Description
It describes the study on the bottled water scene in India. The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. With more and more companies recognising the potential in bottled water in India, competition heated up in 2008, and leading companies updated their offerings with revamped bottle shapes, label designs and new communication campaigns.
1|Page
Report on
Bottled Water- Oligopoly Market
2|Page
Introduction
The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. With more and more companies recognising the potential in bottled water in India, competition heated up in 2008, and leading companies updated their offerings with revamped bottle shapes, label designs and new communication campaigns.
Direct selling accounted for 18% of off-trade volume sales of still bottled water sales in India in 2008. While national players such as Parle Bisleri and PepsiCo India do undertake direct selling of bulk bottled water, the channel is dominated by local and regional players, which are able to offer consumers discounts and free home delivery. The unorganised sector also has a very large presence in direct selling of bottled water, and the supply of counterfeit products by tampering with the seals of organised players’ products is common
The bottled water market is growing at the rate of 55% per annum and is expected to cross Rs 1500 crores within a few years. This segment is one of the most developed ones in India.
Parle Bisleri increased its off-trade volume share by one percentage point in 2008. In addition to its significant first mover advantage, with Bisleri being almost synonymous with bottled water, the company dominates the marketing environment, with high advertising expenditure. Its growth in sector share is also attributable to its continuing to expand its distribution and manufacturing capabilities to new regions in 2008.
3|Page
Concentration ratio of the industry
Bottled water sales are led by Parle Bisleri Ltd, with the Bisleri brand commanding a 39% share of total volume sales in 2008. Bisleri is the leader in both on-trade and off-trade volume sales. In 2008, it was followed by Coca-Cola India Pvt Ltd’s Kinley brand, with just over 20% of total volume sales. PepsiCo India Holdings Pvt Ltd ranked third with its brand, Aquafina, which accounted for almost 13% of total volume sales. In addition to the national level players, there are numerous regional and local players crowding the market. Prominent amongst these is Dhariwal Industries Ltd, with 9% of total volume sales, thanks to its Oxyrich brand, which enjoys strong prominence in West India.
Sales
Parle Bisleri Coca-Cola - Kinley PepsiCo - Aquafina Dhariwal Industries Others
19% 39% 9%
13% 20%
Concentration Ratio of top 5 firms in Bottled Water Segment is 81%
Some firm have large market shares and thus can influence the price of the product which is one of the basic principles of Oligopoly Market.
4|Page
Evidence of kinked demand curves and non price competition
Since price of a fixed quantity of bottled water is more or less constant for all the competitors, there isn’t a kinked demand curve. But if a firm decreases the price, then kinked demand curve will exist. In an effort to carve out market share in an increasingly crowded space, brands such as Bailley, Kinley, Aquafina and Himalayan underwent changes in packaging and labelling to gain more stylish looks. While Bisleri had undergone an image makeover in terms of colour and bottle shape in 2007, plans were set in motion in early 2008 to ramp up the brand’s image by extending it to flavoured water. All the major 5 brands stress on safety and surety, and invest a lot on creating a good brand and distribution network as availability is a key component.
Evidence of collusion in the industry
There is no collusion in the bottled water industry. The industry is very competitive and all the players keep a track of the policy adopted by their competitors before deciding their own strategy. But, all the players keep the same price for a given quantity of bottled water.
Price leader in the market
There is no price leader in the bottled water industry, and prices of various bottled water is almost the same for all the companies. The price is Rs 8 for 500ml and Rs 12 for 1 litre. Premium natural mineral water includes brands such as Evian, San Pelligrino and Perrier, which are imported and priced between Rs 100 - 150 a litre. Natural mineral water, with brands such as Himalayan and Catch, is priced around Rs 40 a litre.
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Abnormal profits
The cost of 1 litre of bottled water is Rs. 10-12, when the cost of material input (0.25 paisa per litre excluding labour cost) is very insignificant. In manufacturing bottled water, the major costs are in the packing and marketing of it. The cost of packing can be as high as 15 to 35% of the price of the product. The cost of the bottle along cap and cartoon is the single biggest cost between Rs. 2.50 and Rs. 3.75 for a one bottle. For water sold in big plastic jars (20-50 litres), which are also reused, or in pouches, this cost is much lower. This is precisely why company sell water at even Re. 1 a litre in a 20-25 litre jar and stills makes profits. Labour and establishment and marketing cost are highly variable and depend on the location and size of the companies. The gross profits of this industry range between 20-25%. The reason that companies do not have to bear the cost of the main row material – water, has made this industry highly profitable. Hence, total cost is between 5 Rs. To 7 Rs. and is sold in market at 10 to 12 Rs. per 1 litre bottled. Super normal profits exist in the industry which is attracting several new entrants every year in the market.
Barriers to industry
There are several barriers to bottled water industry namely a. Cost of acquiring latest technology b. High setup cost for the water purification and packaging industry c. Difficult to setup marketing and sales channel across India d. Brand value in minds of the consumers, association of popular brands with safety and surety e. Govt. Clearance regarding water treatment and waste management
6|Page
Interdependence
There is not much interdependence in terms of price or output, but policies, and the firms follow Nash Equilibrium. Nash equilibrium is a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen. Being a highly competitive industry where switching cost is zero for the consumer, all the players follow the strategy of other firms very closely and act accordingly. The major challenge for most comanies is product innovation and differentiation as water is still just water. In bottled water market product differentiation is not that much easy or possible because people are always interested to drink pure and non-flavour water. The firms in oligopolistic market are aware of their interdependence, and always consider their rival’s reaction when setting prices, output goals, advertising budgets and other business policies.
Conclusion
The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. Concentration Ratio of top 5 firms in Bottled Water Segment is 81%. Some firm have large market shares and thus can influence the price of the product which is one of the basic principles of Oligopoly Market. Companies are increasingly resorting to non price competition as there isn’t much scope for price war as it will bring the overall profitability of the industry to very low levels, so as such there is no price leader in this segment. Super normal profits exist in the industry for small and big players, as the cost of producing bottled water is not very high, and new entrants are coming in the industry leading to overall capacity expansion. The firms are interdependent on each other and they always consider their rival’s reaction when setting prices, output goals, advertising budgets and other business policies.
doc_862198229.doc
It describes the study on the bottled water scene in India. The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. With more and more companies recognising the potential in bottled water in India, competition heated up in 2008, and leading companies updated their offerings with revamped bottle shapes, label designs and new communication campaigns.
1|Page
Report on
Bottled Water- Oligopoly Market
2|Page
Introduction
The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. With more and more companies recognising the potential in bottled water in India, competition heated up in 2008, and leading companies updated their offerings with revamped bottle shapes, label designs and new communication campaigns.
Direct selling accounted for 18% of off-trade volume sales of still bottled water sales in India in 2008. While national players such as Parle Bisleri and PepsiCo India do undertake direct selling of bulk bottled water, the channel is dominated by local and regional players, which are able to offer consumers discounts and free home delivery. The unorganised sector also has a very large presence in direct selling of bottled water, and the supply of counterfeit products by tampering with the seals of organised players’ products is common
The bottled water market is growing at the rate of 55% per annum and is expected to cross Rs 1500 crores within a few years. This segment is one of the most developed ones in India.
Parle Bisleri increased its off-trade volume share by one percentage point in 2008. In addition to its significant first mover advantage, with Bisleri being almost synonymous with bottled water, the company dominates the marketing environment, with high advertising expenditure. Its growth in sector share is also attributable to its continuing to expand its distribution and manufacturing capabilities to new regions in 2008.
3|Page
Concentration ratio of the industry
Bottled water sales are led by Parle Bisleri Ltd, with the Bisleri brand commanding a 39% share of total volume sales in 2008. Bisleri is the leader in both on-trade and off-trade volume sales. In 2008, it was followed by Coca-Cola India Pvt Ltd’s Kinley brand, with just over 20% of total volume sales. PepsiCo India Holdings Pvt Ltd ranked third with its brand, Aquafina, which accounted for almost 13% of total volume sales. In addition to the national level players, there are numerous regional and local players crowding the market. Prominent amongst these is Dhariwal Industries Ltd, with 9% of total volume sales, thanks to its Oxyrich brand, which enjoys strong prominence in West India.
Sales
Parle Bisleri Coca-Cola - Kinley PepsiCo - Aquafina Dhariwal Industries Others
19% 39% 9%
13% 20%
Concentration Ratio of top 5 firms in Bottled Water Segment is 81%
Some firm have large market shares and thus can influence the price of the product which is one of the basic principles of Oligopoly Market.
4|Page
Evidence of kinked demand curves and non price competition
Since price of a fixed quantity of bottled water is more or less constant for all the competitors, there isn’t a kinked demand curve. But if a firm decreases the price, then kinked demand curve will exist. In an effort to carve out market share in an increasingly crowded space, brands such as Bailley, Kinley, Aquafina and Himalayan underwent changes in packaging and labelling to gain more stylish looks. While Bisleri had undergone an image makeover in terms of colour and bottle shape in 2007, plans were set in motion in early 2008 to ramp up the brand’s image by extending it to flavoured water. All the major 5 brands stress on safety and surety, and invest a lot on creating a good brand and distribution network as availability is a key component.
Evidence of collusion in the industry
There is no collusion in the bottled water industry. The industry is very competitive and all the players keep a track of the policy adopted by their competitors before deciding their own strategy. But, all the players keep the same price for a given quantity of bottled water.
Price leader in the market
There is no price leader in the bottled water industry, and prices of various bottled water is almost the same for all the companies. The price is Rs 8 for 500ml and Rs 12 for 1 litre. Premium natural mineral water includes brands such as Evian, San Pelligrino and Perrier, which are imported and priced between Rs 100 - 150 a litre. Natural mineral water, with brands such as Himalayan and Catch, is priced around Rs 40 a litre.
5|Page
Abnormal profits
The cost of 1 litre of bottled water is Rs. 10-12, when the cost of material input (0.25 paisa per litre excluding labour cost) is very insignificant. In manufacturing bottled water, the major costs are in the packing and marketing of it. The cost of packing can be as high as 15 to 35% of the price of the product. The cost of the bottle along cap and cartoon is the single biggest cost between Rs. 2.50 and Rs. 3.75 for a one bottle. For water sold in big plastic jars (20-50 litres), which are also reused, or in pouches, this cost is much lower. This is precisely why company sell water at even Re. 1 a litre in a 20-25 litre jar and stills makes profits. Labour and establishment and marketing cost are highly variable and depend on the location and size of the companies. The gross profits of this industry range between 20-25%. The reason that companies do not have to bear the cost of the main row material – water, has made this industry highly profitable. Hence, total cost is between 5 Rs. To 7 Rs. and is sold in market at 10 to 12 Rs. per 1 litre bottled. Super normal profits exist in the industry which is attracting several new entrants every year in the market.
Barriers to industry
There are several barriers to bottled water industry namely a. Cost of acquiring latest technology b. High setup cost for the water purification and packaging industry c. Difficult to setup marketing and sales channel across India d. Brand value in minds of the consumers, association of popular brands with safety and surety e. Govt. Clearance regarding water treatment and waste management
6|Page
Interdependence
There is not much interdependence in terms of price or output, but policies, and the firms follow Nash Equilibrium. Nash equilibrium is a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen. Being a highly competitive industry where switching cost is zero for the consumer, all the players follow the strategy of other firms very closely and act accordingly. The major challenge for most comanies is product innovation and differentiation as water is still just water. In bottled water market product differentiation is not that much easy or possible because people are always interested to drink pure and non-flavour water. The firms in oligopolistic market are aware of their interdependence, and always consider their rival’s reaction when setting prices, output goals, advertising budgets and other business policies.
Conclusion
The Bottled Water industry is a good example of oligopolistic market structure. There are few players who are dominant like Parle - Bisleri, PepsiCo - Aquafina, Coca-Cola – Kinley. Concentration Ratio of top 5 firms in Bottled Water Segment is 81%. Some firm have large market shares and thus can influence the price of the product which is one of the basic principles of Oligopoly Market. Companies are increasingly resorting to non price competition as there isn’t much scope for price war as it will bring the overall profitability of the industry to very low levels, so as such there is no price leader in this segment. Super normal profits exist in the industry for small and big players, as the cost of producing bottled water is not very high, and new entrants are coming in the industry leading to overall capacity expansion. The firms are interdependent on each other and they always consider their rival’s reaction when setting prices, output goals, advertising budgets and other business policies.
doc_862198229.doc