OTHER BLUNDERS
Misunderstood buying behavior According to a study by the European Commission, bottled water has a distinct market and the demand is basically led by brand awareness and health concerns rather than the desire for “low cal” drinks.
Very high cost as compared to soft drinks In spite of applying all possible cost cutting measures Perrier remained 50% costlier as compared to its closest competitors. This was primarily due to the following reasons:
1. Spring and mineral water has to be bottled at the source. Location of bottling plants is therefore subject to a major legal constraint, which manufacturers of soft drinks do not have. Producers of soft drinks can locate their bottling plants according to an adequate balance between economies of scale and transport costs, - rationale water bottlers are not able to follow.
2. Water is a low-value/high-volume product, which in general cannot bear transport costs over long distances.
THE YEAR 1980
Loss of focus
Sales grew rapidly till 1980. However they started falling in 1980 due to high competition from domestic players. A number of competitors started entering the
market. This was the growth phase of the market for bottled water. However, the company misunderstood it as the “maturity” phase. This was a big mistake as the company lost focus.
In order to sustain growth, the company diversified into handling specialized imports and took on Lindt Chocolate and Bonne Mamac. However in 1985, the company realized that the market was not maturing but was actually growing phenomenally.
The US market was highly fragmented due to low entry barriers and high transport cost. This is where Perrier had the opportunity to be distributed nationally because of cheaper shipping cost to various US ports as compared to the local manufacturers.
In 1990, Perrier’s image was tarnished because a few traces of benzene were found in 12 bottles. This led to massive global recall of its bottled water. Perrier recovered within one year in US supermarket sales but sales in restaurant and bars did not recover completely.
However, Perrier recovered its French market share almost immediately after its re-launch. This is due to the following reasons: Food and Drug Administration rules are very strict in the US. FDA required changes in the label – the terms “naturally sparkling water” and “calorie free” had to be dropped. Presence in France since many years and the consequent goodwill among people.
The water used for Perrier production spring comes from two sources. One source is a highly permeable aquifer made up of sand and gravel. The second source is from the limestone areas referred to as the "Garrigue". These waters rise from subterranean pressure to the Nimes fault where they hit against impermeable clays. The third source is a highly mineralized hot water with a high carbonic gas content. It rises from the fracture in the Nimes fault system. According to Perrier's geologist, Dr. Avias from the University of Montpellier, this mineralized carbonic gas rises up, forced to the head spring by volcanic gas and heat. It is in this source that Perrier's consultant identified the benzene. Since 1956, Perrier has collected the gaseous water from drilling into an underground reservoir. In August of 1990, Perrier drilled a second bore hole for additional exploitation of the source water. The water from this bore whole was found to be contaminated with benzene.
In February 1990, 72 million bottles were taken off the market in the USA, after a few traces of benzene were discovered in twelve bottles. Gustave Leven decided to withdraw the entire US production (160 million bottles, then did the same in five other countries (Germany, Canada, Denmark, Japan and Holland), thus destroying a total of 280 million bottles world-wide. In April, Perrier – after ten weeks absence - was back on the market.
"Sustainability" doesn't lend itself well to sound bites. But it's a concept that commands Gaylord Nelson's passion even 30 years after he founded Earth Day. "We have to reduce pollution to the point where nature can manage itself so that future generations receive an ecosystem that is sustainable. We've had two international conferences on it, and every scientist will tell you that the most important challenge we face is sustainability," Nelson said. “It is a simple matter of not using resources beyond their capacity,” he said. One area of concern is The Perrier Group of America's desire to locate pumping and bottling facilities in Mecosta or Osceola counties, a request that has met opposition in Nelson's home state. Nelson said Wisconsin residents fear tapping would harm the natural springs. Besides that, however, Nelson said he disagrees with bottled water sales for the sole reason that it's based on "propaganda and nonsense." According to a report of a Washington, D.C.-based policy research center, Fresh water systems around the world are so environmentally degraded they are losing their ability to support human, animal and plant life. "The findings are very disturbing," said Jonathan Lash, president of the research center. "We're just using way more water than the earth can afford to give us." The report is part of a comprehensive study by the institute on how human activity is changing the world's ecosystems. It was released during the national meeting of the Society of Environmental Journalists at Michigan State University. Only about 1 percent of the water on the planet is fresh water available for human use, Lash said. Agriculture accounts for 93 percent of fresh water use, producing runoff that degrades water quality with silt and chemicals, the report says.
The more water a private company takes from a spring, the less is left for nature. Environmentalists worry that if Perrier consumes too much spring water, it might damage a fragile natural wonder.
SOME FACTS FROM THE COMPANY’S POINT OF VIEW
Both the soft drink and beer industries use more water to produce their products than the bottled water industry does. As unlikely as it seems, it's true. The bottled water industry is a clean industry with little wastewater and comparatively small consumption of water. Take a look at the chart below for the specifics. They might surprise you!
Source: Professor I. A. Shiklomanov -State Hydrological Institute, St. Petersburg, Russia
RECENT UPDATE ABOUT THE PERRIER GROUP
Perrier Group of America, based in Greenwich, Conn., now controls nearly a third of the market, and has five of the top eight brands in the United States, including the No. 2 seller, Arrowhead, distributed in the West. The company's other leading brands include Zephyrhills, Deer Park and Ozarka.
The industry is likely to see increased consolidation, according to Gary Hemphill, vice president of Beverage Marketing. He predicts that Perrier Group will remain among the leaders because of its brands and its low-cost production. But the company faces stiff competition. As sales growth for soft drinks has slowed, the nation's biggest bottlers are putting their marketing and distribution muscle behind their entries in the bottled water field. Pepsi-Cola's Aquafina was launched in 1995 and has become the No. 3 seller; Coca-Cola weighed in last May with Dasani, also off to a fast start. The national brands, bottled at plants throughout the country, are purified waters, as opposed to the Perrier Group's spring waters that are linked to a specific location, lending an aura of authenticity. "For the most part, people are buying refreshment and they're buying purity," Hemphill said.
HIGH TOUCH POSITIONING
In 1991, Source Perrier’s new Chairman Jacques Vincent announced a long-term strategic change for Perrier. Since then, Perrier has been positioned as a very exclusive product to be sold mainly in restaurants. The emphasis is now on creating the image for Perrier as being “lively, refreshing and exclusive” product. Perrier is globally positioned this way. The Perrier Group, with 2000 revenues of $1.67 billion, is comprised of two business segments: retail, and home and office delivery.
Today, the retail business represents 55% of Perrier's revenues and involves extensive distribution in all retail channels. The home & office business, which accounts for the remaining 34% of revenues, distributes their water products to 1.2 million customers spread across 650,000 homes and 550,000 businesses Imports and Canadian businesses, while relatively small, are increasingly important at the Perrier Group. Imports are lead by strong brands such as Perrier and San Pellegrino. Canadian sales have been reinforced by the addition of the Aberfoyle brand to their portfolio as well as the growth of the Canadian club store business. “Indeed, the whole bottled water industry is booming. It is the fastest growing beverage in terms of popularity in the United States, according to industry studies, outpacing soda, fruit juice and beer. In some ways, bottled water's
success has been too much of a good thing, some company owners say. As sales increase, companies such as Perrier hustle to find new sources of water. That can be hard, and it can also anger environmentalists.
The Indian Bottled Water Market & Source Perrier
INDIAN MARKET SCENARIO
In 1967 Bisleri set up a bottling plant for manufacturing and marketing its mineral water but failed. The brand was later sold off to Parle in 1968-69. Mineral water market had its seeding as early as 1968-69 when Parle Group acquired the Bisleri brand from Bisleri of Italy for launching Soda water but later launched bottled water also. The launch at that time was a big flop as concept of buying water that too in bottled form was not accepted by the Indian public. The market remained dormant for quite long (for a period of 20 years or so). The market through out this period was formed only by the premium products that too available through 5-star hotels. In early 1990s with onset of liberalization policy by the Indian government, coming in of cola majors, sell off of local soft drink brands of Campa, Thumps up, Gold Spot etc by Parle to Coke and other factors led Bisleri to test waters again. Bisleri re-launched its bottled water in 1994. By this time with exposure of media and exposure to international life styles, deteriorating levels of potable water, increase in a number of water borne cases, increase in awareness about health and hygiene and other related factors led to acceptability of concept of mineral water. The market has not looked back ever since then and has grown leaps and bounds to such an extent that a number of genuine as well as fly-by -night operators have entered it to milch it.
The market initially had only one SKU of 1 liter this was followed a by a number of smaller and bigger SKUs. Based on these SKUs we can divide the entire market into two segments:
− Retail consumption market − Household & Institutional consumption market
Each of these consumption markets has a number of SKUs under it. Some of the most consumed SKUs in retail market are 500ml, 1 liter, 1.2 liter, 1.5 liters, 2 liters, and 5 liters. Recently many of the bottled water companies have launched 330ml (or even smaller) pack targeted against 330ml pack size of soft drinks especially the aluminum-can drinkers.
The institution market is largely constituted hotel industry, caterers, offices, parties, tourism, hospitals etc. The SKUs that are available in this market are 10 liters and besides this we have pack size of 250ml plastic cups.
by the travel,
The market can also be divided on the basis of the price at which this bottled water is available into three categories: − Super premium mineral water − Premium local natural mineral water − Popular or plain bottled water
Presently, Evian of Danone group; Perrier and San-Pellegrino of Nestle belong to super premium category. Catch, Himalayan, Brilliant etc. belong to premium local natural mineral water category. All other brands like Bisleri, Bailley, Kinley, AquaFina etc. belong to popular or plain bottled water category.
MARKET SIZE AND GROWTH RATE:
The mineral water market is still maintaining the pace at which it has been growing over past few years. The market is witnessing launch of a number of player with every passing day. Presently the market is skewed towards regional players and has more than 250 players in the fray. Besides these we have a number of fly-by-night operators who enter the market in summers, reap benefits by packaging tap water and selling as pure mineral water, and then leave once the season is over. The problem in the market is not with the players but with the consumers. Poverty levels, illiteracy has led these players to take full advantage of consumers by selling even the tap water as mineral water. The fault also lies with the government for being lackadaisical in setting up norms for entry into the industry and also for being lackadaisical in taking proper care of health of its public.
Total bottled market has a size of Rs11-12bn of this around Rs7bn is in the hands of organized sector and rest is with unorganized sector. In the organized sector Bisleri is the market leader with 45% market share followed by Bailey with 2324% market share. PepsiCo and Coca-Cola too have market share in the range of 8-9% individually. Rest of the organized market is well distributed among small regional players. The market for the past three years has been growing at unimaginable rates of more than 80%, this can be explained on account of the lower base of previous years. This strong double digit growth rate of the industry has attracted a number of global players in the market In the recent past some the major players like Coke, PepsiCo have launched their products in the market. Many more like Nestle, Britannia, HLL have evinced interest in the market. With changing consumer preferences from carbonated drinks towards bottled water the growth rate is expected to stabilize at 25-30 % for next 4-5 years.
The bottled water industry has two other industries as its biggest competitors in from of Water purifiers industry the soft drinks industry. Though the purifier industry should be credited have done the spadework, for setting up the foundation of bottled industry but still it acts in as the water and water to
consumption market and the soft drinks market is a strong rather very strong competitor in the retail consumption market.
Presently most of the players in the Indian market are selling their product claiming it to be mineral water. All the players are vying to grab a few points of market share and they are trying to get their brands endorsed by some or other authority. Recently Coca-Cola has got its brand, Kinley, endorsed by the Federation of Family Physicians Associations of India (FFPAI) to create an image of being recommended by doctors and thus of the product being safe and healthy.
Similarly other companies do claim to have purified their water "n" number of times to show the superiority of their product. Many players are pitching their product against water purifier industry by claiming their product to be superior to that purified by these water purifiers. Many players are marketing on the price
factor as well as the size factor. While others are focusing on particular target segment.
PepsiCo: Pepsi has AquaFina brand of mineral water in the market. The company entered into bottled water business in September '99 the company has targeted its product towards youth segment and has so far focuses only on one SKU, that too 750ml. Though the company is present only in selected market as of now, it has plans of increasing share in the market by expanding its SKUs portfolio as well as its distribution reach.
Coca-Cola: The company has entered in the business in May'00 through its brand, Kinley. The Kinley brand is already being used for its soda water. The company has tied up with Kothari Beverages, of Yes brand of mineral water, for manufacturing coke's brand at Yes' facilities.
Bailley: The brand is a product of Parle Agro, the company of Frooti fame. The company presently is the second largest player in the market with share of 20%. The company has recently extended its Bailley brand name for its soda water. It is also credited with forming a new segment of 330ml SKU in the market.
Bisleri: The brand is a product of Parle International and presently is the market leader with more than 45% market share. The company pioneered the concept of bottled water in the Indian market as early as 1967. The company is also credited with SKUs of 500ml, 1.2 lts, 1.5 lts and 2 lts in the Indian market.
Other players in the market with strong regional presence are: Brilliant, Yes, Hello, Purette, Fountain, Himalayan, Golden Eagle, Prime, Pure Natural Aqua, Ganga, Florida, Metro etc
The PFA rule on mineral water is that it must be free from dirt, foreign matter or any other ingredients injurious to health and has to be packed in clean and sterile containers.
The Bureau of Indian Standards (BIS) has provided standards for both drinking water and mineral water but compliance of these standards till now was voluntary.
To regulate the quality and price of bottled water, BIS approval has been made mandatory w.e.f. end of 1999. Mineral water shall be packed in clean, colorless, transparent and tamper-proof bottles made of polyethylene conforming to the IS 10146 standards. The standards laid down under PFA Act do not prescribe any minimum quantity of minerals to qualify as mineral water.
Hitherto Indian laws do not stipulate the minimum mineral content level required for water to be labeled as a mineral water. The BIS does not lay down any guideline or practice for processing water. There is no specific industrial licensing policy for the bottled-water sector. Thus any one can set up a plant can do so without establishing the source of the water and the technology used to purify it. Both the PFA Act and BIS state that the water must be completely free of bacteria like salmonella, E-coli, faecal streptococci, v. cholera and shigella that
cause a range of illnesses such as cholera, typhoid, dysentery and various types of gastro-enteritis.
Both the PFA and BIS lay down standards for metals like lead, mercury, arsenic, aluminum and barium which cause a range of disorders. The BIS lays down a minimum of 150mg/l and a maximum of 700 mg/l of TDS for mineral water. The PFA rules do not prescribe any minimum TDS levels but does mention the maximum of 1500mg/l. There are no government laboratories for testing water samples for all the parameters involved.
ABOUT NESTLE INDIA
Nestle was promoted by Nestle Alimentana, Switzerland, a wholly owned subsidiary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the oldest food MNC operating in India, with a presence of over a century. For a long time, Nestle India’s operations were restricted to importing and trading of condensed milk and infant food. Nestle was incorporated as a limited company in 1959. In 1978, the Company issued 0.4mn new shares and 0.38m of existing shares of Nestle Holdings Ltd. to Indian public to reduce its foreign holdings to 40%. Its name was changed from Foods Specialties Ltd. to the current name in 1981. Over the years, the Company expanded its product range with new products in instant coffee, Maggie noodles, sauces, pickles and other culinary aids, chocolates and confectionery.
ENTRY STRATEGY IN INDIA
Nestle India, had announced its entry into the Rs 300-crore Indian mineral water market with the launch of its premier brand Perrier, in Delhi and Mumbai. This launch of the food major was later followed by launch of its bottled water brand Nestle Pure Life-targeted at the mass market-during the previous year. Nestle expected to sell about half-a-million bottles of Perrier every year though it maintained that Perrier is not a volume or market share game.
``Perrier strategy is not mass market, the market share gain will come from Pure Life,'' Nestle India's Spokesperson was reported quoting on
While Perrier was imported from its source in Verges in the south of France, Pure Life bottled water was manufactured in the country. Available in the iconic pearshaped green bottle, Perrier priced at Rs 55 for a 330ml and Rs 90 for a 750ml was clearly targeted at the premium end. However, the premium segment of the Rs 300-crore mineral water is estimated to be a tiny Rs 1 crore with a single brand Danon's Evian brand marketed by Britannia. Nestle, planed to differentiate itself from Evian or any other brand as Perrier's competitor by presenting Perrier as the only mineral water of its kind in the country.
Owing to its premium positioning, Perrier's launch was limited to select cities only. The brand was launched in Bangalore initially. According to the Brand Manager for Specialty Imports, Mr. Siddharth Apaya, ``a latent demand exists for these premium products in the cosmopolitan cities and we want to provide a
genuine Nestle product.'' The product was made available in select outlets. The marketing thrust was on institutional sales, especially in the hospitality sector.
The company did not intend to advertise the Perrier brand immediately but planned to embark on a relationship building exercise with its core target audience. The first such initiative was flagged off on June 17 in Delhi where it was announcing its association with golf through an event-Perrier Invitation Golf 2000. The event was particularly targeted at the hospitality industry and the diplomatic corps amongst others. Globally, Perrier has been actively involved with tennis and has been associated with French Open, Wimbledon and the Olympics since 1928.
The mineral water market is pretty crowded with as many as 114 brands. Parle's two brands Bisleri and Bailey are currently dominating the market with the two commanding 81 per cent market share, the rest-19 per cent-is shared by other small brands. Pepsi, has recently entered the market with its Aquafina brand
For its entry in India, Perrier will have to export its water from France. With their worldwide positioning in the premium segment market, it will be logical for Nestle, to position Perrier in the same segment in India. Since the company was embarking on a relationship building exercise with its core target audience, in order to create a market for the product, Nestle could do the following
Establish a strong distribution network through direct sales force reaching the hospitality sector and supplying to hotels, restaurants, airlines, clubs and high-end super markets in cosmopolitan cities.
Awareness of the brand can be done by direct mailers of impressive catalogues to potential customers.
Syndicate articles in airlines, etc. can also increase awareness Press releases and articles informing the customer about the product can be published in magazines.
Sponsoring events to reach the target segment like sponsoring Golf tournaments, Derby, etc. which they are already practicing
The company should also target foreign officials and tourists who are aware of Perrier and may create a demand for it.
Hitherto under Indian laws the there were standards or norms only for mineral water and even the standards set under PFA or BIS were very different from those in the international markets. But now government has set norms separately for natural mineral water and packaged drinking water in accordance with the international standards.
Internationally the standards for drinking water that have to complied by, by the bottled water manufacturers to ensure quality of their products are HACCP (Hazard Analysis Critical Control Points). Though Indian companies in the mineral water business are complying with these standards for exports but due to lack of mandatory conditions in domestic markets, companies are lax.
As per the notification of October'00 there are 48 specifications to be met for any water to be called mineral water while for packaged drinking water there are 43 such specifications to be complied with.
Some of the specifications as per the notification (effective from April'01): − The location of packaging should be close to the source or place of origin of water. − Only water obtained directly from natural or drilled underground sources can be sold as mineral water. − For water to be called mineral water it should also not be subjected to any chemical treatment. − For water to be categorized as packaged bottle water, it can be sourced from any place.
− The water has to be treated and disinfected in accordance with specifications for it to be categorized as packaged bottle water. − Till December'00 only six players have applied for license for packaged drinking water and no company has applied for a license in mineral water category. But around 16 applications in packaged water category and 6 applications in the mineral water category are still in the pipeline.
THE SHOCK WAVE
The latest Ministry of Health (MoH) notification [No. GSR759(E)}, made it mandatory for all packaged and mineral drinking water to sport the ISI (Indian Standards Institute) mark.
The notification was essentially to bring a semblance of order into the packaged water industry. The notification had laid out requirement parameters for packaged and mineral water, carbonated water was merely defined. “In the absence of requirement parameters for carbonated water, the segment is required to adhere to the mineral water standards, as it was packaged without treatment after extracting from the source.” Carbonated water is unable to meet some of the standards laid down by the notification for packaged water -- like the PH stipulation (6.5 to 8.5). Carbonated water, from Nestle for instance, has PH a little less than prescribed for packaged water by the notification. If imported carbonated water is to sport the ISI mark, it would first require that BIS officials check the source. This would mean Italy for San Pellegrino and France for Perrier. But the products will still not meet the PH stipulations, unless different stipulations are laid out for the carbonated water segment. And while carbonated soft drinks are allowed, it is unfair to block out carbonated water, which is essentially sought after by tourists. Nestle is not the only one affected. Danone Group was on its was to launch its Carbonated water brand Farrarelle. The launch now would have to wait until the Ministry becomes a little generous. The two companies have found that they were unable to further import carbonated water as a result of some of the stipulations in the notification that came into effect in March this year.
Nestle and Danone have made a joint representation to the Health Ministry and the Bureau of Indian Standards (BIS) seeking different parameters for carbonated water, as against the present status, where they have to adhere to parameters laid out for packaged drinking/mineral water. The argument put by them is “these products are very important and are packed at natural sources and under conditions which guarantee the original, chemical and microbiological purity.” The appeal was signed by the Executive Vice President of Nestle India and Area Manager South Asia of Danone Group.
Industry analysts are sure about a favorable verdict.
While the unimaginable growth rates of more than 60% and even 100% can be explained due to lower base the present growth rate of 25-30% is sustainable for another 5-6 years. Today the demand of bottled water is increasing at a much higher rate that that of carbonated soft drinks. The market size of bottled water too is expected to surpass the size of soft drinks market in near future.
The last entry in the bottled water market was Nestle. It launched its premium brands Perrier and San Pellegrino in Mid-1999. Nestle also launched its massmarket brand Pure-Life early in 2001 after having tasted success with it in developing countries like Pakistan and Mexico
Britannia too evinced some initial interest in the market but now seems to have postponed its plans. They are concentrating on marketing Evian- a brand of the Danone group. Danone Group as mentioned earlier intends to launch it’s carbonated water brand ‘Farrarelle’ very soon.
The next in queue seems to be HLL, which too has identified the bottled water as a growth area for future. The company is presently looking for some suitable brand for acquisition. The existing players too are set to expand their distribution network to have their presence across the country. The market is also expected to undergo a major consolidation phase. As one of the major factors that are important for success in the market is the distribution network, the players with deep pockets are expected to go for acquisition of existing small regional players to spread their network across the country. Already Coke has tied up with Yes for manufacturing of its brands in areas where it doesn’t have presence. Though
Coke and Pepsi have both, well established distribution network as well as bottling & manufacturing plants, they seem to be at an advantage, but players like HLL and Nestle with strong financial muscle can easily turn the tables in their favor through acquisition. It is expected that the market would continue to grow at a healthy rate of 25-30% for few years from now and the market size too, is expected to increase to Rs17 billion by 2004-5.
Though many people claim water to be a resource which should be available to them for free, there are more than those ‘many’ people who are ready to buy it. With all these statistics and data we can definitely conclude that the future of Bottled Waters Certainly looks bright.
“So lletts driink tto tthe Success off tthe Watter IIndusttry!!!” “So e s dr nk o he Success o he Wa er ndus ry ”
International Business - Environments and Operations John. D. Daniels, Lee. H. Radebaugh Global Marketing Management Warren J Keegan International marketing - A Global perspective Hans Muhlbacher, Lee Dahringer, Helmuth Leihs
WEBSITES VISITED FOR THE PROJECT
www.perrier.com www.google.com http://www.saveamericaswater.com/news.html http://www.friendsofthemecan.com/perrier.html abcnews.go.com archive.davin.ottawa.on.ca auto.search.msn.com www.bottledwaterweb.com www.citt.gc.ca www.clui.org www.detnews.com www.fft.fr www.friendsofthemecan.com www.grmlive.com www.jsonline.com http://www.wri.org www.saveamericeswater.com www.washingtonpost.com www.perrierusa.com www.doi.gov www.ciionline.org
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