5. All About Stan Job in investment banking sector of Citicorp Back from a trip to Iceland and impressed by its great tasting water, he wondered if he could sell it in the U.S.A.
8. 70% of bottled water consumers are located mainly in California, Texas, Florida, New York and Arizona. CALIFORNIA consumes the most! Water in the U.S.A.
The amount of minerals in water determines its relative pH. Water with more minerals (normally commercial bottled water) tends to have a higher pH as it contains more solids, i.e. manganese calcium. Water with a pH lower than 7 (neutral level) is classified as soft and tends to be tap water.
Source: Mintel’s estimates based on: Bureau of Labor Statistics, Consumer Expenditure Surveys, Information Resource, Inc. InfoScan Reviews. The data above does not include milk. Carbonated drinks and juice drinks make up approximately 50% of the market.
Consumption of bottled water increased 25 times from 1976-2007. In 7 years from ‘00-’07, sales increased by 87%.
Source: Mintel/Beverage Marketing Crop./Beverage World Carbonated beverage: Decline in the consumption of this type of beverage. May be due to increasing concerns of sugar levels and health risks tied to obesity. Bottled Water: Sales of bottled water increased by $1.7 billion from 2005-2007. There is a gradual increase in consumption of bottled water with a 5.7% increase in consumption from 2005-2006. This rise is the second highest of the three types of drinks falling only 4.1% behind the percentage increase in sports drinks (9.8% increase in consumption).
Source: Mintel/Beverage Marketing Crop./Beverage World Sports Drinks: Over the five years shown there is a steady rise in the consumption of sport drinks. However, there have been vast fluctuations in the gallons consumed on a yearly basis. Experienced a dip in growth of sales from 2003-2004 due to increased awareness of the sugar content in sport drinks. With the introduction of ‘diet’ and healthier options, growth in sales drastically increased. All Three Types of Beverages: The gallons consumed per capita/year is highest for carbonated drinks; however future trends must be analyzed to determine if this is a downward trend. The consumption of bottled water seems promising and is higher than sport drinks. However, the growth of sport drinks consumption is higher and forecasts may reveal if it will overtake bottled water consumption.
Source: Mintel/Beverage Marketing Crop./Beverage World Bottled Water sales are expected to increase to $15.3 billion in 2011, marking a 21% increase from 2008. Sport Energy drinks will experience a rapid decrease in sales in 2010 due to recessionary pressures. With falling disposable incomes consumers have shifted their purchases from premium priced sport drinks to cheaper and healthier options, i.e. bottled water, tea. For example, ‘Ocean Spray introduced a line of Cranergy Energy Drinks billed as “naturally energizing.” This line of drinks contains real fruit juice blended with natural energizers including five B Vitamins, Vitamin C and green tea extract. These new non-carbonated drinks are clinically shown to improve alertness and make people feel less tired. Bazza High-Energy Tea is another new energy-inducing beverage made from green tea and EGCG antioxidants and calls itself the “smarter high-energy alternative.” http://www.mintel.com/press-centre/press-releases/386/energy-drink-ingredients-continue-down-unhealthy-path Gatorade experienced drastic fall in sales as it lost many of its ‘casual’ consumers. (http://www.beveragedaily.com/Markets/Sports-drinks-suffer-sales-volume-slump-in-US) The rapid increase following 2010 may be due to the introduction of ‘Power Drinks’, small but potent caffeinated drinks that provide energy boosts. The demand for such have doubled from 2010 and sales are expected to be $700 million. http://www.nytimes.com/2009/07/11/business/11energy.html?pagewanted=all Overall, Bottled water is the second most popular drink in 2011, helped by the launch of Vitamin water. This is closely followed by Juice and Sport/Energy drinks which may be the biggest form of competition.
Source: Beverage Marketing Corporation Non-Sparkling water holds the largest share of the market. The most popular type is PET still water. It includes the convenient transportable 20 ounce water bottles.
Interesting to note that total sales is similar to sales of Non-sparkling water as it dominates the market. Consumers cited the portability of this healthy drink as the main reason for their purchase. Sparkling water’s sales fell by 6% and mineral by 2% between 2006-2008. it fell mainly due to rising prices and consumers have shifted to cheaper PET bottles that are sold in case packs. Households have started to consume tap water because of the increase in quality (heavy regulation for filtration and chemical standards) and its affordability. Bottled water manufacturers tend to lobby the government for lower standards as it lowers their cost. This poses a serious threat to consumers due to mass consumption of bottled water. The Natural Resource Defense Council stated that most bottled water is safe. However, a few brands had traces of contaminates above state level that if consumed over a long period of time could pose health risks in the future i.e. cancer. Also, threat of plastics (phthalates) that seep into plastic and glass water stored in bottles for 10 weeks. It is assumed that such come from the bottle cap. There are standards are set by regulatory board but a legal standard is not set as the industry lobbied the FDA from setting such. http://www.nrdc.org/water/drinking/qbw.asp There has been a demand for enhanced water, for their high vitamin, low calorie content however sales are starting to plummet in 2011 as consumers are shifting to healthier drinks i.e. natural based teas. http://www.csnews.com/top-story-bottled_water_sales_rebound_in_2010-57928.html Imports have risen by 35% from 2000-2007, however growth has leveled off in 2007.
In the US, factors that affect the importing decision include competitors from other countries and domestic competitors, the economic downturn of 2008 and the recession which affected consumer behavior, new government regulations at the federal and state level that affect bottlers, and environmental aspects of selling bottled water.
The leading country that currently exports water to the United States is France, which accounts for a quarter of imported bottled water in US market. France used to account for half of all bottled water imports but has seen its relative standing in market share decline over the years. This decline is attributed to other countries such as Canada that have increased their exports of bottled water. Iceland, which is currently ranked eighth in bottled water exports to the US, holds a very tiny percentage of the market shares, 0.6 to be specific. In addition to competition from foreign countries in the market for bottled water, there are also domestic businesses which account for a large chunk of those markets. Three big producers of bottled water in the US are Nestle, Coca-Cola and PepsiCo. Nestle and Coca-Cola products account for half of the market share of bottled water. Nestle’s sales are driven several brands such as Poland springs and Nestle Pure Life. Coca-Cola’s market share in bottled water is mainly comprised of Dasani and Evian, while the market share for PepsiCo is driven by its Aquafina brand. Together the three big producer’s of bottled water almost 75% of the market share in the US. Even though imports of bottled water rose during the 2000’s year, Icelandic bottled water accounts for a very small portion of the market share of those imports, making the venture difficult to enter and thrive in.
Even though projections of bottled water consumption is speculated to grow by 12% in the next five years, many industrial experts believe that the 2008 financial crisis may decrease consumption in the years to come; this is evident by sales figures which grew by half a percent in the years after 2008. Falls in disposable income of people in the US has also signified that sales of bottled water might fall because people are more inclined to opt of a cheaper alternative such as tap water (MSNBC).
The bottled water industry in the United States is regulated and controlled on two levels, one being the state and the other the federal government. Some states currently are lax on regulations and are not concerned with the water bottling businesses; the same cannot be said for other states, these states impose even stricter regulations on bottled water standards. On a federal level the water bottling industry is controlled by two federal organizations. The EPA and the FDA, the FDA being the important of the latter. Since bottled water is considered food it is regulated by the FDA and must adhere to regulations with regards to consumption, process and distribution. Failure to comply with the FDA’s regulations can lead to heavy fines for a business. The FDA also requires bottled water producer’s to keep water test records on hand for a period of no less than 2 years, and requires bottlers to source their water to avoid false advertising of their product.
One drawback of using PET water bottles is that most of these type of plastic water bottles end up in landfill and a very small percentage of them are feasibly recycled. Another problem with using plastic bottles is that the business comes under fire from groups that state that these types of bottle result in environmental degradation and this in turn can affect sales of such bottles. Despite trying to entice consumers, by using “eco-friendly” shaped bottles many manufactures have to deal with criticism from environmentalists who state that glass or decomposable bottle’s made from corn starch might be a more sustainable alternative.
Factor ’ s that affect the decision to import from Iceland include government restrictions to export, rules on setting joint ventures in Iceland, and the Financial woes the country is currently experiencing
Iceland’s exports are heavily controlled by a ministry of commerce which gives businesses licenses to carry out such activity The Central bank also regulates foreign exchange transactions and exchange control, capital control The Central bank is also responsible in insuring that all foreign exchange due to residents is surrendered to authorized banks; since all exports require licenses, shipping documents and receipts exchanged for exports must be surrendered
All investments in Iceland by non-residents are subjected to government approval. Participating non residents may engage in joint ventures with Icelandic companies. However, joint ventures in companies by foreigners may not exceed 49 percent. Another problem with creating joint ventures is that, as in all partnerships, implementing and maintaining relationships is difficult and often require substantial arbitrage between the two parties involved. Major disagreements may arise due to conflicts of interest, and disagreements over how profits are shared. One benefit of joint ventures is that it pools resources and leads to a better outcome for each partner than if they work individually. For example, if a business had an advantage in an area, a partner may benefit from the joint venture. The only reason why a joint venture may not be successful in this scenario is that a large portion of profits is being remitted to the host country. This might result in conflict if one party decidedly believes that it should be entitled to more profits.
Currently, Iceland is undergoing political and financial upheaval. Three of Iceland ’ s major banks have collapsed, and Iceland's currency has fallen in value and inflation has been record high. Political instability may lead to civil unrest and may affect the bottling plant through its ability to access resources required for production. Lack of stability in the economy discourages businesses to function efficiently because they cannot plan for the future. A bottler of water needs to know what future forecasts for production are to determine costs which directly influence the price at which the product is sold.
The first alternative he has is not to import at all. As mentioned earlier, the market shares are too small and bottled waters face stiff competition both from inside and outside of the US. There ’ s a lack of proactive stimuli. For instance, the product is not unique due to the foreign competitors offering similar products and no profit advantage given the market size and conditions. Also, government regulations on bottled waters and the financial situation in Iceland makes the market less conductive to import water from Iceland.
Second alternative is to import, but to target high-income consumers. In order to make up for the high costs of importing Icelandic bottled water, he would want to charge premium based on quality and tastes. High-income consumers are willing to pay more for quality water. Yet, there ’ s a limit to which bottled water can be differentiated solely on quality itself. Many consumers do not notice significant differences in quality and tastes of bottled water. Hence, we recommend to further differentiate the product for being environment friendly in response to consumer ’ s rising concern for environment.
Third alternative is to lobby both Iceland and US governments to reduce the costs of doing business. They can include lobbying the US government to reduce tariffs on imported water or to make water standards more lenient especially in California and Florida where the biggest water bottle markets are. The alternative is to seek for government incentives from Iceland to make water exports less costly since export will help stimulate Iceland's economy.
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