Parle Agro Mineral Water

In 1993, when Prakash Chauhan’s Parle Agro entered the mineral water market with its brand, Bailley, market analysts
thought it fit to keep their fingers crossed about its prospects. For one, the concept of bottled mineral water was not
well established, with usages restricted to foreign tourists and jet-setting Indians. On the other, for whatever the market
was worth, it was firmly within the stranglehold of Bisleri, owned by brother Ramesh Chauhan’s Parle Exports. Bisleri
enjoyed a clear first-mover advantage and was on its way to assume the generic brand status in a 3.5 million-case
market (estimated at 36 crores).
For Prakash Chauhan, however, the market presented a very clear opportunity. Parle Agro had two well-entrenched
brands in its portfolio, Frooti and Appy, which occupied leadership positions in the tetra packed fruit drinks market
with a combined share of over 90 per cent. That meant that the distribution system was already in place and the new
brand of bottled water from the same stable would have a readymade network of outlets throughout the country.
Second, with very little investment required in terms of technology or infrastructure, the entry barriers were not very
difficult to overcome.
However, as a new entrant, Bailley’s task was formidable. Through the 1970s and 1980s, the mineral water category
was a virtual, with only a handful of players catering to the sporadic demands of an equally small audience comprising
travellers and a few affluent consumers. According to some estimates, travellers then accounted for 80 per cent of the
sales volume. Research findings corroborated the fact that people associated the consumption of mineral water with
foreign tourists, who were wary of consuming contaminated water. But for the average traveller, the price tag of ` 8-9
for a 1-litre bottle appeared unreasonable for a product which could be had for free and for which he had no clear need.
Instead, most travellers carried their own water bottles. In any case, even though the concept of water filters had made
its way into people’s homes, the idea of carrying hygienic drinking water outside of home was accorded very low
priority. Instead, travellers were quite content to consume tap water at railway stations or restaurants located near bus
stops.
The biggest barrier was the high recall that Bisleri enjoyed. So much so that consumers who went to buy mineral water
would actually walk up to the retail counter and say: “Ek Bisleri Dena.” (Give me a bottle of Bisleri). Or even when
the consumer did ask for a particular mineral water brand, the retailer would fish out whichever brand he had in stock
and hand it over to the consumer. In essence, the brand awareness was low, and apart from localised competition, the
small size of the market did not grant enough space for another national player to join the fray.
To thrive in such a scenario, the company had to expand the market. Here, new entrants and relatively smaller players
were at a disadvantage because freight costs claimed a large part of the operating expenses, at times as high as 30–40
per cent of the total cost. Maintaining an efficient delivery system required both high volumes and investment in
infrastructure. But raking in the volumes in a category where the scope for brand differentiation was low presented
another formidable barrier.
Despite these barriers, when Parle Agro began exploring the market in detail, it realized that with increasing health
consciousness the market was poised for a take-off. Added to that was the prospect of increasing tourist traffic, both
domestic and foreign. But the existing capacities were not quite enough to serve the steadily increasing demand.
Since Parle Export’s Bisleri was so strongly identified with the category, Parle Agro took great care to brand its new
product carefully. Without being radically different, the company chose a name that was slightly anglicised to project
a more upmarket image. The company also figured that the consumer took a little more time to articulate the name,
which in turn made sure that recalling the name would be so much easier. But more than just the brand name, the
company realised that to penetrate the market effectively, an efficient distribution system and competitive freight costs
were important.
Bailley had learnt important lessons from the Bisleri experiment. Parle Exports’ distribution system started out with
its bottling plant in Mumbai. Later, it went ahead and added 11 more franchisees who had their own bottling plants in
the metros and a few mini-metros. While this restricted the spread, it also resulted in a lopsided cost structure because
the freight and handling costs to survive in the interior markets proved sufficiently prohibitive.
Parle Agro had a very clear game plan from the beginning. One thing was clear: distribution was the key to success.
Mineral water being a logistics business and a voluminous item, transportation was expensive. Therefore, it was
 Parle Agro Mineral Water

essential to locate plants across the country. But that was an expensive proposition. Also, differing sales tax, excise,
and octroi rates across states makes it difficult to have uniform national pricing. A network of franchisees that was
widely spread out was the only way to things would work.
Parle Agro established franchisees near the markets that it identified to attack. This meant they had to limit their focus
to only a few markets initially. But that was fine for the company, as long as the freight cost was kept to the barest
minimum. This structure also ensured that Bailley had shorter replenishment cycles and lower inventories for the
plants. While Bisleri reverted to the same route later, Parle Agro simply doubled the number of franchisees. This
allowed Bailley to penetrate the market quickly. All these franchisees were expected to set up PET bottle
manufacturing facilities at the bottling plant as well. This was because packaging costs – bottle, pilfer-proof cap and
so on – made up some 40 per cent of the total costs. This also did away with the uncertainty of bottle supply.
Parle Agro also decided to differentiate Bailley in terms of bottle design, since there was very little scope for
differentiation in the product itself. Mineral water bottles, irrespective of brand, are made through the process of blow
moulding. Since the preform-supplier of all those bottles was the same, all the mineral water brands available in the
market had an identical design. To stand out, Parle Agro decided to standardise preform and cap designs for Bailley.
The company set up a preform plant at Silvassa, which produced these moulds from PET granules that it buys from
Reliance. These moulds are small test-tube like structures, which are sent to bottling facilities where they are blown,
filled, and dispatched.
Initially, the company introduced two pack sizes. 500 ml bottle was priced at ` 5 and was meant to induce trials, and
was also most convenient for the individual traveller. The 1-litre bottle was initially meant to spell safety and security
for ‘integrated consumers’ who were genuinely into health and fitness. Thereafter, it was placed on the prestige
platform for the achiever segment – those who like to make a fashion statement by drinking mineral water. The prestige
aspect was fully exploited when the Bailley team hit upon the idea of exploring the wedding market. While caterers
had reservations about whether the host would pick up the tab for water, Bailley salesmen did a fair amount of direct
servicing to set the ball rolling. This has now turned out to be one of the fastest growing segments.
Side by side, Parle Agro’s sales team also established franchisee networks in relatively inaccessible places such as
Guwahati, Palghat, Jaipur, and Belgaum, which gave the company access to remote markets.
Another advantage was that while attacking these markets, the threat of any immediate retaliatory action from Bisleri
was minimised. That was mainly because Bisleri was quite well established in the metros and such low-volume fringe
markets were of very little interest to the company. Moreover, at the time Parle Exports was determined on paring
down its investments on the mineral water brand and was content to let it piggyback on its existing soft drinks network.
After the task of cracking the market open was through, Parle Agro devoted all its energies to exploit the non-traditional
routes of increasing distribution width. It tied up with various long-distance bus operators who kept stocks of Bailley
on board. A small incentive was given to bus operators and conductors to push the brand. The company also sought
out restaurants or dhabas on Mumbai–Pune and Nasik– Pune route which had been neglected by other players. The
company encouraged stockists to service these outlets, especially restaurants at which buses made their day or night-
time halts.
Typically, the interior markets had far more players than could be accommodated. To fight the regional players, Parle
Agro used a two-pronged approach at the outlet level. It offered better service cycles and better product quality.
In some cases, the company also resorted to an ingenious retail monitoring system, the Agro Retail Barometer to
identify those outlets where competitive brands were not moving fast, so that the company could seize the opportunity
to persuade the retailer to stock Bailley instead and push it.
Despite its aggressive stance, the Delhi market eluded Bailley for a long time. That was because it faced major
problems in getting its franchisee set-up in Delhi right. While Bailley was widely available in the markets of Jammu
and Uttar Pradesh, till December last year Parle Agro was not able to fix a big enough franchisee which would be able
to service Delhi and adjacent towns. Despite that, till about a year back, Parle Agro was able to command a 20 per
cent share nationally (against Bisleri’s 45 per cent) with its persistent attempts to crack the areas that the leader
wouldn’t dare.
 Parle Agro Mineral Water

The company’s aggressive marketing strategy seems to have paid off. For one, it successfully broke the monopoly of
Bisleri and is now the leader in a number of regions including Maharashtra (especially Mumbai), Gujarat, West Bengal,
Karnataka, and Goa, and a close second in many others. With a total production capacity of 120 million bottles per
year, Parle Agro has mainly targeted towns with populations of more than one lakh, although Bailley is also available
in towns with populations less than 50,000. Being a lowmargin business, the company hasn’t spent any money and
effort on mass media advertising but has concentrated on educating consumers on the use of pure, hygienic water
through direct mailers and other media. Participation in corporate events also gives it a lot of mileage and the brand is
patronised by corporates such as the Taj Group of Hotels and Jet Airways.
But the main reason for Bailey’s success has been the strength of its franchisee network. Following the example of the
West, the company realised that the best growth strategy is not one that entails extra space, capital investments and
added manpower, but franchising. Franchised operations provided it a quick expansion route, while keeping costs low
and profitability high, and at the same time ensured deeper penetration and easy accessibility. Parle Agro now has a
network of 18 franchisees. With regular monitoring of its decentralized operations and strict checks on quality, Parle
Agro provides the overall expertise, cashing in on the local franchise’s understanding of his area.
Today, the mineral water business has grown to a healthy ` 500 crore and is growing at a phenomenal rate of more
than 50 per cent. Of this, unorganised sector players constitute about 40 per cent. Till four years ago, the market had
only two national players; today, more than 168 are jostling for shelf space.
According to industry sources, a new label is launched every three months and one existing player recedes into
oblivion. For all practical purposes, Bisleri and Bailley today dominate the organised sector. Bisleri leads the pack
with a 40 per cent share by value. Bailley is a 60-crore brand and is the No. 2 player with a share of 22 per cent. In
percentage terms, the brand is growing faster than the category, claims the company.
But the fact remains that even to this day, about 76 per cent of the mineral water consumption in the country is by
travellers, and bottled water hasn’t made inroads into middle class homes yet. For Bailley too, the biggest segment of
consumers is that of travellers, followed by institutions and tourists. According to the company, the mineral water
consumer is attracted by the benefits of easy accessibility, purity, and hygiene and only a small segment of consumers
have evolved to the level of being loyalists of good brands.
The mineral water consumer is typically in the 25–35-years age group and is an educated, evolved person from SEC
A and B.
The consumption pattern is changing, though. Mineral water is now served on trains, airlines, and parties. Besides the
standard I litre bottle, Parle Agro has introduced bigger pack sizes to cater to a variety of needs. Bailley is available in
I litre, 1.5 litre and 500 ml bottles, 20 litre jars and 200 ml glasses. The one-litre bottle sells the most.
While new players are making a beeline for this industry every day, hygiene continues to be the main plank of most
brands. Worldwide, mineral water stands fortified with genuine minerals. However, it is different in India, since the
Bureau of Indian Standards hasn’t laid down any specifications. So what is predominantly available is purified water.
Even techniques such as ozonisation and reverse osmosis are used only by a handful.
Questions:
1. Study the case and identify major issues related to studying competition, as Parle Agro did.
2. What weaknesses of the competitor helped Parle Agro establish Bailley?
3. What is the typical profile of a mineral water consumer?
4. How do consumers shop for mineral water? What implications does it have for its distribution?