The Evolution Of Bottled Water Industry

The Evolution of the Bottled
Water Industry:
Ready for the “Water Wars”?

01/2012-5621
This case was written by Javier Gimeno, Professor of Strategy, Aon Dirk Verbeek Chaired Professor in International
Risk and Strategic Management, and Karel Cool, Professor of Strategic Management, BP Chaired Professor of
European Competitiveness, both at INSEAD. The case is based on previous reports byINSEAD MBA alumni Manoj
Sahasrabudhe, MBA 2002, Alistair Phelps and Vicky Davies, MBA 2003. It is intended to be used as a basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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By 2002, the global bottled water industry was at an inflection point. Traditionally, the
industry had been fragmented among many local and regional players, but over the last
decade four large multinationals (Danone, Nestlé, PepsiCo, andCoca-Cola) had been battling
for global market share. These four companies controlled over 30% of the global market, and
continued to expand organically and through acquisitions. Yet, in an industry in which many
sources of supply existed, with products that were nearly impossible to tell apart by taste, and
for which a free substitute existed (tap water), it was not clear whether these globalplayers
would be able to create an attractive industry structure that would deliver sustained profits.
In 2002, the U.S. market was one of the main fronts in the battle for market position among
these multinationals. In contrast with Western Europe, which had large but mature demand for
bottled water, the U.S. market had tripled during the 1990s as health-conscious customers
increasinglyturned to bottled water. Nestlé, which had acquired the bottled water business of
Perrier in 1992, was the clear market leader with many of the strongest regional spring water
brands. However, the growing market had attracted new entrants, both small and large.
Brands like Fiji and Glaceau sought a premium position. Yet it was the aggressive entry by
PepsiCo in 1994, followed by Coca-Cola in 1999– with new business models based on
purified waters and substantially different economics – that had disrupted the industry
structure. By 2002, the competitive escalation was starting to produce adverse effects. Since
2001, bottled water prices had dropped by 3%, and some analysts feared that a possible price
war could erode industry profitability.
Faced with tougher competitive conditions,Nestlé, PepsiCo, Coca-Cola and Danone had to
re-assess their strategic postures and commitments to the US bottled water market. Questions
arose about the long-term profitability of the market. Would it ever approach that of the
carbonated soft drink industry, which was among the most profitable industries in the world?
Or would the competitive escalation and price competition erode industryprofits? Questions
also arose about the diverse strategies used by the ‘big four’. Whose strategy was most
appropriate for the future of the market? And how should each adapt their respective strategy
to the emerging competitive environment?

The Evolution of the Bottle Water Industry
The medicinal properties of mineral water have been valued since antiquity. Visits to natural
springs andspas became fashionable among the wealthy elite during the 19th and early 20th
centuries. The American bottled water industry got started in 1844 when a Maine inn-keeper,
lying on his deathbed, discovered the remarkable therapeutic properties of water from his
local spring. As the popularity of the water grew with visitors, the inn turned into a spa resort
and the family began to sell the water...