A PROJECT REPORT ON

SOURCE PERRIER

SUBMITTED TO
UNIVERSITY OF MUMBAI

BY
NIRMALADEVI MOHAN SINGH
T. Y. B.M.S.

YEAR 2005-2006

THROUGH
TOLANI COLLEGE OF COMMERCE
ANDHERI (EAST), MUMBAI – 400 093
 CERTIFICATE

I, Mrs. Vijaya Krishna, hereby certify that Ms. Nirmala Singh of

Tolani College of Commerce, T.Y. B.M.S. (Semester V) has completed

her project titled SOURCE PERRIER in the academic year 2005-2006.

The information submitted herein is true and original to the best of my

knowledge.

Mrs. Vijaya Krishna Dr. A. Rashid Dr. Sheela Purohit

(Project Guide) (BMS Co-ordinator) (Principal)
 DECLARATION

I, Nirmala Singh, of Tolani College of Commerce, T.Y. B.M.S.

(Semester V) hereby declare that I have completed my project titled

SOURCE PERRIER in the academic year 2005-2006. The information

submitted herein is true and original to the best of my knowledge.

Place: MUMBAI Nirmala Singh

Date:
 Acknowledgement
At the outset I take the privilege to convey my gratitude to those who have
co-operated, supported, helped and suggested me to accomplish the project
work. This project work bears imprint, of many persons who are either directly
or indirectly involved in the completion of it.

I extend my thanks to Mr. Allwyn Fernandez for giving me an

opportunity to do this project in the company.

I am also desirous of placing on record profound indebtness to my guide

Prof. Mrs. Vijaya Krishna, Tolani College of Commerce, Andheri for the

valuable advice, guidance, precious time and support that she offered.
 Contents
Introduction
History of Bottled Water
Source Perrier - the History

Source Perrier in United States

The Market Scenario
Types of Bottled Water
Source Perrier & US
Exporting
Nestle Worldwide - an overview
Brands Owned by the Group
Why Nestle Acquired Source Perrier
SWOT Analysis
An Analysis of the company’s moves
Benzene Incident
The Protests
Recent Update about the Perrier Group

Source Perrier & India

Indian Market Scenario
Legal requirements
About Nestle India
Entry Strategy in India
Latest Happenings
The Shock Wave
Future Outlook of source perrier
Bibliography
..1..
 INTRODUCTION
Every firm, at every point in its history, faces a broad range of strategy
alternatives. In far too many cases, companies fail to appreciate the range of
alternatives open to them and, therefore, employ only one strategy – often to
their grate disadvantage. The same companies also fail to consider the strategy
alternatives open to their competitors and leave themselves vulnerable to the
dreaded ‘Titanic’ syndrome, or the thud in the night that comes without warning
and sinks the ship.

Entry into a new country-market is always a learning process during which a

firm continually commits resources in smaller or larger steps to establish an
intended position in the country-market. The intended position is determined
through a strategic positioning process. In this process, management defines a
company (product line or product) – specific set of benefits that is attractive to
chosen target customers, which are at least acceptable to important stakeholders
in the market, and at the same time positively differentiates the firm (its product
line or product) from competitors. If and how the intended position is reached
not only depends on the company’s actions but also on other stakeholders in the
local operating environment, their interests, powers and actions. All this allows
management to evaluate various ‘market entry modes’ concerning their potential
contribution in reaching the intended position in the country market. A market
entry mode is the general way the company plans to enter a new country market,
for example through selling its goods to an importer or through direct investment
in a production facility and a distribution system.
The development of market entry strategy not only depends on market factors
but also on available production capacities, personnel and financial resources. It
is an organizational learning process.

..2..
 History of Bottled Water

The tradition of bottled water and mineral water is not very old. Even in western
countries the practice of bottled drinking water started in 1950s. The trend of
having mineral water gained grounds in the market.

Since ancient time people have used water from

mineral springs, especially hot springs, for
bathing due to its supposed therapeutic value
for rheumatism, arthritis, skin diseases, and
various other ailments. Depending on the
temperature of the water, the location, the
altitude, and the climate at the spring, it was
used to cure different ailments. This started the
trend of using mineral water for drinking
purpose to exploit the therapeutic value of the
water. This trend started gaining momentum in
mid 1970s and since then large quantities of bottled water from mineral springs
in France and other European countries are exported every year.

The concept of bottled water has been quite prevalent in western countries due
to greater health consciousness and higher awareness about health and hygiene.

..3..
 Source Perrier – The History
17 kilometers from Nimes, a fresh water spring in a small village called Vergèze
drew Romans in search of refreshment. This renowned spring continued to flow
after the French Revolution on land which then belonged to Alphonse Granier.
By the 19th century, it had been baptized "Bouillens", because of the way it
spurted out like boiling water, due to its' natural carbon gas content. The water,
whose source lies in limestone hills, has a strong trace of a carbon gas current of
volcanic origin. In year IX of the Republic, citizen Dax, a doctor from Sommières,
wrote the first thesis on Bouillens water and its' therapeutic properties. Professor
Courcière proved that the gas it contained was natural carbon gas. .

1863
On the 23rd June, Napoleon III granted the right to
exploit this source by decree (before this, spring water
was free.) This was the heyday of thermal baths, and
Bouillens became a reputed spa. Alphonse Granier set up the "Société de
l'Etablissement Thermal des Eaux Minérale de Vergèze". The company's
statutes provided for cold baths, mud, carbon gas and inhalations, showers
and the sale of bottled water as a beverage

1869
Fire destroyed these installations and the company went bankrupt

..4..
1870

The first advertisement for the spring water came out: "The Princess of Table
Waters".

1888
Monsieur Rouvire, a local farmer, acquired the source. He went into
partnership with a doctor from Nimes, Doctor Louis Perrier, also in charge of
the spa at Euzet-les-Bains in the Gard.

1898
Louis Perrier, a French doctor became sole owner of the domain called the
"Vergieze Company for mineral water, drinks and health products". He
analyzed the water's properties, and discovered its' therapeutic possibilities.
He perfected bottling techniques, and found a limited partner to finance his
operation. The source was officially recognized as a national asset.

1903
A young Englishman, Sir John Harmsworth bought the
company's shares and gave the source the name of the
man who had made it famous. Employees filled bottles
by hand, closing them with a capsule by pressing on a
pedal.

..5..
1908
During the Anglo-French Exhibition in London, Perrier won the Grand Prix
for the record sale of mineral waters in the year, having sold five million
bottles.

1914
Perrier was better known in English-speaking cities (London, Delhi,
Singapore) than in Paris. This sparkling water was, it is said, the drink
favored by Her Royal Highness' officers throughout the Empire. Production
climbed to 10 million bottles.

1946
After the Second World War, Georges Leven and his
son Gustave, in association with his friends, Maurice
Epry (management) and Jean Davray (the company's
advertising executive, until his death in 1985), bought
up The Société Perrier's shares. The source was back in
French hands. Jean Davray adapted the very first
slogan: "The Princess of table Waters" by changing the
word princess with champagne, party, folly and product. Perrier was a chic
French drink, present on every media, but it now aimed to become a
massively popular consumer product. Poster artist Jean Effel designed the
"champagne" variation, and this poster became the company's leading image.
Perrier sponsored the Tour de France bicycle race.

..6..
1949
A new campaign was based on the notion of sleep: "Naturally sparkling
Perrier water clears the digestion, and leaves your mouth fresh for the night!"

1952
Perrier's total sales were 100 million bottles.

1954

Production diversified, under G. Leven's influence, as sodas make their

appearance

1973
To counter diminishing glass bottle deposits, added to blocked prices, the
overall tendency to use plastic bottles ("wasted packaging") and their own
obligation to use glass because of the carbon gas, Perrier decided to produce
their own glass! Leven acquires a sand-works at Bédouin, at the foot of Mont
Ventoux.

1976

While in the U.S. since the beginning of the century, Perrier's U.S. presence
exploded, as Americans were ready for new natural refreshment.

1977
G. Leven opened the market for carbonated water in the US, and soon
controlled 6% of the American market. To counter imitations launched by
plain mineral waters with added gas, Perrier was sold as "naturally

..7..
sparkling" mineral water imported from the south of France, and presented
as a healthy drink. On TV, Orson Welles encouraged people to "enjoy and
good health."

1979
G. Leven launched flavored Perrier, trying it out first in the US. In view of
successful results, he acquired new springs locally. That year, 6000 runners
in the New York Marathon crossed Central Park wearing Perrier T-shirts.
Sales reached 200 million dollars (as opposed to 6 million in 1976).

1984

Perrier became the number one mineral water company world-wide, with
markets established in Canada, the Arab countries, South Africa, Germany,
Australia, Japan and in the United States 45% of its' turnover reinvested in
export. Perrier's strategy in creating a market abroad was to introduce the
product as a prestigious label, underlining the luxurious, "chic" French
aspect, and the 100% natural, ‘Zero’ calorie feature. The company conferred
advertising to a local agency, and acquired a local label. The next step was to
make the product available in bars, restaurants and hotels, where prices are
controlled, to create consumer habits.

1987

A marketing department opened. Perrier Zeste aromatisés (Flavoured Perrier

- lemon, lime and orange) appeared on the French market. In June, the
company bought the American BCI Arrowhead Drinking Water Company,
and became France's number one mineral water manufacturer. The company

..8..
also took over Buxton Mineral water, controlling 75% of the British market of
carbonated waters.

1990

72 million bottles were taken off the market in the USA, after a few traces of
benzene were discovered in twelve bottles. Gustave Leven decided to
withdraw the entire US production (160 million bottles, then did the same in
five other countries (Germany, Canada, Denmark, Japan and Holland), thus
destroying a total of 280 million bottles world-wide. In April, Perrier – after
ten weeks absence - was back on the market.

1992

Perrier was bought by Nestle, and takes advantage of this group’s set-up in
South East Asia to conquer that market. In November, Publics FCB is granted
the world budget, to guarantee coherence in communications on a world-
wide level.

1999
The Vergèze plant produces 3,200,000 bottles a day and Perrier maintains its
position as the world's most popular sparkling mineral water.

..9..
The United States Bottled
Water Market & Source
Perrier

..10..
 THE UNITED STATES MARKET SCENARIO

A 1998 poll of people who drink bottled water found that 35 percent of bottled
water drinkers used it primarily out of concern about tap water quality. Another
12 percent chose bottled water because of both safety and health concerns and
the desire for a substitute for other beverages. Thus, as of 1998 at least, nearly
half (47 percent) of bottled water drinkers used it at least partially out of concern
for their health and safety. Another 35 percent drank it as a substitute for soft
drinks and other beverages. Seventeen percent said they chose bottled water for
other reasons -- such as "taste" (7 percent) or "convenience."

It is absolutely clear, therefore, that a leading reason for the explosion in bottled
water sales is the public perception, fueled by heavy industry advertising, that
bottled water is pure and pristine, and thus a healthier choice than tap water.

Why People Drink Bottled Water

Source:

American

Water Works

Association

Research

Foundation,

Consumer

Attitude

The public is concerned about tap water safety and quality, and, with much
encouragement from the bottled water industry's aggressive marketing, views

..11..
bottled water as a purer, safer option. As a key industry consultant put it, “water
bottlers are selling a market perception that water is 'pure and good for you’’.

News reports about crises involving municipal water supplies in many parts of
the United States heightened public awareness and concern about the safety of
tap water. Environmental groups and the Environmental Protection Agency
(EPA) sounded the safety alarm in several cities last year. As a result, consumers
began to choose bottled water as a safe alternative for drinking water.

IN GENERAL, MORE PEOPLE DRINK WATER BECAUSE IT WORKS FOR

Thirst: No beverage satisfies thirst more completely, more simply than

water.

Refreshment: Crisp, light, super-cooling; enters the system quickly;

adjusts the body's temperature almost immediately.

Fluid replenishment: Far superior to soft drinks, coffee, tea, or beer -

this may act as diuretics, actually depleting rather than replenishing body
fluids.

Mental alertness: Nothing clears the head or enlivens the senses like a
crisp, cold drink of water.

Vitality: Water is nature's own way to deliver nutrients and oxygen to

the body - and to aid the conversion of food into active energy.

Dieting: Helps the body to metabolize fat naturally.

..12..
 THE INDUSTRY SCENARIO
The numbers tell the story…

Bottled water is the fastest growing segment of the entire beverage business. In
fact, in 2000:

Bottled water consumption experienced an unheard of growth of more

than Two gallons per person;
Wholesale revenues totaled $5.7 billion - and increase over 9.3% over
1999 figures;
Volume reached 5 billion gallons; growing 8.3% compare that with other
beverages: soft drink growth was flat, and beer, milk and fruit beverages
grew 0.5% only.

The PET segment of the market accounted for 95% of the industry's
volumetric gain and represents about 35 percent of all bottled water
sales. Products packaged in PET - the small plastic bottles - barely
appeared on the radar screen ten years ago!

Americans eat 34% of their food outside their homes and convenient
sized packages have given them an opportunity to drink the bottled
water they love.

Source: Beverage Marketing

..13..
U.S. Bottled Water Market, 1976-1997, Gallon age

Source: Beverage Marketing Corporation, New York

Over half of all Americans (54 percent) drink bottled water, and about 36 percent
of them imbibe regularly (more than once a week). Sales have nearly tripled in
the last decade, to about $4 billion in 1997, rising from 4.5 gallons per year for the
average American in 1986 to 12.7 gallons per year per person in 1997. Americans
consumed a total of 3.43 billion gallons of bottled water in 1997. Globally, the
market was estimated in 1995 to be worth more than $14 billion annually in
wholesale sales, and it has certainly grown since then. According to a 1992
inventory, there were already 700 brands of bottled water produced by about 430
bottling facilities in the United States, a number that likely has grown since that
time, because of the enormous expansion in bottled water sales.

..14..
PERRIER LEADS THE BOTTLED WATER BOOM ….

Here are some statistics about the growing popularity of bottled water and The
Perrier Group's continued market share leadership

Source: Beverage Aisle

Since expunging the blotches on its image of purity due to the Benzene incident
at Perrier, the industry has exploded, with the market now growing at a strong
rate of 8 to 10 percent per year -- about twice as fast as the rate for other
beverages.

..15..
 Source:
Beverage
Marketing

According to industry stock analysts, "the profit margins in the business are
really pretty good" -- for some bottlers in the neighborhood of 25 to 30 percent.
That means every $1.50 bottle of water brings around $0.50 in profit. The actual
cost of the water in the bottle purchased off a store shelf is generally just a
fraction of a cent to a few cents. Thus, typically 90 percent or more of the cost
paid by bottled water consumers goes to things other than the water itself --
bottling, packaging, shipping, marketing, retailing, other expenses, and profit. As
the then-chairman of the board of the Perrier Corporation stated in a remarkable
moment of candor, "It struck me . . . that all you had to do is take the water out of
the ground and then sell it for more than the price of wine, milk, or, for that
matter, oil."

The bottled water industry's rapid growth is surprising in light of the retail price
of bottled water: It costs from 240 to over 10,000 times more per gallon to
purchase bottled water than it does to purchase a gallon of average tap water.
For example, in California average tap water costs about $1.60 per thousand
gallons (about one tenth of a cent per gallon), while it has been reported that
average bottled water costs about $0.90 per gallon -- a 560-fold difference.
Expensive imported water sold in smaller bottles can cost several thousand times

..16..
more than tap water: That $1.50 half-liter bottle of imported water may be
costing you 10,000 times more per gallon than American tap water.

While Americans with annual incomes of $60,000 per year or more are about 35
percent more likely than those of lesser means to buy bottled water, the
purchasers of bottled water are hardly limited to high income yuppies. As was
put starkly in American Demographics recently,

Black and Asian and Hispanic households are more likely

than whites to use bottled water, even though blacks and

Hispanics as a group have lower-than-average household

incomes… Scares like the municipal water contamination that

occurred in Milwaukee in 1993 may have even low-income

families springing for bottled water. It's clear that many

households are still opting for bottled water, even though it

can be an expensive habit. A five-year supply of bottled

water at the recommended intake of eight glasses a day can

cost more than $1,000. An equivalent amount of tap water

costs about $1.65.

According to the industry analysts, “The success of bottled water essentially

stems from the human drive to have pure, great-tasting water. Bottled water is a
delightful, refreshing beverage. It can be an alternative to tap water, filtered
water, or to a consumer's choice of just about any beverage, whether it be an iced
tea, soft drink or a cocktail.”

..17..
 TYPES OF BOTTLED WATER

The bottled water industry is one of the few industries that have voluntarily
created its own standard of good manufacturing practices that go above and
beyond most other food products for purity and safety. The industry in United
States is regulated by the Food and Drug Administration (FDA), which regulates
the pharmaceutical and food industries. Bottled water is required to be tested for
the same contaminants as tap water.

FDA (FOOD AND DRUGS AUTHORITY) OF US HAS SET STANDARDS FOR

BOTTLED WATER.
Some of the standards governing the bottled water industry in US are:
• Water is classified as bottled water or drinking water, if it meets all
applicable federal and state standards, is sealed in a sanitary container
and is sold for human consumption.
• Bottled water cannot contain sweeteners or chemical additives (other than
flavors, extracts or essences) and must be calorie-free and sugar-free.
• Flavors, extracts and essences--derived from spice or fruit -- can be added
to bottled water, but these additions must comprise less than one percent
by weight of the final product.
• Beverages containing more than the one-percent-by-weight flavor limit
are classified as soft drinks, not bottled water.
• Bottled water may be sodium-free or contain "very low" amounts of
Sodium

..18..
 • Tap water uses Chlorine as disinfectant bottled water uses Ozone as a
disinfectant. Bottled water should not contain chlorine.

As per Encyclopedia Britannica, mineral water is defined as

water that contains a large quantity of dissolved minerals or
gases. The mineral water can be categorized into natural
mineral water and artificial mineral water. Natural mineral
water is obtained from natural springs and has a high content
of calcium carbonate, magnesium sulfate, potassium, and
sodium sulfate. It may also contain gases like carbon dioxide
or hydrogen sulfide. While mineral water produced artificially

It has categorized bottled or drinking water into 7 different types, namely:

ARTESIAN WATER / ARTESIAN WELL WATER:
Bottled water from a well that taps a confined aquifer (a water-bearing
underground layer of rock or sand) in which the water level stands at some
height above the top of the aquifer.

DISTILLED WATER:
Water that has been turned int3o steam so its impurities are left behind and the
steam is condensed to make pure water.

MINERAL WATER:
Bottled water containing not less than 250 parts per million of total dissolved
solids may be labeled as mineral water. Mineral water is distinguished from
other types of bottled water by its constant level and relative proportions of
mineral and trace elements at the point of emergence from the source. No
minerals can be added to this product.

..19..
PURIFIED WATER:
Water that has been produced by distillation, de-ionization, reverse osmosis or
other suitable processes.

SPARKLING WATER:
Water that after treatment and possible replacement with carbon dioxide
contains the same amount of carbon dioxide that it had at emergence from the
source. (PS: soda water, tonic water etc. are not considered bottled waters as they
contain sugar & calories and are considered soft drinks.)

SPRING WATER:
Bottled water derived from an underground formation from which water flows
naturally to the surface of the earth. Spring water must be collected only at the
spring or through a borehole tapping the underground formation finding the
spring. There must be a natural force causing the water to flow to the surface
through a natural orifice.

WELL WATER:
Bottled water from a hole bored drilled or otherwise constructed in the ground
that taps the water of an aquifer (a water-bearing underground layer of rock or
sand).

..20..
 SOURCE PERRIER & THE US

Source Perrier is the largest seller of bottled water in the United States. Its US
sales are more than double those of McKesson, the next largest bottled water
company in the U.S. market. Four of Perrier’s brands (Arrow-head, Poland
Spring, Perrier and the Great Bear) are among the top ten brands in the United
States. Other Nestle controlled brands sold in the United States include Vittel,
Calistogs, Zephyr Hill, Ozarka/Oasis, and Ice Mountain.

US bottled water sales have grown phenomenally. As recently as the 1960s

Americans complained when traveling abroad about having to purchase bottled
water, especially that with bubbles. By the 1990s, United States had become the
largest consumer of bottled water, much of which was bubbly and imported
from France.

A small niche market for French water existed in the United States long before
the recent growth period. One of the earliest customers was Benjamin Franklin,
who, after returning from being ambassador in Paris, imported his drinking
water. Near the beginning of the twentieth century, Source Perrier set up U.S.
distribution; however, by 1976 sales were still very low. The so-called Perrier
fans, a small group of high-income people, had to pay high prices in gourmet
shops or upscale bars to quench their thirst.

By the early 1970s, Source Perrier, given its large share of the bottled water
market, was having trouble sustaining growth in France. The company sought to
increase sales by acquiring related French companies, including those producing
soft drinks, milk, chocolate and confectionery products.

..21..
In 1972, it acquired Poland Spring, a US company producing ‘still (non
carbonated) spring water’. None of the ventures fared well under Source
Perrier’s leadership.

The company’s chairman met Bruce Nevins, who as an executive of Levi Strauss
had been instrumental in the upsurge of jeans sales. Nevins believed it was
possible to develop a mass market for a “non caloric, chic alternative to soft
drinks.” The US soft drink market at that time was about $10 billion wholesale.
Thus the stakes were high, so high in fact that in 1975 and 1976 Source Perrier
sold 70 percent of its acquisitions (including Poland Spring) to finance a US
marketing subsidiary headed by Nevins. Several trends made Nevins optimistic
about acceptance of Perrier water by US consumers.
The most important trend was growing diet consciousness. Miller
Brewing had had phenomenal success with its Lite Beer. Because
cyclamates had been banned in soft drinks, producers of low calorie sodas
had turned to ‘Saccharin’, which people found distasteful. Also, there was
no popular low-calorie drink that was considered chic. The use of the
adjective “diet” simply announced that the drinker had weight problems.
If people could be persuaded that Perrier tasted good, it could become a
preferred low-calorie alternative.
A second trend Nevins observed was a movement towards natural foods
for health reasons. Even tap water and the 75 percent of the bottled water
processed from tap water had become suspect because in the process of
purification, suspected cancer-causing chlorine
derivatives were added. Further, certain viruses,
sodium and heavy metals were still found in most
purified water and soda water. Perrier came from
natural springs and contained high levels of calcium, very little sodium
and no additives. It could be promoted as a natural drink with healthy

..22..
 properties, even though it was not completely natural because some of the
bubbles were lost when the water was removed from the springs and
replaced during the bottling process.
There was a growing US preference for imports, apparent not only in the
rising ratio of imports to gross national expenditures but also in the
acceptance of “foreignness.” In terms of food, so-called gourmet
restaurants, cookbooks, dinner clubs, ingredients, and wines were
becoming commonplace and French items were practically synonymous
with the word “gourmet.” Perrier might be able to capitalize successfully
on these attitudes.

The US marketing program began in 1977. The company first had to decide in
which part of the market to position itself. The three trends just discussed clearly
would lead to different pricing, promotional and distributional strategies. For
example, in seeking the diet conscious market segment, Source Perrier would
come face to face with Coca-Cola and Pepsi-Cola, which between them
controlled 45 percent of the soft drink market. These companies, along with
many others, fought vigorously in the market by keeping prices fairly low,
advertising heavily and clamoring for shelf space in supermarket soft drink
sections. The difficulty of competing in this segment was evident from the
experience of Schweppes, which despite establishing US bottling facilities and
engaging in heavy marketing outlays failed to get even 1 percent of the market.
Competing in this heavy mass-market segment also might have caused Perrier
to lose the snob appeal it held for high-income buyers.

Entering the natural or health-food segment would pit Perrier against other
bottled waters and various tonics that contained healthful additives. This market
in 1976 was only $189 million. Of this, 93 percent was from purified domestic still
water, which was sold largely in five-gallon containers at low prices through

..23..
home or commercial delivery. Less than 20 percent of bottled water was sold in
retail stores, and there was little brand identification. To expand retail sales
probably would mean concentrating on gaining shelf space in the health food
sections of stores. Since bottled water sales were determinant be much more
concentrated geographically (about 50 percent in California) than were soft drink
sales, it would be far easier for Source Perrier to target its promotion and
distribution for this segment.

Although Source Perrier was already selling to the gourmet market, usage and
distribution gaps undoubtedly existed in this market. The total sales of mineral
water in 1976 were only $ 15 million. Primary demand might be increased
distribution to specialty stores and new distribution to the growing gourmet
sections of supermarkets.

Source Perrier decided to stress the soft drink market segment. However, price
was a problem. Through massive distribution, the retail price could be cut about
30 percent from what it was when the company emphasized the gourmet
segment of the market, however the price was still about 50 percent higher than
the average soft drink price partly due to cost of transporting water across the
Atlantic. Further, the price included a higher retail gross margin 27.6 percent
compared to 22.6 percent on soft drinks which was necessary in order to induce
the supermarkets to handle the product. The company kept its price at ‘ROCK
BOTTOM’ not only to become more price competitive with domestic soft drinks
but also to dissuade other European companies from exporting to the United
States.
To get people to pay what was still a high price, the company had to segment
the soft drink market differently than anyone had done so far by aiming at an
adult population and using the higher price to gain snob appeal.

..24..
The company felt distribution was the key to success and so hired a sales force of
forty people who formerly worked with soft drink companies. It initially
targeted New York, San Francisco and Los Angeles because they had consumers
with the largest penchant for food items. The company made a film designed to
convey to distributors and super-market chains that Perrier had long-term
viability. The film showed that the springs had been popular as far back as 218
B.C., when Hannibal partook of the waters, and that Source Perrier dated back to
1903, supplied 400 million bottles a year, and outsold the leading cola in Europe
by two to one. Source Perrier sought out the most aggressive distributors,
including soft drink bottlers, alcoholic beverage distributors and food brokers in
different areas. For the company’s success, it was essential that distributors be
able to get supermarket space in the soft drink sections, replenish stocks
frequently and set up point of purchase displays. One of the first distributors,
Joyce Beverage Management, bought fifty-five trucks and hired a hundred
additional people to handle the Source Perrier account. During the introductory
period, arrangements were made for secondary display stacks and in-store
testing. The company also gave cents-off coupons with purchases. Within a year
Source Perrier had moved from three into twenty major markets; this latter
figure doubled in the second year.

Source Perrier developed 11-ounce and 6.5-ounce bottles, the latter sold in
multipacks. It also developed a modern logo on the bottles, which was later
replaced by the original label design to be more in line with the old
world image the company wanted to project. With initial
distribution assured, it was necessary to sell the bottles that
were on the shelves. To do so necessitated advertising messages different from
those the company used in Europe. In Europe, the company could make
therapeutic claims; however, US law strictly forbade this. In US test marketing,
Source Perrier tried such themes as “Formerly heavy drinkers such as Richard

..25..
Burton and Ed McMahon are now ‘hooked’ on Perrier” and “Perrier contains no
sodium which causes heartburn”. These claims were abandoned in favour of
messages emphasizing the water’s qualities as a natural thirst quencher with no
calories and no additives.

The advertising budget was high. Initial promotion was regional relied heavily
on the print media. Food and Beverage writers were courted at dinners and
exhibitions so that they would write about Perrier. The company sponsored
marathons so that the product would be associated both with ‘healthiness’ and
‘thirst quenching’. As distribution became national, Source Perrier switched to
TV spots on major networks. It was able to maintain snob appeal by getting
tidbits in gossip columns about celebrities being seen sipping Perrier in the
‘Right Places’.

The resultant rapid increase in sales did not go unnoticed by competitors. In

1979, a bottling executive said, “Everyone with water seeping from a rock is
buying glass, slapping label on it, and marketing a new bottled water.” One
market research group, SANI, reported 104 brands of bottled waters in its
territory. Some of the established bottled spring water companies promoted
blind tasting comparisons to emphasize that US water was just as tasty as the
imports. Deer Park issued a challenge with spring water priced 35-K percent
below Perrier. Hincley and Schmitt introduced ‘Premier’ in a bottle with a label
that “unashamedly” copied Perrier. Its theme was “Let your guests think it’s
imported.” Norton Simon’s Canada Dry began repositioning its club soda to be
more competitive with Perrier.

In 1980, Bruce Nevis believed the “US market for sparkling water is in the
process of maturing.” Source Perrier’s US sales peaked in 1980 and then began
falling along with overall imported water sales, largely because of competition

..26..
from domestic seltzer (carbonated tap water) and domestic club soda
(carbonated tap water to which mineral salts are generally added). To combat US
domestic competition, Source Perrier subsequently re-purchased Poland Spring
in 1980 for $10million. After buying Poland Spring in 1976 for $1million, that
company’s new owners had carbonated the still water, modernized the facilities,
and captured 6 percent of the bottled water market. In addition to the problem of
domestic competition, the Perrier name was becoming practically generic as
customers increasingly asked for Perrier when they simply wanted some kind of
sparkling water.

TOWARDS THE NEW SEGMENT……

In 1982 Source Perrier devised a new US strategy. It decided to begin handling
specialized imports that could be sold to market
segments similar to those to which Perrier seemed to
appeal. This segment was described as different
company executives as “aspirant people who try to
improve their quality of life,” as “households with incomes of $30000 or more,”
and as “the same people who tend to buy better fashions, better cars, and the
like.” Source Perrier took on Lindt chocolate from Switzerland and Bonne
Mamac preserves from France and substantially increased their US sales. In 1985,
in an attempt to shore up its US water sales, the company began marketing the
water with traces of lemon, lime, or orange flavoring.

But what had appeared to be a maturing of the US bottled water market turned
out to be a mere blip. By the mid 1980s, industry sales were growing between 15
and 20 percent pr year. GROWING FASTEST WAS THE IMPORTED
MINERAL WATER SEGMENT. But the US market continued to be fragmented,
for two reasons. First, the cost and technology to enter the market are low; thus

..27..
new companies star up each year. Second, transportation costs lead to regional
distribution. Perrier is distributed nationally because it is cheaper to ship the
water from France than to ship domestic waters across the United States by truck
or rail. By the late 1980s, the following industry trends seemed apparent to
Source Perrier’s management:
Growth in all sectors of the bottle water market would be robust over the
next ten years, especially in geographic areas not yet accounting for a
large amount of sales.
Big competitors increasingly would get involved. Coca-Cola, PepsiCo,
Anheuser-Busch and Japan’s Suntory had recently become involved in
some aspect of the market through ownership, bottling, and/or
distribution.
Because of the capital-intensive nature of distribution (for example, the
cost of adding trucks), growth would more likely come from acquisitions
by the bigger competitors than from new company start-ups.
New importers would attack Source Perrier by targeting specific US
market niches. For example, Rambosa (Sweden) targeted snobbish
consumers, Eau Canada Sparcal (Canada) played up its high calcium
content to appeal to women fearful of developing weak bones, and Heart
of Tuscany (Italy) promoted its low mineral content for therapeutic
purposes.

Consequently Source Perrier chose to reemphasize the bottled water market in

the United States as opposed to the handling of related products. It did this
largely through acquisitions. However, the company has made no attempt to
connect the acquired brands to the Perrier name. Similarly, Nestle has made no
attempt to combine the Perrier brand with any of the other thirty-four bottled
water brands it now produces in ten different countries.

..28..
In 1990, Source Perrier was hit by two unforeseen events that had a negative
impact on its US sales. First because of a bottling worker’s error in France, some
bottles reaching the US were contaminated with benzene. A worldwide recall
resulted. Second, the Federal Food and Drug Administration (FDA) required two
changes in Perrier’s labels: the terms “naturally sparkling water” and “calorie
free” had to be dropped because carbonation was added and “calorie free”
implied that other water contains calories. Prior to the recall, Perrier held 5.7
percent of the US bottled water market and 44.8 percent of the imported market;
afterwards, sales fell 42 percent in 1990 and the company’s major French
competitor, BSN’s non-bubbly Evian, number-one US water import. Despite
these problems, Source Perrier owned brands, which at the time collectively held
18.2 percent of the US bottled water market, increased their sales so that their
overall US sales went up by 3 percent.

Many US analysts openly questioned whether Perrier would ever regain the
market share that had made it the best selling bottled water in the United States.
Although US supermarket sales rebounded to their earlier level in the first year
after the recall, sales in restaurants and bars, which earlier had accounted for 35
percent of Perrier sales in the United States, had not recovered completely. In
contrast, Perrier regained its French market share for bubbly water (in number
two position after BSN’s Badoit) almost immediately after the company
relaunched the water in 1990.

In 1991 Source Perrier’s new chairman Jacques Vincent, announced a long term
strategic change for Perrier. The company planned to position the water as a
more exclusive product to be sold mainly in restaurants. Supermarket sales
were to focus on locally produced, less expensive brands that are not readily
associated with the Perrier name. To this end, Perrier acquired Volvic and
Contrex, two brands popular in Europe outside France.

..29..
 Exporting
Exporting is the most traditional and well-established form of operating
internationally. A company may engage in direct exporting, that is, sales between
the company and a second country distributor or customer that functions as the
importer.
A company engaging in indirect exporting sells trough an intermediary located in
a home country.

Companies doing business in foreign markets use exporting precisely because it

is a low cost alternative as :

” It requires no investment in manufacturing operations abroad

” Expenditure incurred (in most of the countries) to obtain an export
license is minimal
” It allows manufacturing operations to be concentrated in a single
location, which generally leads to scale economies

Source Perrier adopts only ‘Exporting’ as its entry strategy in the

international markets. However the reason for this is far from the ones
mentioned above. The unique aspect of the product is that it is obtained
from a spring in France hence the product has to be exported and cannot be
manufactured anywhere else.

However, if it is done effectively and well, exporting requires significant

investments in marketing. This investment begins with intensive marketing
study leading to the development of a ‘country marketing strategy’. The
hallmarks of this strategy maybe, products adapted to customer needs and
preferences in the market (or left unchanged if appropriate) and price,

..30..
distribution and communication policies that are an integrated part of the
country marketing strategy. Many companies in a variety of industries have
concluded that concentrated manufacturing operations give them cost and quality
advantages over the alternative of decentralized manufacturing. But this
approach has a potential downside : Managers at factories located far from
export customers may not be responsive to customers needs and wants.(and to
other factors)

All Perrier products are exported from France. Indeed an important

part of the positioning of the product is that the water is from the
‘Source.’

POSITIONING IN THE NEW MARKET

The attractiveness of target segments in a country-markets and the firm’s
promising competitive position concerning the success factors in those segments
are not enough to determine final segment choice. Management must make sure
that the firm will be able to attractively differentiate itself or its offer from
competitors’ for its customers. It has to analyse which customer and stakeholder
aspirations the company should focus on and define the differential benefits that
should be provided.

..31..
 NESTLE WORLDWIDE
Nestle S A Switzerland, is one of the leading companies in the global foods
industry. The principal activities of the group encompass beverages (with
Nescafe as the flagship brand), milk products, processed foods, cooking aids,
bakery products, chocolates, confectioneries, pharmaceutical products
(ophthalmic, surgical instruments etc).

Nestle has a presence in 83 countries worldwide. It has a total number of 509

factories out of which 220 are located in Europe, 153 in America and 136 in
Africa, Asia and Oceania

The former Managing Director of Nestle, Pierre Loitard-Vogt, once said,

“Perhaps we are the only real multinational company existing.” Although this
may be something of an exaggeration, it is difficult to find other companies with
such a high dependence on foreign involvement. UNCTAD’s composite index on
trans-nationality ranks Nestle as the most international of the worlds 100 largest
manufacturers.

Throughout most of its history, Nestle has concentrated on manufacturing,

marketing and wholesale distribution and has avoided vertical expansion into
plantations or supermarkets. To maintain this control, its corporate management
handles all acquisition decisions as well as those regarding, which products will
be researched at the centralized facilities in Switzerland. This decision making is

..32..
handled through product groups, such as the chocolate and confectionery
products group. To support these functions, each geographic group is expected
to provide a positive cash flow to the parent. In fact, Nestle tries to move almost
all cash to Switzerland, where a specialized staff decides in which currencies it
will be held and to what countries it will be transferred.

The company is heavily dependent on introducing new products that may take
several years to become profitable, so it must ensure that the more established
products remain sufficiently profitable to generate needed funds. If a new
product does not become profitable within a reasonable time, such as mineral
water in Brazil, or if it has run its cycle of profitability, such as Libby’s vegetable-
canning operations, or if its development potential seems low, such as Beech
Nut’s baby food, management in Switzerland decides to divest the business.
Other divestments occur because certain activities of acquired companies do not
fit the corporate development strategy. For example, Nestle spun off a printing
and packaging business that was part of the acquired Buitoni-Perugina
operations.

Despite the centralized directives described above, Nestlé’s country and/or area
managers have a great deal of discretion in certain matters, especially marketing.
Product research is centralized so that duplication of efforts is kept to a
minimum. When a new product is developed, corporate management does not
find the changes harmful. For example, one of Nestlé’s best selling products,
Nescafe instant coffee, is blended and colored slightly differently from country to
country.

Various Bottled water brands owned by Nestle are:

..33..
BRANDS OWNED BY THE PERRIER GROUP OF
AMERICA OTHER THAN SOURCE PERRIER

ARROWHEAD
Principal Markets:
California and Arizona Perrier
Group brand: 1987
Founded: 1894
Bottled water has long been part of the culture of the well-developed California
and Arizona markets, where Arrowhead has been a favorite brand since 1894.
Today, Arrowhead ranks in the top three among America's most popular spring
water brands.

CALISTOGA
Principal Markets:
California and other Western states The
Perrier Group brand: 1982
Founded: 1924
Natural, non-sparkling spring water was added to the line in the early 1990's
from other spring sources in California. Bringing even more consumer choice to
this brand name are sparkling varieties with fruit flavors.

DEER PARK
Principal Markets: New

..34..
York to Florida
The Perrier Group brand: 1993
Founded: 1873
In the late 19th century, Deer Park was served to passengers aboard the
Baltimore & Ohio Railroad. Demand for it grew throughout the East as families
looked for bottled water they could trust for high quality and good taste. The
original source is a pristine spring 3,000 feet above sea level. It is located in the
lush Allegheny region of the Appalachian Mountains, just outside Deer Park,
Maryland. Other Deer Park sources are found along the Appalachian chain.

GREAT BEAR
Principal Markets: New
York to Washington, D.C. The
Perrier Group brand: 1987
Founded: 1888
Great Bear is one of the bottled water industry's oldest and best-known
companies. It is a leader in all of its regional home and office and retail channels.

ICE MOUNTAIN
Principal Markets: Midwest
The Perrier Group brand: 1989
Founded: 1987
Ice Mountain brand spring water, as its name implies, is a crisp-tasting natural
spring water. The brand is available nationally at foodservice outlets serving the
increasingly mobile American consumer including airport cafes, hotel mini-bars
and health clubs. The brand is also gaining popularity in the Midwest. A 1992
addition was a sweetened sparkling beverage in fruit flavors.

..35..
OASIS
Principal Markets: Texas
The Perrier Group brand: 1982
Founded: 1946
Legend has it that Butch Cassidy sipped Oasis spring water. Today, Oasis is not
only found in Texas homes and offices. Its convenience- sized bottles are
becoming a popular consumer choice in retail stores.

OZARKA
Principal Markets: Texas,
Oklahoma and Arkansas The
Perrier Group brand: 1987
Founded: 1905
Ozarka is the leading bottled water in the state of Texas. "Trusted by families
since 1905" is a reputation it continuously upholds. Ozarka is a familiar staple
throughout the region in stores, homes, offices - and around town.

..36..
POLAND SPRING
Principal Market: Northeast

The Perrier Group brand: 1980

Founded: 1845
The Poland Spring brand is famous for its naturally pure and crisp tasting spring
water. Poland Spring was first bottled in 1845. Its long history and high quality
have made this brand the most recognizable in America and number one in sales
of all bottled waters.

UTOPIA
Principal Market: Texas The
Perrier Group brand: 1993
Founded: 1983

ZEPHYRHILLS
Principal Market: Florida The
Perrier Group brand: 1987
Founded: 1960
Zephyrhills Natural Spring Water comes from carefully protected sources in the
state of Florida. In fact, the town of Zephyrhills, located in central Florida, is
aptly named "The City of Pure Water." Zephyrhills is the most popular bottled
water among Floridians.

..37..
 WHY NESTLE ACQUIRED SOURCE
PERRIER?
In 1992, Nestlé realized that nearly all-major sources of Nestlé, Perrier and BSN
are working close to their maximum capacity and consequently cannot maintain
their market share in a strongly growing market. Nestlé recognized that the
growth rate of the French bottled water market is likely to slow down and
indeed did not reach 1 % in 1991. Nestlé spoke of a realistic growth rate of 5 %
over the next years. In the still water segment Nestlé has the following mineral
waters – Vittel, Hepar, Abatilles. Nestlé also owns the spring water Pierval.

Whereas, Perrier owned two major still mineral water sources with considerable
free capacities, i.e. Contrex and Volvic. The free capacity of both sources
combined exceeded the total still-water market volume. Perrier in addition
owned other still mineral water sources. E.g.: Thonon. Perrier further owned a
number of important sparkling mineral waters: Perrier, Saint-Yorre, Vichy and
several smaller sources. The first two sources had a considerable overall and free
capacity. Finally, Perrier owned a large number of local spring water sources, in
particular the sources Castel, Saint-Roch, Les Ormes, Carola, Saint-Lambert,
Montegut, Regina and Sergentale.

BSN had one major still mineral water source, i.e. Evian and one major sparkling
mineral water source, i.e. Badoit, which had reached its maximum capacity. BSN
was at that time developing a new sparkling mineral water source called
Salvetat.

..38..
The merger between Perrier and Nestle required the sale of the brand Volvic to
BSN. After the merger and the sale of Volvic to BSN, the two suppliers would
have a considerable number of sources, the overall free capacity of which would
by far exceed the total water market volume (5 – 250 million liters) and each one
of these two suppliers would have at least one major still mineral water source
with huge free capacities compared to the overall market volume and all other
local water suppliers. They would thus be in a position to respond to an increase
in demand without any capacity limitation, even if one were to assume a
constant growth rate of demand of 5 % per year.

..39..
 SWOT ANALYSIS OF PERRIER

STRENGTHS
- The product is Natural water - which is highly sought
- The brand has entered United States decades back and therefore has
sufficiently high recall value, faith, clear positioning.
- The product is imported from France and hence has elite image associated
with it.
- The company can afford heavy advertising and other promotion budgets
due to the huge Financial support from the Parent company
- Other brands of the company
not associated with the name
Perrier, avoids ambiguity in
positioning.
- The company has undertaken a
project for restoring the old site
of Poland Spring.

Unused buildings at the old

WEAKNESSES
Poland Spring site. Bath house
- Soft-drink market is well and "water temple" are in the
developed – soft drinks are a background.

substitute for water to some

extent.
- The company is highly dependent on ‘Natural Sources’
- The extraction of water from the natural springs is observed as ‘Damage
to ecology’ by some extremists

..40..
 - Source is limited so cost increases.

OPPORTUNITIES
- The consumption of bottled water is increasing phenomenally.
- People are becoming more health conscious.
- Tap water is perceived as being impure.
- Possibility of creating brand value in the health segment
- The industry depends upon image engineering

THREATS
- Growing ecology consciousness among people – this is further explained
in the Chapter ‘ Protests
- Low entry barriers in the industry – costs & Technology needed are not
exclusive
- Fragmented market due to regionality of brands
- Gaylord Nelson – EARTH DAY and other such movements

..41..
WHAT WENT WRONG... ANALYSIS OF THE
COMPANY’S MOVES
The trends in the soft-drink market were no doubt appealing, the sheer size of
the market would have perhaps given the picture that there is enough cake for
everybody, but it proved to be an illusion in Source Perrier’s case. Source Perrier
because of various reasons needed to be priced quite high which was contrasting
as the major competitive edge required by any company entering this segment
would have to be low price.
The company could have positioned itself
in the health food segment. The following
points justify the above statement:

Could have created a huge market

Perrier could have created a huge market
for ‘healthy water’ and could have
capitalized on the growing health
consciousness and preference for health
and natural foods among American people.

Absence of strong competition

At that time, there were no national players in the bottled water market
because of high degree of fragmentation. There were small regional
producers scattered in different pockets of the country and catering to
niche segments.
In contrast, it had to fight big players like Pepsi and Coca Cola in the soft
drink market.

..42..
 First brand in this segment
The market was very small compared to the soft drinks. It was $189
million compared to $10 billion. In addition to this, there was no brand
identification in the market. The focus primarily was only on gaining
more shelf-space to increase visibility. Perrier could have concentrated on
this segment and through it’s aggressive marketing and distribution,
developed a huge market for itself.
It could have taken advantage of being the first-mover by being the first
national brand in the segment.

People willing to pay more

As identified by Bruce Nevins himself, there was a movement towards
natural foods due to growing health consciousness. The higher segment of
the market was willing to pay substantial premiums for a reputed brand
offering quality water.

As mentioned in the beginning, many times companies fail to identify the

range of alternatives open to them and, therefore, concentrate on only one
strategy – presuming that there is no other way.
This is precisely what happened to Source Perrier. None of the three markets
that existed, when Source Perrier was about to enter US, were ‘Best Fit’ for
the company.

..43..
“THE COMPANY SHOULD HAVE IDEALLY CREATED ITS OWN
NICHE.”
The company could have positioned Perrier as a premium brand meant for
the elite especially health conscious segment.
The following observations & facts elucidate this:

The product was ‘expensive & exclusive’. It wasn’t really meant for the mass
market. Besides the high costs of packaging the company had to face high
transportation costs. Glass bottle packing was essential because of the nature
of the product (carbonated) and ‘exporting’ was the only strategy that could
be used because of the exclusivity of manufacturing or rather ‘sourcing’ of the
product. As mentioned formerly the high retail margins also added to the
cost.

The product had therapeutic values, which would have opened the option to
launch the product in the health segment.
About 93% of the health market was selling bottled water at low prices which
leaves only 7% at exceptional prices. Source Perrier could have been a market
leader in this segment.
All the French products including Source Perrier were associated by the US
population to the ‘Gourmet’ class.
Finally ‘no price cutting’ would enable Perrier to retain high margins.

..44..
 THE OTHER BLUNDERS
Misunderstood buying behavior
According to a study by the European Commission, bottled water has a
distinct market and the demand is basically led by brand awareness and
health concerns rather than the desire for “low cal” drinks.

Very high cost as compared to soft drinks

In spite of applying all possible cost cutting measures Perrier remained
50% costlier as compared to its closest competitors. This was primarily
due to the following reasons:

1. Spring and mineral water has to be bottled at the source. Location

of bottling plants is therefore subject to a major legal constraint,
which manufacturers of soft drinks do not have. Producers of soft
drinks can locate their bottling plants according to an adequate
balance between economies of scale and transport costs, - rationale
water bottlers are not able to follow.

2. Water is a low-value/high-volume product, which in general

cannot bear transport costs over long distances.

THE YEAR 1980

Loss of focus
Sales grew rapidly till 1980.
However they started falling in
1980 due to high competition from
domestic players. A number of
competitors started entering the

..45..
 market. This was the growth phase of the market for bottled water.
However, the company misunderstood it as the “maturity” phase. This
was a big mistake as the company lost focus.

In order to sustain growth, the company diversified into handling specialized

imports and took on Lindt Chocolate and Bonne Mamac. However in 1985, the
company realized that the market was not maturing but was actually growing
phenomenally.

The US market was highly fragmented due to low entry barriers and high
transport cost. This is where Perrier had the opportunity to be distributed
nationally because of cheaper shipping cost to various US ports as compared to
the local manufacturers.

In 1990, Perrier’s image was tarnished because a few traces of benzene were
found in 12 bottles. This led to massive global recall of its bottled water. Perrier
recovered within one year in US supermarket sales but sales in restaurant and
bars did not recover completely.

However, Perrier recovered its French market share almost immediately after its
re-launch. This is due to the following reasons:
Food and Drug Administration rules are very strict in the US. FDA
required changes in the label – the terms “naturally sparkling water” and
“calorie free” had to be dropped.
Presence in France since many years and the consequent goodwill among
people.

..46..
 BENZENE INCIDENT

The water used for Perrier production spring comes from two sources. One
source is a highly permeable aquifer made up of sand and gravel. The second
source is from the limestone areas referred to as the "Garrigue". These waters rise
from subterranean pressure to the Nimes fault where they hit against
impermeable clays. The third source is a highly mineralized hot water with a
high carbonic gas content. It rises from the fracture in the Nimes fault system.
According to Perrier's geologist, Dr. Avias from the University of Montpellier,
this mineralized carbonic gas rises up, forced to the head spring by volcanic gas
and heat. It is in this source that Perrier's consultant identified the benzene. Since
1956, Perrier has collected the gaseous water from drilling into an underground
reservoir. In August of 1990, Perrier drilled a second bore hole for additional
exploitation of the source water. The water from this bore whole was found to be
contaminated with benzene.

In February 1990, 72 million bottles were taken off the market in the USA, after a
few traces of benzene were discovered in twelve bottles. Gustave Leven decided
to withdraw the entire US production (160 million bottles, then did the same in
five other countries (Germany, Canada, Denmark, Japan and Holland), thus
destroying a total of 280 million bottles world-wide. In April, Perrier – after ten
weeks absence - was back on the market.

..47..
 THE PROTESTS
"Sustainability" doesn't lend itself well to sound bites. But it's a concept that
commands Gaylord Nelson's passion even 30 years after he founded Earth Day.
"We have to reduce pollution to the point where nature can manage itself so that
future generations receive an ecosystem that is sustainable. We've had two
international conferences on it, and every scientist will tell you that the most
important challenge we face is sustainability," Nelson said. “It is a simple matter
of not using resources beyond their capacity,” he said.

One area of concern is The Perrier Group of America's desire to locate pumping
and bottling facilities in Mecosta or Osceola counties, a request that has met
opposition in Nelson's home state. Nelson said Wisconsin residents fear tapping
would harm the natural springs. Besides that, however, Nelson said he disagrees
with bottled water sales for the sole reason that it's based on "propaganda and
nonsense."

According to a report of a Washington, D.C.-based policy research center, Fresh

water systems around the world are so environmentally degraded they are
losing their ability to support human, animal and plant life. "The findings are
very disturbing," said Jonathan Lash, president of the research center. "We're just
using way more water than the earth can afford to give us."

The report is part of a comprehensive study by the institute on how human

activity is changing the world's ecosystems. It was released during the national
meeting of the Society of Environmental Journalists at Michigan State University.
Only about 1 percent of the water on the planet is fresh water available for
human use, Lash said. Agriculture accounts for 93 percent of fresh water use,
producing runoff that degrades water quality with silt and chemicals, the report
says.

..48..
The more water a private company takes from a spring, the less is left for nature.
Environmentalists worry that if Perrier consumes too much spring water, it
might damage a fragile natural wonder.

SOME FACTS FROM THE COMPANY’S POINT OF VIEW

Both the soft drink and beer industries use more water to produce their products
than the bottled water industry does. As unlikely as it seems, it's true. The
bottled water industry is a clean industry with little wastewater and
comparatively small consumption of water. Take a look at the chart below for the
specifics. They might surprise you!

Source:

Professor I. A. Shiklomanov -State Hydrological Institute, St. Petersburg, Russia

..49..
 RECENT UPDATE ABOUT THE
PERRIER GROUP

Perrier Group of America, based in Greenwich, Conn., now controls nearly a

third of the market, and has five of the top eight brands in the United States,
including the No. 2 seller, Arrowhead, distributed in the West. The company's
other leading brands include Zephyrhills, Deer Park and Ozarka.

The industry is likely to see increased consolidation, according to Gary

Hemphill, vice president of Beverage Marketing. He predicts that Perrier Group
will remain among the leaders because of its brands and its low-cost production.
But the company faces stiff competition. As sales growth for soft drinks has
slowed, the nation's biggest bottlers are putting their marketing and distribution
muscle behind their entries in the bottled water field. Pepsi-Cola's Aquafina was
launched in 1995 and has become the No. 3 seller; Coca-Cola weighed in last May
with Dasani, also off to a fast start.
The national brands, bottled at plants throughout the country, are purified
waters, as opposed to the Perrier Group's spring waters that are linked to a
specific location, lending an aura of authenticity.
"For the most part, people are buying refreshment and they're buying purity,"
Hemphill said.

..50..
 HIGH TOUCH POSITIONING

In 1991, Source Perrier’s new Chairman Jacques Vincent announced a long-term

strategic change for Perrier. Since then, Perrier has been positioned as a very
exclusive product to be sold mainly in restaurants. The emphasis is now on
creating the image for Perrier as being “lively, refreshing and exclusive” product.
Perrier is globally positioned this way.

The Perrier Group, with 2000 revenues of $1.67 billion, is comprised of two
business segments: retail, and home and office delivery.

Today, the retail business represents 55% of Perrier's revenues and involves
extensive distribution in all retail channels.

The home & office business, which accounts for the remaining 34% of revenues,
distributes their water products to 1.2 million customers spread across 650,000
homes and 550,000 businesses Imports and Canadian businesses, while relatively
small, are increasingly important at the Perrier Group. Imports are lead by strong
brands such as Perrier and San Pellegrino. Canadian sales have been reinforced
by the addition of the Aberfoyle brand to their portfolio as well as the growth of
the Canadian club store business.

“Indeed, the whole bottled water industry is booming. It is the fastest growing
beverage in terms of popularity in the United States, according to industry
studies, outpacing soda, fruit juice and beer. In some ways, bottled water's

..51..
success has been too much of a good thing, some company owners say. As sales
increase, companies such as Perrier hustle to find new sources of water. That can
be hard, and it can also anger environmentalists.

..52..
The Indian Bottled Water
Market & Source Perrier

..53..
 INDIAN MARKET
SCENARIO
In 1967 Bisleri set up a bottling plant for manufacturing and marketing its
mineral water but failed. The brand was later sold off to Parle in 1968-69. Mineral
water market had its seeding as early as 1968-69 when Parle Group acquired the
Bisleri brand from Bisleri of Italy for launching Soda water but later launched
bottled water also. The launch at that time was a big flop as concept of buying
water that too in bottled form was not accepted by the Indian public. The market
remained dormant for quite long (for a period of 20 years or so). The market
through out this period was formed only by the premium products that too
available through 5-star hotels. In early 1990s with onset of liberalization policy
by the Indian government, coming in of cola majors, sell off of local soft drink
brands of Campa, Thumps up, Gold Spot etc by Parle to Coke and other factors
led Bisleri to test waters again. Bisleri re-launched its bottled water in 1994. By
this time with exposure of media and exposure to international life styles,
deteriorating levels of potable water, increase in a number of water borne cases,
increase in awareness about health and hygiene and other related factors led to
acceptability of concept of mineral water. The market has not looked back ever
since then and has grown leaps and bounds to such an extent that a number of
genuine as well as fly-by -night operators have entered it to milch it.

MARKET CATEGORIZATION:
The market initially had only one SKU of 1 liter this was followed a by a number
of smaller and bigger SKUs. Based on these SKUs we can divide the entire
market into two segments:

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 − Retail consumption market
− Household & Institutional consumption market

Each of these consumption markets has a number of SKUs under it. Some of the
most consumed SKUs in retail market are 500ml, 1 liter, 1.2 liter, 1.5 liters, 2
liters, and 5 liters. Recently many of the bottled water companies have launched
330ml (or even smaller) pack targeted against 330ml pack size of soft drinks
especially the aluminum-can drinkers.

The institution market is largely constituted by the

hotel industry, caterers, offices, parties, travel,
tourism, hospitals etc. The SKUs that are
available in this market are 10 liters and above
besides this we have pack size of 250ml plastic cups.

The market can also be divided on the basis of the price at which this bottled
water is available into three categories:
− Super premium mineral water
− Premium local natural mineral water
− Popular or plain bottled water

Presently, Evian of Danone group; Perrier and San-Pellegrino of Nestle belong to

super premium category. Catch, Himalayan, Brilliant etc. belong to premium
local natural mineral water category. All other brands like Bisleri, Bailley, Kinley,
AquaFina etc. belong to popular or plain bottled water category.

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MARKET SIZE AND GROWTH RATE:
The mineral water market is still maintaining the pace at which it has been
growing over past few years. The market is witnessing launch of a number of
player with every passing day. Presently the market is skewed towards regional
players and has more than 250 players in the fray. Besides these we have a
number of fly-by-night operators who enter the market in summers, reap
benefits by packaging tap water and selling as pure mineral water, and then
leave once the season is over. The problem in the market is not with the players
but with the consumers. Poverty levels, illiteracy has led these players to take full
advantage of consumers by selling even the tap water as mineral water. The fault
also lies with the government for being lackadaisical in setting up norms for
entry into the industry and also for being lackadaisical in taking proper care of
health of its public.

Total bottled market has a size of Rs11-12bn of this around Rs7bn is in the hands
of organized sector and rest is with unorganized sector. In the organized sector
Bisleri is the market leader with 45% market share followed by Bailey with 23-
24% market share. PepsiCo and Coca-Cola too have market share in the range of
8-9% individually. Rest of the organized market is well distributed among small
regional players. The market for the past three years has been growing at
unimaginable rates of more than 80%, this can be explained on account of the
lower base of previous years. This strong double digit growth rate of the
industry has attracted a number of global players in the market In the recent past
some the major players like Coke, PepsiCo have launched their products in the
market. Many more like Nestle, Britannia, HLL have evinced interest in the
market. With changing consumer preferences from carbonated drinks towards
bottled water the growth rate is expected to stabilize at 25-30 % for next 4-5
years.

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COMPETITION:
The bottled water industry has two other industries as its biggest competitors in
from of Water purifiers industry and
the soft drinks industry. Though the water
purifier industry should be credited to
have done the spadework, for
setting up the foundation of bottled water
industry but still it acts as
competitors especially in the
household and institutional
consumption market and the soft drinks market is a strong rather very strong
competitor in the retail consumption market.

MARKETING PRACTICES:
Presently most of the players in the Indian market are selling their product
claiming it to be mineral water. All the players are vying to grab a few points of
market share and they are trying to get their brands endorsed by some or other
authority. Recently Coca-Cola has got its brand, Kinley, endorsed by the
Federation of Family Physicians Associations of India (FFPAI) to create an image
of being recommended by doctors and thus of the product being safe and
healthy.

Similarly other companies do claim to have purified their water "n" number of
times to show the superiority of their product. Many players are pitching their
product against water purifier industry by claiming their product to be superior
to that purified by these water purifiers. Many players are marketing on the price

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factor as well as the size factor. While others are focusing on particular target
segment.

PLAYERS:
PepsiCo: Pepsi has AquaFina brand of mineral water in the market. The
company entered into bottled water business in September '99 the company has
targeted its product towards youth segment and has so far focuses only on one
SKU, that too 750ml. Though the company is present only in selected market as
of now, it has plans of increasing share in the market by expanding its SKUs
portfolio as well as its distribution reach.

Coca-Cola: The company has entered in the business in May'00 through its
brand, Kinley. The Kinley brand is already being used for its soda water. The
company has tied up with Kothari Beverages, of Yes brand of mineral water, for
manufacturing coke's brand at Yes' facilities.

Bailley: The brand is a product of Parle Agro, the company of Frooti fame. The
company presently is the second largest player in the market with share of 20%.
The company has recently extended its Bailley brand name for its soda water. It
is also credited with forming a new segment of 330ml SKU in the market.

Bisleri: The brand is a product of Parle International and presently is the market
leader with more than 45% market share. The company pioneered the concept of
bottled water in the Indian market as early as 1967. The company is also credited
with SKUs of 500ml, 1.2 lts, 1.5 lts and 2 lts in the Indian market.

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Other players in the market with strong regional presence are: Brilliant, Yes,
Hello, Purette, Fountain, Himalayan, Golden Eagle, Prime, Pure Natural Aqua,
Ganga, Florida, Metro etc

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 LEGAL REQUIREMENTS

The PFA rule on mineral water is that it must be free from dirt, foreign matter or
any other ingredients injurious to health and has to be packed in clean and sterile
containers.

The Bureau of Indian Standards (BIS) has provided standards for both drinking
water and mineral water but compliance of these standards till now was
voluntary.

To regulate the quality and price of bottled water, BIS approval has been made
mandatory w.e.f. end of 1999. Mineral water shall be packed in clean, colorless,
transparent and tamper-proof bottles made of polyethylene conforming to the IS
10146 standards. The standards laid down under PFA Act do not prescribe any
minimum quantity of minerals to qualify as mineral water.

Hitherto Indian laws do not stipulate the

minimum mineral content level required
for water to be labeled as a mineral
water. The BIS does not lay down any
guideline or practice for processing
water. There is no specific industrial
licensing policy for the bottled-water
sector. Thus any one can set up a plant
can do so without establishing the source
of the water and the technology used to
purify it. Both the PFA Act and BIS state that the water must be completely free
of bacteria like salmonella, E-coli, faecal streptococci, v. cholera and shigella that

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cause a range of illnesses such as cholera, typhoid, dysentery and various types
of gastro-enteritis.

Both the PFA and BIS lay down standards for metals like lead, mercury, arsenic,
aluminum and barium which cause a range of disorders. The BIS lays down a
minimum of 150mg/l and a maximum of 700 mg/l of TDS for mineral water.
The PFA rules do not prescribe any minimum TDS levels but does mention the
maximum of 1500mg/l. There are no government laboratories for testing water
samples for all the parameters involved.

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 ABOUT NESTLE INDIA
Nestle was promoted by Nestle Alimentana, Switzerland, a wholly owned
subsidiary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the
oldest food MNC operating in India, with a presence of over a century. For a
long time, Nestle India’s operations were restricted to importing and trading of
condensed milk and infant food. Nestle was incorporated as a limited company
in 1959. In 1978, the Company issued 0.4mn new shares and 0.38m of existing
shares of Nestle Holdings Ltd. to Indian public to reduce its foreign holdings to
40%. Its name was changed from Foods Specialties Ltd. to the current name in
1981. Over the years, the Company expanded its product range with new
products in instant coffee, Maggie noodles, sauces, pickles and other culinary
aids, chocolates and confectionery.

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 ENTRY STRATEGY IN INDIA

Nestle India, had announced its entry into the Rs 300-crore Indian mineral water
market with the launch of its premier brand Perrier, in Delhi and Mumbai. This
launch of the food major was later followed by launch of its bottled water brand
Nestle Pure Life-targeted at the mass market-during the previous year. Nestle
expected to sell about half-a-million bottles of Perrier every year though it
maintained that Perrier is not a volume or market share game.

``Perrier strategy is not mass market, the market share gain will come from Pure
Life,'' Nestle India's Spokesperson was reported quoting on
www.Indiainfoline.com.

While Perrier was imported from its source in Verges in the south of France, Pure
Life bottled water was manufactured in the country. Available in the iconic pear-
shaped green bottle, Perrier priced at Rs 55 for a 330ml and Rs 90 for a 750ml was
clearly targeted at the premium end. However, the premium segment of the Rs
300-crore mineral water is estimated to be a tiny Rs 1 crore with a single brand
Danon's Evian brand marketed by Britannia.
Nestle, planed to differentiate itself from Evian or any other brand as Perrier's
competitor by presenting Perrier as the only mineral water of its kind in the
country.

Owing to its premium positioning, Perrier's launch was limited to select cities
only. The brand was launched in Bangalore initially. According to the Brand
Manager for Specialty Imports, Mr. Siddharth Apaya, ``a latent demand exists
for these premium products in the cosmopolitan cities and we want to provide a

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genuine Nestle product.'' The product was made available in select outlets. The
marketing thrust was on institutional sales, especially in the hospitality sector.

The company did not intend to advertise the Perrier brand immediately but
planned to embark on a relationship building exercise with its core target
audience. The first such initiative was flagged off on June 17 in Delhi where it
was announcing its association with golf through an event-Perrier Invitation Golf
2000. The event was particularly targeted at the hospitality industry and the
diplomatic corps amongst others. Globally, Perrier has been actively involved
with tennis and has been associated with French Open, Wimbledon and the
Olympics since 1928.

The mineral water market is pretty crowded with as many as 114 brands. Parle's
two brands Bisleri and Bailey are currently dominating the market with the two
commanding 81 per cent market share, the rest-19 per cent-is shared by other
small brands. Pepsi, has recently entered the market with its Aquafina brand

For its entry in India, Perrier will have to export its water from France. With their
worldwide positioning in the premium segment market, it will be logical for
Nestle, to position Perrier in the same segment in India.
Since the company was embarking on a relationship building exercise with its
core target audience, in order to create a market for the product, Nestle could do
the following

- Establish a strong distribution network through direct sales force reaching

the hospitality sector and supplying to hotels, restaurants, airlines, clubs
and high-end super markets in cosmopolitan cities.
- Awareness of the brand can be done by direct mailers of impressive
catalogues to potential customers.

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- Syndicate articles in airlines, etc. can also increase awareness
- Press releases and articles informing the customer about the product can
be published in magazines.
- Sponsoring events to reach the target segment like sponsoring Golf
tournaments, Derby, etc. which they are already practicing
- The company should also target foreign officials and tourists who are
aware of Perrier and may create a demand for it.

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 LATEST HAPPENINGS
Hitherto under Indian laws the there were standards or norms only for mineral
water and even the standards set under PFA or BIS were very different from
those in the international markets. But now government has set norms separately
for natural mineral water and packaged drinking water in accordance with the
international standards.

Internationally the standards for drinking water that have to complied by, by the
bottled water manufacturers to ensure quality of their products are HACCP
(Hazard Analysis Critical Control Points). Though Indian companies in the
mineral water business are complying with these standards for exports but due
to lack of mandatory conditions in domestic markets, companies are lax.

As per the notification of October'00 there are 48 specifications to be met for any
water to be called mineral water while for packaged drinking water there are 43
such specifications to be complied with.

Some of the specifications as per the notification (effective from April'01):

− The location of packaging should be close to the source or place of origin

of water.
− Only water obtained directly from natural or drilled underground sources
can be sold as mineral water.
− For water to be called mineral water it should also not be subjected to any
chemical treatment.
− For water to be categorized as packaged bottle water, it can be sourced
from any place.

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− The water has to be treated and disinfected in accordance with
specifications for it to be categorized as packaged bottle water.
− Till December'00 only six players have applied for license for packaged
drinking water and no company has applied for a license in mineral water
category. But around 16 applications in packaged water category and 6
applications in the mineral water category are still in the pipeline.

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 THE SHOCK WAVE

The latest Ministry of Health (MoH) notification [No. GSR759(E)}, made it

mandatory for all packaged and mineral drinking water to sport the ISI
(Indian Standards Institute) mark.

The notification was essentially to bring a semblance of order into the

packaged water industry. The notification had laid out requirement
parameters for packaged and mineral water, carbonated water was merely
defined. “In the absence of requirement parameters for carbonated water, the
segment is required to adhere to the mineral water standards, as it was
packaged without treatment after extracting from the source.” Carbonated
water is unable to meet some of the standards laid down by the notification
for packaged water -- like the PH stipulation (6.5 to 8.5). Carbonated water,
from Nestle for instance, has PH a little less than prescribed for packaged
water by the notification. If imported carbonated water is to sport the ISI
mark, it would first require that BIS officials check the source. This would
mean Italy for San Pellegrino and France for Perrier. But the products will
still not meet the PH stipulations, unless different stipulations are laid out for
the carbonated water segment. And while carbonated soft drinks are allowed,
it is unfair to block out carbonated water, which is essentially sought after by
tourists.

Nestle is not the only one affected. Danone Group was on its was to launch
its Carbonated water brand Farrarelle. The launch now would have to wait
until the Ministry becomes a little generous. The two companies have found
that they were unable to further import carbonated water as a result of some
of the stipulations in the notification that came into effect in March this year.

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Nestle and Danone have made a joint representation to the Health Ministry
and the Bureau of Indian Standards (BIS) seeking different parameters for
carbonated water, as against the present status, where they have to adhere to
parameters laid out for packaged drinking/mineral water.
The argument put by them is “these products are very important and are
packed at natural sources and under conditions which guarantee the original,
chemical and microbiological purity.” The appeal was signed by the
Executive Vice President of Nestle India and Area Manager South Asia of
Danone Group.

Industry analysts are sure about a favorable verdict.

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 FUTURE OUTLOOK

While the unimaginable growth rates of more than 60% and even 100% can be
explained due to lower base the present growth rate of 25-30% is sustainable for
another 5-6 years. Today the demand of bottled water is increasing at a much
higher rate that that of carbonated soft drinks. The market size of bottled water
too is expected to surpass the size of soft drinks market in near future.

The last entry in the bottled water market was Nestle. It launched its premium
brands Perrier and San Pellegrino in Mid-1999. Nestle also launched its mass-
market brand Pure-Life early in 2001 after having tasted success with it in
developing countries like Pakistan and Mexico

Britannia too evinced some initial interest in the market but now seems to have
postponed its plans. They are concentrating on marketing Evian- a brand of the
Danone group. Danone Group as mentioned earlier intends to launch it’s
carbonated water brand ‘Farrarelle’ very soon.

The next in queue seems to be HLL, which too has identified the bottled water as
a growth area for future. The company is presently looking for some suitable
brand for acquisition. The existing players too are set to expand their distribution
network to have their presence across the country. The market is also expected
to undergo a major consolidation phase. As one of the major factors that are
important for success in the market is the distribution network, the players with
deep pockets are expected to go for acquisition of existing small regional players
to spread their network across the country. Already Coke has tied up with Yes
for manufacturing of its brands in areas where it doesn’t have presence. Though

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Coke and Pepsi have both, well established distribution network as well as
bottling & manufacturing plants, they seem to be at an advantage, but players
like HLL and Nestle with strong financial muscle can easily turn the tables in
their favor through acquisition. It is expected that the market would continue to
grow at a healthy rate of 25-30% for few years from now and the market size too,
is expected to increase to Rs17 billion by 2004-5.

Though many people claim water to be a resource which should be available to

them for free, there are more than those ‘many’ people who are ready to buy it.
With all these statistics and data we can definitely conclude that the future of
Bottled Waters Certainly looks bright.

““SSoo lleettss ddrriinnkk ttoo tthhee SSuucccceessss ooff tthhee W

Waatteerr IInndduussttrryy!!!””

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 BIBLIOGRAPHY

REFERENCE BOOKS

International Business - Environments and Operations

John. D. Daniels, Lee. H. Radebaugh

Global Marketing Management

Warren J Keegan

International marketing - A Global perspective

Hans Muhlbacher, Lee Dahringer, Helmuth Leihs

WEBSITES VISITED FOR THE PROJECT

www.perrier.com
www.google.com
http://www.saveamericaswater.com/news.html
http://www.friendsofthemecan.com/perrier.html
abcnews.go.com
archive.davin.ottawa.on.ca
auto.search.msn.com
www.bottledwaterweb.com
www.citt.gc.ca
www.clui.org
www.detnews.com
www.fft.fr
www.friendsofthemecan.com
www.grmlive.com
www.jsonline.com
http://www.wri.org
www.saveamericeswater.com
www.washingtonpost.com
www.perrierusa.com
www.doi.gov
www.ciionline.org
www.india-today.com

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