1.Major economic features of the industry, including, but not limited to market size, market growth rate, number of rivals, scope of rivalry, number of buyers etc.(Text Table 3.1). Describe only those features that are relevant to the case.

Q John E. Gamble University of South Alabama W7 ith global revenues exceeding $62 bil- ' lion in 2005, bottled water was among ' the world's most attmctive beverage cat- egories. Industry revenues were forecast to grow by an additional 30 percent between 2005 and 2010, to reach approximately $82 billion. Bottled water had long been a widely consumed product in Western Europe and Mexico, where annual per capita con- sumption approached or exceeded40 gallons in 2005, but until the mid-1990s bottled water had been some- what ofa novelty or prestige product in the United States. In I990, approximately 2.2 billion gallons of battled water were consumed in the L'nited States and per capita consumption approximated 9 gallons. U.S. per capita consumption had grown to more than 25 gallons by 2005. The rising popularity ofbottled wa- ter in the United States during the late 19905 and ear- ly 20005 had allowed the United States to become the world's largest market for bottled water, with annual volume sales of nearly \"LS billion gallons in 2005.1n 2006, emerging-country markets in Asia and South America seemed to be replicating the impressive growth of bottled water in the United States, with annual growth rates exceeding 20 percent. Exhibit 1 presents bottled water statistics for the 10 largest country markets for bottled water in 2004. The growing popularity of bottled water in the United States was attributable to concerns over the safety of municipal drinking water. an increased focus on tness and health, and the hectic on-the- go lifestyles of American consumers. Bottled wa- ter's convenience, purity, and portability made it the natural solution to consumers' dissatisfaction Copyright 8- 2007 by John E. Gamble. All rights reserved. C48 Competition in the Bottled Water Industry in 2006 with tap water and carbonated beverages. The US bottled water market. like most markets outside the United States. was characterized by erce competi- tive rivalry as the world's bottled water sellers jock- eyed for tnarket share and volume gains. Both the global and L25. bottled water markets had become dominated by a few international food and bever- age producerssuch as Coca-Cola. PepsiCo, and Nestlebut they also included many small regional sellers who were required to either develop low-cost production and distribution capabilities or use dif- ferentiation strategies keyed to some unique product attributes. ln 2006, competitive rivalry continued to ratchet upward as sellers launched innovative prod- uct variations, lowered prices in developed markets, used strategic agreemean to strengthen positions in established markets, and acquired smaller sellers to gain t'ootholds in rapidly growing emerging markets. Industry analysts and observers believed the recent moves undertaken by the world's largest sellers of bottled water would alter the competitive dynam- ics of the bottled water industry and would mandate that certain players modify their current strategic ap- proaches to competition in the industry. INDUSTRY CONDITIONS IN 2006 Even though it was the world's largest market for bottled water, the United States remained among the faster-growing markets for bottled water since per capita consumption rates of bottled water fell sub- stantially below those in Westent Europe, the Middle Case 4 Competitor in IN? Bottled Water lnd;sliy in 2066 Leading Country Markets for Bottled Water, 1999, 2004 (in millions of gallons) Bottled Water Sales 1999 2004 4,5?9.9 3.05613 1 .21 10 1 .4933 2. 356.1 2,194.6 1 334.1 caes- (19992004}- a,aoa.7 3.2% 4,668.3 8.8 3,140.1 20.9 3,062.0 15.4 2,314.4 3.6 2322.6 44 Country United States Mexico China Brazil Italy Germany France mumm'humd Indonesia Spain 1 0 India All others Worldwide total LO 1 376.4 5333.5 25.9934 2.2513 4 .2 1 343.5 1 6.5 1 .4535 6.2 1 =353.131 25.0 10.5350 9.0 EEG? (Avg. CARG) 9.4 90?.1 444.0 ' CAGR=Compouno annual growth rate Source: Beverage Marketing Cormoration as reported by the International Bottled Water Association. 2006. Fast. and Mexico. Bottled water consumption in the Lnitcd States also lagged per capita consumption of soft drinks by more than a 2:1 margin. but in 2003 bottled water surpassed coffee, tea, milk, and beer to become tlte second largest beverage category in the United States. in 2005, more than 15.3 million gallons of carbonated soft drinks were consumed in the United States, but concerns about sugar con- sumption and other nutrition and tness issues had encouraged many consumers to transition from solt drinks to bottled water. Whereas the bottled water market in the United States grew by [0.7 percent be tween 2004 and 2005 to reach ?.5 billion gallons. the US. carbonated soft drink market declined by 0.6 percent. Industry analysts expected the carbonated soft drink industry to decline by LS percent annu all; for the foreseeable future as bottled water, en ergy drinks. and sports drinks gained a larger \"share ol'lhc stomach." Exhibits '2, 3. and 4 illustrate the growing popularity ofhortled \"amt among U.S. con sumers during the l990s and through 2004. Almost onehalf of bottled water consumed in the United States in l 990 was de livcrcd to homes and olhces in returnable livegallon containers and dis~ [tensed through coolers. At that ti me. only lSti mil~ Lion gallons of water was sold in oneliter or smaller Single-serving polyethylene terephthalatc (PET) bottles. Beginning in the late 19905. consumers bc gun to appreciate the convenience and portability of Water bottled in singleserving PET containers that could be purchased chilled from a convenience store and drunk immediately. By 2005. bottled water sold in two-liter or smaller PET containers accounted for 60.3 percent of industry volume. The unit sales of bottled water packaged in PET containers grew by 22.5 percent between 2004 and 2005. Water sold in vegallon containers used in the home and ofce delivery (I 10D} market accounted for only 1?.8 per cent of industry volume in 2005 and grew by only .2 percent between 2004 and 2005. Similarly, water sold in l or 2.5gallon highdensity polyethylene (HDPE') containers accounted for just 16.5 percent of industry volume in 2005 and grew by only |.0 percent between 2004 and 2005. Convenience and portability were two of a va- riety of reasons US. consumers were increasingly attracted to bottled water. A heightened emphasis on healthy lifestyles and improved consumer awareness of the need for proper hydration led many consum- ers to shift traditional beverage preferences toward bottled water. Bottled water consumers frequently claimed that drinking more water improved the ap- pearance of their skin and gave them more energy. Bottled water analysts also believed that many health-conscious consumers drank bottled water be cause it: was a symbol to others that they were inter ested in their health. A certain amount of industry growth was at tributable to increased concerns over the quality of tap water provided by municipal water sources. ____m____________ C-50 Part 2 Cases in Crafting and Executing Strategy Exhibit 2 Per Capita Consumption of Bottled Water by Country Market, 1999, 2004 Per Capita Consumption 2004 (in gallons) CAGR* Rank Country 1999 2004 (1999-2004) Italy 40.9 48.5 3.5% Mexico 30.9 44.5 7.6 United Arab Emirates 29 43.2 8.3 Belgium-Luxembourg 32.2 39.1 4.0 France 31 374 3.8 Spain 26.9 36. 6.1 Germany 26.6 33 4.4 Lebanon 17.9 26.8 8.4 UAWNOOOVOUAWN Switzerland 23.8 26.3 2.0 Cyprus 17.8 24.3 6.4 United States 16.8 23.9 7.3 Saudi Arabia 19.9 23.2 3.1 Czech Republic 16.4 23 7.0 Austria 19.7 21.7 2.0 Portugal 18.6 21.2 2.7 Global Average 4.3 6.4 8.3 . CAGR = compound annual growth rate Source: Beverage Marketing Corporation as reported by the International Bottled Water Association, 2006. Exhibit 3 Global Bottled Water Market Wholesale Value and Volume, 2001-2005, Forecasts for 2006-2010 Volume Sales Annual Industry Revenues Annual Year (in billions of liters) Change (S in billions) Change 2001 92.8 $47.3 2002 99.5 7.2% 51.3 8:5% 2003 107.9 8.4 56.1 9.4 2004 113.3 5.0 59.1 5.3 2005(e) 119.7 5.6 62.9 6.4 2006(f) 125.9 5.2 66.4 5.6 2007(f) 132.9 5.6 70.4 6.0 2008(f) 139.5 5.0 74.5 5.8 2009(f) 146.4 4.9 78.5 5.4 2010(f) 153.4 4.8 81.9 4.3 (e) = estimated (f) = forecast Source: Global Bottled Water Industry Profile, December 2005, Datamonitor. Consumers in parts of the world with inadequate United States was very pure by global standards. water treatment facilities relied on bottled water to (Municipal water systems were regulated by the U.S. provide daily hydration needs, but tap water in the Environmental Protection Agency and were required