After going over the case, complete an outline of the Dominant Economic Features of the industry by using the list found on page 59 of the book. In addition, complete a Porter 5-Forces Model for the industry.
https://community.worcester.edu/bbcswebdav/pid-1292390-dt-content-rid-1867354_1/courses/BA490_E1_FA_2016/KK%20Donuts.pdf (this is the case to be read)
attched is page 59 of the book, please review it and do the paper accordingly.
Also, please look up the Porter 5-Forces Model to do the paper on it as well.
last thing, i will also include an example on how the paper needs to be done.
The paper needs to be 6-8 pages in length with the above instructions to be followed, please.
Competition in the Bottled Water Industry
Bottled water was among the world?s most attractive beverage
categories with global sales exceeding 32 billion gallons in 2001 and
annual growth averaging nearly 9% between 1996 and 2001. Bottled
water had long been a widely consumed product in Western Europe
and Mexico, where annual per capita consumption averaged about
30 gallons in 2001, but until the mid-1990s bottled water had been
somewhat of a novelty or prestige product in the U.S. In 1990,
approximately 2.2 billion gallons of bottled water were consumed in
the U.S. and per capita consumption approximated 9 gallons by
2001 and was expected to grow to 26 gallons by 2005. The rising
popularity of bottled water in the U.S. during the late 1990s and
early 2000s had allowed the U.S. to become the world?s largest
market for bottled water.
The growing popularity of bottled water in the U.S. was attributable
to concerns over the safety of municipal drinking water, an
increased focus on fitness and health, and the on-the-go lifestyles of
American consumers. The convenience, purity, and portability of
bottled water made it the natural solution to consumer
dissatisfaction with tap water. The U.S. bottled water market, like
most markets outside the U.S., was characterized by fierce
competitive rivalry as the world?s bottled water sellers jockeyed for
market share and volume gains. Both the global and U.S. bottled
water markets had become dominated by a few international food
and beverage producers like Coca-Cola, PepsiCo, Nestle, and Group
Danone, but also included many small regional sellers who were
required to either develop low-cost production and distribution
capabilities or utilize differentiation strategies keyed to some
unique product features. By the close of 2002, competitive rivalry
continued to ratchet upward as sellers developed innovative
product variations, entered into strategic agreements to penetrate
new international markets, and acquired smaller sellers that might
hold strong positions in certain U.S. regional markets or emerging
countries. Industry analysts and observers believed the recent
moves undertaken by the world?s largest sellers of bottled water
would alter the competitive dynamics of the bottled water industry and would mandate that certain players modify their current
strategic approaches to competition in the industry.
1. Defining economic features of the bottled water industry
Market size: The worldwide total market for bottled water in 2001
was 32 billion gallons. The sales of bottled water in the U.S. during
2001 totaled 5.4 billion gallons ($6.5 billion).
Market growth rate: The industry had grown at about 8.7%
compounded annual growth rate between 1996 and 2001. The U.S.
market grew a bit faster (9.2%) over the same period. The U.S. per
capita consumption had grown from 9.3 gallons in 1991 to 19.5
gallons in 2001.
Segmentation: In the U.S., the industry was segmented into single
serving and 1-and 2.5 gallon containers sold in grocery stores,
convenience stores, wholesale clubs, vending machines, and 5gallon returnable in-home containers. In 2002, water sold in 1-liter
or less containers made up 36.2% of industry volume and 50.8% of
dollar sales. Water sold in 1-gallon or larger containers accounted
for 60.9% of gallons, but only 43.3% of dollar sales. Bottled water
was also segmented into spring water, purified water, drinking
water, artesian water, sparkling water, mineral water, and enhanced
Entry/exit barriers: Barriers to entry varied depending upon the
bottlers sales expectations. A simple bottling line could be
purchased for about $125K, while state-of-the-art bottling facilities
could require a $100 million investment. In addition, the leading
sellers of bottled water spent tens of millions of dollars on
advertising in large markets such as the U.S. Bottled water sellers
were also required to have access to distribution networks.
Scope of rivalry: Rival in the industry could be considered to be
global, with the 5 largest sellers in the U.S. competing
Scale economies: Economies of scale were vital to keep costs at an
acceptable per unit basis. Some scale economies were also possible
in bottling operations. Capacity utilization: With large-scale bottling plant investments
exceeding $100 million, it was essential that bottlers maximize
production to minimize per unit costs.
2. Five-force analysis
Bargaining power and leverage of buyers ? a strong force
Convenience and grocery stores, and wholesale clubs had
considerable leverage in negotiating slotting fees with bottled
water producers since shelf space was limited to about 3-5 brands.
Similarly, distributors who carried bottle water for sale to
convenience stores had considerable leverage with bottlers in
choosing brands of water. The second tier brands were most
vulnerable to buyer leverage, but even Evian experienced some
volume and market share loss in 2001 as it lost shelf space in retail
stores. Coca-Cola and PepsiCo were least vulnerable since they sold
a wide variety of beverages that convenience and grocery stores,
and wholesale clubs wanted to offer to customers. As a result of
Coke and Pepsi?s appeal with consumers, Dasani and Aquafina
almost always found shelf space in retail stores. In addition Cocacola and PepsiCo?s strength in negotiations with retailers also
allowed the 2 companies to charge higher wholesale prices than
other bottlers. Delis and restaurants had low switching costs from
brand to brand, but had less ability to negotiate for deep pricing
discounts due to their purchase volume limitations.
Bargaining power and leverage of suppliers ? a weak force
Suppliers to the bottled water industry have very little leverage in
negotiations and represent a weak competitive force. Packaging is
readily available from many suppliers and is commodity-like.
Bottling equipment manufacturers may have slightly more leverage,
but equipment is still available from several sources. Perhaps the
strongest suppliers would be the spring owners who leased springs
to the bottlers of spring water. Municipal water sources have little
to no negotiating power with the producers of purified water.
Competition from substitutes ? a moderate to strong force
There were many substitutes to bottled water, including any other
type of beverage (soda, juices, teas, etc.) - tap water being the strongest substitute. This may be evident by those who refill water
bottles with tap water!
Threat of entry ? a weak competitive force
As the industry consolidates and reaches maturity, it will become
increasingly difficult for new entrants to achieve success in the
industry. The barriers to actually enter the industry can be quite low
($125K for a small operation). But the barriers to gaining
distribution, shelf space, advertising, and enough sales volume
necessary to capture scale economies are extremely high. New
brands must be able to push existing brands off of store shelves
with either exceptionally low pricing and higher than standard
slotting fees or a superior image and reputation ? a nearly
impossible task for any newcomer, regardless of size. Rivalry among competing firms ? a strong competitive force that is
likely to intensify
Rivalry among competing bottled watered sellers is very strong and
will only grow stronger in coming years. Competition among major
brands centers primarily on image, attractiveness of packaging, and
access to distribution, although some modest price competition has
begun to appear in the industry. Competition among second tier and
private label brands is based heavily on pricing. These producers
must also have acceptable images and packaging, but their access
to retailers weighs heavily on their ability to compete on price. As
the industry growth rate slows in the U.S., competition will almost
Based on the above analysis, it would appear that the bottled water
industry remains moderately profitable, and will continue as such in
the near future. However, above-average profitability may only be
available to the few large producers who can compete on price and
heavy advertising, and who have full access to distribution
channels. Smaller and local producers may only be able to secure
average to below average profits as the industry moves to higher
levels of consolidation, and as the industry matures. 3. Industry key success factors Access to distribution
Access to distribution is the most important industry key success
factor. Bottled water cannot be sold unless it is available in stores,
and there are far too many brands for all to be included on store
shelves. Brands offered by Coca-Cola, PepsiCo, and Nestle were
more likely to have consistent access to distribution. Even Evian
(Group Danone), found it difficult to gain access to distribution soon
after Coca-Cola began marketing Dasani. Purity
One of consumer?s strongest attractions to bottled water is the
perceived purity of the product. Bottled water that is labeled as
drinking water (water from municipal sources with no further
purification) is relegated to commodity status and is appealing only
to those consumers who have no other access to safe drinking
Since most brands of bottled water are very similar in formulation,
image is a deciding factor for many consumers in choosing a brand.
The image presented by the product?s name and emphasized in
advertisements, and the attractiveness of bottled water packaging
created demand for one brand over another. Small producers with
poor image building capabilities found it difficult to compete in the
industry. Low cost production capabilities
It was essential that bottled water producers minimize the
production cost of the product, since marketing was so critical in
building an image and gaining access to distribution. Small
producers with high relative production costs had little margin
available to support a strong marketing effort. Sufficient sales volume to achieve scale economies in
marketing expenditures Successful bottled water producers were required to have sales
volume in the millions of cases in order to keep marketing expenses
at an acceptable per unit basis. 4. Industry change drivers
Slowing industry growth As the industry reaches maturity and growth begins to slow,
competition can be expected to become more intense. Industry consolidation The industry is moving toward consolidation to the point where only
the largest firms will survive. Small companies will be acquired
and/or forced out of the industry due to their inability to compete. Product Innovation A clear hint as to the industry?s stage of maturity is in the level of
product innovation. Water is being enhanced with flavors, minerals,
vitamins, etc. This trend will continue as companies jockey for new
positions in the marketplace. Globalization This is an industry where competition is global. The best
opportunities may lie in the international arena where water
supplies are poor, and as other countries become more
Overall, it appears that the industry change drivers will make
profitability harder to come by. As the industry slows and
competition intensifies, the industry will consolidate. Product
innovation will be more difficult to come by. In sum, the driving
forces will have a negative impact on the industry.
5. Key Success Factors Access to distribution: Access to distribution is the most important industry key success factor since brands of water
cannot achieve good sales volumes and market shares
unless they are widely available in stores?there are far too
many brands for all to be included on store shelves.
Product innovation skills: Continuing product innovations
were essential to developing additional volume gains from
line extensions and the entry into new categories like
Brand image: Image was also a critical factor in helping
consumers choose a brand. The image presented by the
product?s name and emphasized in advertisements,
endorsements, and promotions created demand for one
brand over another. Brand image was also a result of labels
and packaging that bottled water consumers found
appealing. Small producers with poor image building
capabilities found it difficult to compete in the industry
unless the product enjoyed a distinct advantage.
Sufficient sales volume to achieve scale economies in
marketing expenditures: Successful bottled water were
required to have sufficient sales volumes to keep marketing
expenses at an acceptable cost per unit basis. Recommendation
The recommendation for current industry players would be to
accelerate the pace of mergers/acquisitions and consolidation. This
would mean for the larger companies to acquire smaller companies
in order to solidify their positions. Smaller companies committed to
the industry should seek joint ventures with companies that could
help them with distribution and marketing issues.
The industry is changing rapidly, and that change will make
profitability a more difficult proposition.
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