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(solution) After going over the case, complete an outline of the Dominant

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. (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


water categories.


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


certainly intensify.




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


water. Image


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


vitamin water.


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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