Case Study #1
Competition in the Bottled Water Industry in 2006
Bottle water is one of the most attractive industry in the beverage categories. One of the reason for this industry so attractive is because people can’t live without water. Bottle water had been widely consumed in Western Europe and Mexico since 1990s. At that time, bottle water in the US is consider of novelty or prestige product. Since 1990s this product had grown in popularity and had allowed the US to become one of the largest market for bottle water. In 2004, the United States bottled water market generated total revenues of $6 billion, representing a compound annual growth rate (CAGR) of 8.2% between 1999-2004. The Rivalry of the US bottle water turn out to be Coca-Cola, Nestle, PepsiCo, and other small regional seller.
As mention above for the rivalry Nestle, Coca-Cola (Danone), and PepsiCo are always on the top for compete with each other. By acquiring many smaller regional brand, Nestle has become the world largest seller of bottle water. Nestle compete with other brand by offered the price for 24 pack of bottle water degree decrease every year with $5.89 in 2003, $5.17 in 2004, and $5.10 in 2005. While PepsiCo price is not constant going up and down from 2003 to 2005. However, it price show that it still doing better than Coca-Cola (Danone) with the price going up and down with a huge number and it still more expensive than Nestle, and PepsiCo; $5.80 of Coca-Cola in compare to $5.10 of Nestle and $5.01 of PepsiCo in 2005. So, it’s clear that Nestle is the Strongest, and come in second is PepsiCo, and last is Coca-Cola. The market share in 2006 also so that Nestle is leading the US market with 30.5%, and PepsiCo in second with 13.8% and come in last is Coca-Cola with 11.9%.
Buyer Power in bottle water industry is consider to be moderate. Strong brand like Nestle, PepsiCo, Coca-Cola (Danone) is favored by the retailers. Because they want to sell the brand that is popular to the customer, so the consumer don’t have much choice. That’s why the buyer power has been weaken. Also brand like PepsiCo and Coca-Cola has more advantage because of their cola drink. People could find the vending machine all over the place like school, stadium, and other public place that sale PepsiCo and Coca-Cola’s products. By using their beverage distribution system, they could easily introduce their bottle water brand like Aquafina or Dasani to the consumer.
Supplier bargaining power is consider to be high. Company don’t own land that has aquifer suitable for exploitation then they could make the competing between manufacture that sell thing like bottle, label, packaging supplies, and even water. The company that product PET bottle could compete with each other by selling bottle to large bottle water company at the price of 5 cents per bottle, and in comparison with the price that they sell to the regional bottle water company as 15 cents per bottle. Not only bottle manufacture compete with each other but also the manufacture that selling equipment to purify the water, filling bottles. Some bottle water companies that couldn’t acquire the spring water also need to buy water from other companies. The price ranged from $20,000 to $30,000.
Entry Barriers could consider low to moderate. As I mention above retailer like to favor the brand that is well-know, so it’s difficult to convince part of the retailers to put new brand on the shelf, unless they show a promising potential like lower price than other big brand. However, that thing is not really possible because as I said before the price for the raw material of small brand is higher than big brand, so they could compete in price. However, as the growth rate of the US market within a recent year should encourage new entrants. Because when the demand is increasing and the big brand like Nestle or PepsiCo couldn’t handle it then the new entrants will got a chance to