Competition In The Bottled Water Industry

Competition in the Bottled Water Industry

1. List and describe the dominant economic characteristics of the bottled water industry.

* Market size and growth rate - The industry is size is worldwide with a growth rate averaging nearly 9% from 1996-2001 (with a U.S. per capita growth from 20 gallons per year in 2001 to 26 gallons per year in 2005.)

* Number of buyers - There is a significant number of buyers in the U.S. and internationally. No one buyer accounts for a significant fraction of overall market demand.

* Buyer needs and requirements - Buyer needs have been changing recently due to an increase of people being more health conscious and also due to increased concerns over the quality of tap water after scares in Milwaukee where 400,000 people became ill, Washington D.C. where residents became ill, and a revision in EPA standards pointing out that there was arsenic in drinking water.

* Number of rivals - There are a few large players in the bottled water industry such as nestle, groupe danone, coca-cola, pepsi, and sunatory water group. In addition to the large companies, there are also many regional and specialty brands, primarily privately held bottlers with local distribution.

* Scope of competitive rivalry - Competitors compete globally, internationally, nationally, regionally, and locally.

* Degree of product differentiation - The products or rival sellers are primarily identical. There are submarkets in the bottled water industry such as purified, mineral, sparkling, or enhanced waters,

* Product innovation -

* Production capacity - Surplus is not pushing prices and profit margins down.

* Pace of technological change - There are ongoing upgrades to accommodate new product innovation and consumers' wants.

* Vertical integration - Smaller bottled water companies operate in only one or two stages of the industry but the large companies are fully integrated from the aquifers, springs, or other sources of water to the purification processes, distribution, and retailing.

* Economies of scale - The bottled water is characterized by economies of scale in purchasing, manufacturing, advertising, and shipping. I believe that there are exceptions in the office/home delivery market where the large companies do not operate.

* Learning and experience curves -

2. What does a six-force analysis of competition in the bottled water indicate?

* Firms in other industries offering substitute products - The main substitute is tap water. Until consumers become less concerned about the quality of their location's tap water, the bottled water industry will remain. The large companies are also the companies that offer the substitute products. Soda, coffee, any drinkable liquids are more than likely sold by pepsi or coca-cola. This force is not only weak for this reason but also because it appears that consumers are on a trend to remain health conscious and therefore will steer away from soda.

* New entrants - new entrants do not pose a strong threat to bottled water companies that exist in