Porter's 5 Forces Model (Bottled Water Industry)
Threat of New Entry
The market is growing with a 5.5% predicted annual growth rate from 2010 to 2015. A large initial investment is required by the company to access water sources and purchase bottling and packaging equipment. Government regulations vary in strictness from country to country. Water products must meet requirements on purity, safety, environmental impact, etc. An important factor for new entry is finding access to distribution channels. The different channels are supermarkets/hypermarkets (52.5%), on-trade (18.1%), independent retailers (12.3%), and others (17.1%). Countries with perceived water purity, such as Scottish Highlands, Alpine Glaciers, and Scandinavian springs, have an advantage in brand equity. However, if a company must ship all water from one source, transportation costs can be high. Another challenge for new entrants is claiming their own share of limited retail shelf space. There are already many brands present on shelves and new companies might not have the required capital to pay for shelf space. Overall, the threat of new entries is moderate.
Supplier Power
In the beginning, a company must find access to a water source. Some companies use an underground source and others use water utilities to treat tap water. The company must ensure that their extracting source is free of contaminants has appropriate mineral levels. In the spring water segment, a company cannot substitute its fresh water source for utility-treated water or it would lose its unique selling point. After establishing a water source, the company must also find suppliers for its bottling and packaging needs. Overall, the supplier power is moderate.
Threat of Substitution
There are many substitutes for bottled water such as the many different brands and types of soft drinks. In markets where consumers have access to drinkable tap water, this can also be a substitute. The importance of sustainable packaging is ever-increasing. Packaging other than plastic bottles is being demanded in some markets. In the competitive drink market, brand positioning and advertising are crucial in differentiating from competitors. Overall, the threat of substitution is strong.
Buyer Power
In the bottled water industry, viewed from the source company, the buyers are the retailers and distributors. The fragmented market tends to weaken buyer power on a global scale. The water characteristics (source, mineral content) and branding are important factors in the end consumer's choice. Retailers must stock the items that their customers want which weakens their buyer power. Also, customers are rather price-sensitive when purchasing bottled beverages. As a whole, the buyer power is moderate.
Competitive Rivalry
The major competitors in the market are Groupe Danone (14.1%), Nestle S.A. (13.6%), The Coca-Cola Company (8.4%), and others (64%). A fragmented market and low switching costs for retailers contribute to the competitiveness of the market. Entering the market may be relatively easy compared to the process of selling assets when exiting the market, causing competition to remain or expand in the market instead of leaving. In total, the competitive rivalry is moderate.
Forces driving competition in the global bottled water market, 2010
SOURCE: MARKETLINE
Hello Group Veen,
ReplyDeleteThank you for your analysis. Especially, I like this 5 Forces framework because you have illustrated it well with graphs. :)
I agree most of the points you made in this analysis, but I stopped to think about the buyers bargaining power. In my opinion, the buyers' bargaining power, in this case, should be higher.
I see it like this; when a Veen's customer/buyer has many options of bottled water and other soft drinks to choose from and when the price is a very important factor, the buyer has a strong position to start to negotiate. Also if you think about that Veen water would be bought by big retailers (like super market chains), they usually buy bigger amounts and try to put the price down that wat so that they can earn some profits when selling the water to their end consumer.
Does this make any sense? :)
BR,
Carita R.
Great points! We thought this too, but then realized that in the reports we found the "buyer" is actually the distributor or retailer and not the end-customer. Indeed, the end consumer should have high buying power. Now, I see that we should explain it better. We appreciate your comments and will hopefully have some more interactive blog posts soon!
ReplyDelete" How may pressure does distributors have on Veen Waters when it comes to selling price?" would have been a great question for the interview with the people from Veen. Too bad I could not think about that. Maybe next that that you guys meet with them it could be asked.
DeleteGood Job in the analysis. However,Do any to the main players mentioned such as Groupe Danone, Nestle S.A. and The Coca-Cola Company have an specific product that competes directly with the Veen Waters?. Finding that out will help you to identify what your real competitors are. For example, if Danone does not have any luxury product, it is most likely to have a cheaper substitute for Veen's expensive waters. That is why I recommend just to go a little be deeper to find out who the direct competitors are for Veen so you can see that they are doing in Saudi Arabia. This I think will help you to decide what do when you are doing your marketing strategies and positioning.
ReplyDeleteThat's one another good point Jesus mentioned.
ReplyDeleteIt is good to note that the big MNEs have variety of products from soft drinks to water so you could focus more on looking for the competitors in the high end water bottle market.
Carita R.