Case Study

Case Study

Competition for the market of bottled water

On the surface, water doesn’t seem very exciting but bottle and brand it and the stakes change considerably. Consider that a liter of water costs more than a liter of gasoline, and that a typical Western European drinks 17 to 18 cases of bottled water each year, while the average American drinks only ten cases. Now consider that the US market I projected to double in two years, and suddenly the business of water looks a lot less dry.

In this industry there are three thousand five hundred bottling and distribution companies (monopolistic competition). Product. The product is differentiated, although the molecular formula of the water is H2O, companies differentiate this good by the source of origin, the type of purification and the percentage of sodium and other salts. The design of the packaging, label, size, security seal, certification, etc. (monopolistic competition). Barriers. Entry barriers are not insurmountable; only permits and licenses are needed, comply with the established parameters and the necessary capital for the purification plant. Control over price. The control is low. However, companies with brand can raise the price by almost 100 percent compared to others and still grab much of the market.

Two companies dominate the world market for branded bottled water: Group Danone, based in Paris, and Nestle, S.A., based in Vaud, Switzerland. The US subsidiaries of these global giants are jockeying for shelf space with private label, regional and niche products, and with two formidable soft drink giants: Coca-Cola and PepsiCo, marketing their own brands of water.

Bottled water falls into two broad categories: non-carbonated (distilled, filtered and spring) and carbonated (both naturally occurring and mechanically added). The war will largely be fought among the non-carbonated brands, which account for most of the volume.

What’s driving the market for bottled water in the US?

“There is a public perception that municipal water is not as safe as it could be,” explains Walt Boyes, principal of Spitzer and Boyes, consultants in water treatment and distribution. “In some cases, that’s true. There are many places in the US where the drinking water coming out of the tap is barely drinkable. In other places, that’s not true at all. New York City’s water is every bit as good as bottled Evian.”

That’s hardly been the case in Western Europe where bottled drinking water has been standard for years. That situation gave rise to the great European brands of sparking mineral water such as Perrier of France, San Pellegrino of Italy and Gerolsteiner of Germany. All of these can be found on the shelves of supermarkets with average assortments of water.

The interest in bottled water began growing in the last few decades, because of several factors: a decline in drinking water quality in some regions,

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