MANAGERIAL ECONOMICS

BISLERI- The Sweet Taste of Purity

Submitted To: Dr. Gajavelli V S

Group-9 (Section- B)
Name
Archana Sharma

Roll No.
2012074

Chetan Chawhan 2012100 Chirag Bansal G. Snigdha Gaurav Prakash 2012101 2012114 2012116

Introduction to Mineral Water Industry

The global bottled water industry consists of selling of flavoured as well as unflavoured water. With regards to Indian context there is sale of only unflavoured water. The bottled water segments are rapidly growing which has a total market size of more than $ 1.5 billion. The market is mainly controlled by the organized sector with over 500 brands existing in the market. A growth in the sector has been viewed mainly because of the health conscious people, improper water supply and the unpredictable municipal water supply. With a high growth rate and low entry barriers has attracted many players in this segment. The market operates in lower margins, the price increases when the cost of packaging and transportation increases the major players in the market are trying to establish themselves in bulk water business through brand equity, whereas the unorganized players are resisting them by using differentiation strategy.

Mineral Water Industry Current Scenario

Bottled water represents the fastest growing segment of the global beverage market with a market share of about 38%. World bottled water market is expected to reach$65.9bn by 2012, stimulated by rising population, consumer spending patterns, lifestyle trends and growing levels of health consciousness, among others. In June 2012, the domestic bottled water market (including organised and unorganised players) is estimated at Rs 8,000 crore, and expected to grow to Rs 10,000 crore by 2013, says a study. The bottled water market which has been growing at a CAGR of 19% is expected to continue its growth momentum and grow over four-folds to Rs 36,000 crore by 2020. Of the 3300 registered plants manufacturing bottled water in India, around 48% are located in the south, followed by 22% in the west. The study estimates, there are more than 12000 are unregistered plants in India. At present, the small pack has maximum market share due to easy affordability and availability. The one-litre bottle holds significant market share. However, in recent years the institutional supply is picking up with supply of bulk packs.

The Exponential Increase in Demand Bottled Water 1990-2012

250 200 150 100 50 0 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Source: indiastat.com

Bisleri- the sweet Taste of Purity

Bisleri was originally an Italian company created by Felice Bisleri, who first brought the idea of selling bottled water in India. Bisleri then was introduced in Mumbai in glass bottles in two varieties bubbly & still in 1965. Parle bought over Bisleri (India) Ltd. in 1969 and started bottling water in glass bottles under the brand name Bisleri. Later Parle switched over to PVC non-returnable bottles & finally advanced to PET containers. In 1995 Ramesh J. Chauhan started expanding Bisleri operations. In 2003 Bisleri announced its venture to Europe. All shares are held by Mr Ramesh J Chauhan and his family. Bisleri is capturing Indian market by providing best quality over a period of long time. None of the water products in line are able to compete with Bisleri and thus Bisleri stand unique in the market. Bisleri commitment is to offer every Indian pure & clean drinking water. Bisleri water is put through multiple stages of purification, ozonised & finally packed for consumption. Rigorous R&D & stringent quality controls has made Bisleri a market leader in the bottled water segment. Bisleri endeavour is to maintain strict quality controls for each unit purchases per-form & caps only from approved vendors. Bisleri produces their own bottles in-house; & have recently procured the latest world class state of the art machineries that put them at par with international standards. This has not only helped them improving the package quality but also reduced raw material wastage and doubled production capacity. Every drop that goes into a Bisleri bottle is scientifically purified as per international standards and fortified with minerals to give you The Sweet Taste of Purity. Amongst the players, Bisleri continues to hold a leading position with a 36% market share, with Kinley and Aquafina fast catching up. Kinley has 25% and Aquafina approximately 15% share in the market. Parle Agro's Bailley has a 6% share in the market among the national players. The rest includes other organized brands such as Kingfisher, Oxyrich, Mcdowells no 1, together with an 18% share. Industry experts say that quality controls need to be in place to curb the growth of unorganised players. Also, environmental concern is a challenge which needs to be addressed by the industry. The market share of different companies in bottled water industry is shown below.

Market Share 2012

40% 30% 20% 10% 0% Bisleri Kinley Aquafina Parle agro's Bailley Others 36% 25% 15% 6% 18%

Source: The Times of India, Dated-25 June, 2012

Government Regulation
In April 2002, the government of India announced a new water policy based on privatization. In comparison to global standards India's bottled water segment is largely unregulated. Indian consumers tend to believe that any bottled water is safe water. This may not be the case. Several small players have entered the trade in India to capitalize on the craze, with no check on them. There has hardly been an involvement of any statutory body in defining specific standards. The Bureau of Indian Standards (BIS) and The Associated Chambers of Commerce and Industry of India (ASSOCHAM) have just recently got involved in the process. Indian bottled water is governed under 2 categories: 1. Packaged Natural Mineral Water [Under IS: 13428:1998, Amendment 1-5 up to 15th October 2004] 2. Packaged drinking water [Under IS : 14543: 2004] For preparing 1 litre of mineral water 3 litre of ground water is required. Government was not charging tax on the extraction of the ground water. Now by introducing the new policy government is going to impose tax on the extraction of the ground water, this will increase the production cost because of which the companies will be forced to increase the price which all consumers of all categories cannot afford. The companies can compensate the high production cost by reducing their marketing expenses but this will keep the consumer unaware about the product.

Analysis of the prices and supply-demand forces for Bisleri Price- an Economic Factor Affecting the Buyers Behaviour
Price is the sum of values that consumer exchange for the benefits of having or using the product or service. Price is the only element that produces revenue. All other elements represent costs. In India, where the majority of the population comprise of the middle-income group and lower income groups it is not hard to understand that pricing is one of the most important factor in the buying decisions.

Price or competition
Pricing is the most important consideration for the consumer. Bisleri has crashed the prices of the one litre and 500 ml offerings. At Rs.10, the 500 ml pack is a steal, says Company. Schemes for retailers for a combination of both packages are on create the push. However, one litre packs which accounted for 50 per cent of the companys turnover have come down to 30 per cent. The two-litre packs, which have practically disappeared from the shelves, have come down from 20 per cent to five per cent. The growth has come from the 500 ml account for 15%, 5 litre category for 28% and 20 Litre accounts for 7% of turnover respectively. Our sales prove that the Indian consumer is getting smarter by the day. If he can buy a high- quality product for the same price, why will he opt for an inferior brand? For frequent consumers, in what could be a masterstroke, Aqua Minerals is testing out the possibility of mass marketing 20-litre Bisleri bottles for an MRP of Rs.80. That works out to Rs.4 a litre. If the logistics, manufacturing and distribution do fall in place, it could change the face of the purified water market for keeps. In the current scenario, mineral water is picked up more by travellers, less by households.

Bisleri Product Share in Revenue

7% 28% 15% 30% 1 Litre 2 Litre 20% 500 ml 5 Litre 20 Litre

Company Brand Parle Bisleri Bisleri

Packs Price (Rs.) 250 ml Rs. 6.00 500 ml Rs. 10.00 1 litre Rs. 15.00 5 litre Rs. 25.00 20 litre Rs. 80.00 Parle Agro Bailley 330 ml Rs. 7.00 500 ml Rs. 10.00 Pepsi Aquafina 750 ml Rs. 10.00 1 litre Rs. 15.00

Price of Different Company Products

100% 80% 60% 40% 20% 0% High Reasonable

Analysis regarding the price of mineral water among the retailers

Supply Factors
Bisleri package drinking water has an elastic demand as it has got many substitutes with similar prices. The company cant afford to increase the price of the product as it will lead to decrease in demand for Bisleri.

20 18 16 14 12 10 8 6 4 2 0 Bisleri Aquafina Kinley Bailey Hello

Price

Comparison of Prices of different Brands

Availability of different bottled mineral water to the retailers

Brand Bisleri Aquafina Kinley Bailey Hello Others Easily 73% 75% 60% 70% 65% 60% Get but not often 18% 15% 15% 20% 20% 20% Do not get 9% 10% 10% 10% 15% 20%

From the data, it can be interpreted that availability of Bisleri mineral water among the retailers is 73% of retailers gets the product easily, whereas 18% of them say that they do not get the product offer and rest of the 9% retailers say that they do not get this product at all. Thus it can be said that, supply of Bisleri bottles is good and they should try to maintain this pattern in order to compete with Kinley and Aquafina which have strong distribution network due to their soft drink link.

Demand factors
Analysis regarding demand of different Mineral Water Bottles
The analysis regarding the forecast of demand of particular brand is derived out by taking an average of 100 retailers ranking. The percentage of demand for the particular brand of mineral water is as follows Brand Bisleri Aquafina Kinley Bailey Hello Others Points out of 5 3 4 4.5 2.5 2.5 2 Percentage of Demand 16% 22% 24% 14% 13% 11%

Percentage of Demand
Others 11% Hello 14% Bailey 13% Kinley 24%

Bisleri 16%

Aquafina 22%

Pie chart showing Percentage of Demand for Bottled Water

Future Outlooks
Among the various players, Bisleri was the first one to market bottled water in totally untapped markets and now Bisleri is 10 steps ahead of its competitors. Bisleri also endeavours to widen its gap in the times to come. Some of the future plans of the Bisleri: New pack sizes in bottles and cups. Increase the distribution network with an investment of over 200 crore. Strengthen presence in traditionally weak areas by setting up 12 new bottling facilities at the cost of Rs 150 crore. Bisleri is planning to diversify into fruit juice business. It has already set up a fruit -juice plant in Chittor, AP. The company plans to go in the neighbouring countries like Nepal and Bhutan. The company planning to open the Bisleri retail outlets- these are the shops where only Bisleri will be sold.

Learning from the Topics in terms of case applications Demand and supply analysis:
The overall packaged bottled water in India is estimated to touch Rs 10,000 crore marks in the fiscal year 2012-13, growing at a compound annual growth rate (CAGR) of 19%. Presently, this market is estimated at Rs 8,000 crore, and could touch Rs 15,000 crore by 2015. Factors such as scarcity of safe drinking water, changing lifestyles and aggressive expansion by market players may lead this industry to be the next oil industry in coming decade. South India is the biggest consumer of bottled water representing more than 50% of the total market due to waterstarved areas. Bisleri has approximately 60% market share in packaged drinking water in

country.

Initially the consumers were only foreigners and NRIs. Therefore, to increase its customers base, company came up with comfortable and affordable price bottle which was a great success and showed 400% growth. In a segment where margins are wafer-thin, driving volumes is critical. For Bisleri, distribution costs are high and thus reaching out to consumers is difficult. In view of the bottles being bulky, and the product price low, per unit cost of transportation is quite high. This is where regional bottlers, with their manufacturing base within a radius of 100 km eat into Bisleri share. But even today, Bisleri continues to be the leader by a long margin in a market
where Coca-Cola (with Kinley) and Pepsi (with Aquafina) have been trying to capture the market. In the branded Rs 3000 crore bottled water segment, Bisleri has a dominant market share of close to 40 per cent as against Kinley which holds nearly 10 per cent or Aquafina which has close to 15 per cent. Bisleri has increased its investment from a footprint of 22 plants five years ago to 52. Bisleri also have a competitive advantage in its direct distribution model, where bulk packages are delivered at the doorstep. As an analyst at a leading brokerage firm, who has worked with Bisleri, says, "It is the first mover advantage in the direct selling channel that has helped Bisleri maintain its edge." Direct sales, which bring in 50 per cent of the business, will continue to be the growth driver.

Substitute product:
Substitutes of Bisleri water include coffee, soft drink, juice and tea. The substitute of a product affects its price and market. The existence of substitute products of Bisleri provides the option to customer to switch to some other product. Consumer is using various health drinks, carbonic and non carbonic drinks as a substitute for water. The total size of food industry in India is almost $ 65.6 billion and soft drinks are almost $ 1 billion. Indian soft drink consumption in a year is 284million crates. Soft drink market is highly seasonal in nature, consumption during offseason is 15 million crates and in peak season approximately 25 million crates per month. In urban areas, Consumption of soft drinks is 75% of the total Indian market. Indian soft drink market is conquered by multinational companies- Coca-Cola and PepsiCo. The monthly average consumption of mineral water is 4.9million crates that increase in peak season to 5.2 million. So we can draw that the bottled packed water consumption in India is one third of the total beverage industry.