Suntory Report

1.1 Introduction

This report evaluates the attractiveness of the United States bottled water industry. The report will identify the following key factors:

* The Market size and growth rate of the US bottled water industry;

* The key businesses within the industry;

* Economic characteristics of the industry and country;

* Key driving forces of the US bottled water industry;

* The key success factors of the US bottled water industry;

* The strategic options available to Suntory Water Group;

The report will analyse the position Suntory Water Group holds within the US bottled water industry and from this a strategic action plan can be developed which can help the company to reverse its 2001 volume and market share losses.

The US bottled water industry will be analysed using theory models such as Porters' five forces and PESTEL analysis.

The strategic options of Suntory Water Group will be developed using SWOT analysis and Ansoffs' Matrix.

1.2 Market Size and growth of the United State bottled water industry.

The US bottle water industry is the leading country for bottle water consumption. In 1990 approximately 2.2 billion gallons of bottled water were consumed and per capita consumption approximated 9 gallons. The per capita consumption increased to 20 gallons by 2001 and is expected to grow to 26 gallons by the year 2005.

Figure 1.1 (Appendix E) shows how US market has experienced a 9.2% growth from 1996 - 2001. This growth rate is the fifth largest growth rate of bottled water consumption worldwide. Countries such as Mexico and Italy have experienced consumption growth rates of around 5.5% which brings up the question of has the US experienced an abnormal growth in bottled water consumption between 1996-2001 and can this growth rate be sustained.

Figure 1.2 (Appendix E) shows the per capita consumption of bottled water for different countries. This table shows that even though the US market has the largest market for bottled water it still lagging behind countries such as Italy, France and Mexico in term per capita consumption of bottled water. However the US market has a relatively high growth rate per capita which stands at 8.3 percent from 1999 - 2001. In comparison to other beverages within the US the bottled water market has grown at a vast rate. (See fig 1.3, appendix E).

The US bottled market is one the largest markets in terms of population. This can prove attractive for the bottled water producers as they would have a large market to utilize. The US bottled industry is currently experiencing high growth in overall consumption and per capita of bottled water and this growth has potential to continue. The size of the US bottled water target market and its growth rate of consumption make the bottled water industry very attractive industry.

1.3 Competitor analysis within the US bottled water industry

The US bottled water industry is an Oligopolistic market as the top 5 sellers of bottled water accounted for 75 percent of the industry sales in 2001. These top 5 sellers are Nestle Waters, Groupe Danone, PepsiCo, Coca-Cola, and Suntory Water Group (See figure 1.6, appendix E).

Nestle waters and Group Danone have competed with each other for many years within the bottled water market, however PepsiCo and Coca-Cola were fast becoming global sellers with their respective products Aquafina and Dasani.

It can be seen in figure 1.7 (appendix E) that the top ten leading brands within the US bottled water market consist of products manufactured by Nestle Waters, Groupe Danone, PepsiCo and Coca-Cola. This table also shows Nestle Waters as the leader in terms of leading brands within the US. One of the reasons why Nestle Waters are leaders is due to their acquisitions of smaller regional producers. This has aided their brand waters as the acquisitions have enlarged Nestle Waters distribution channels.

1.4 Economic Characteristics

The US bottled water industry is currently in the latter stages of the growth phase and entering the maturity phase of the industry lifecycle. (See appendix B, Fig. 1.9). This can be seen by the largest bottled water firms preparing for industry maturity by purchasing smaller regional brands.

According to the industry life cycle the US bottled water market is growing in terms of consumer numbers although as it enters the maturity phase the rate of growth is envisaged to slow down.

With the market entering a maturity stage the opportunities for increasing market share are reduced as it would be very expensive to increase market share if not already a market leader. This would be due to products already being established within the market and to compete against them would prove to be extremely expensive. Profits in the maturity stage may reduce due to pressure of additional investment coupled with continued distribution and competitive pressures. The maturity stage puts an emphasis on competition which largely based around advertising and quality.

Cyclical factors, such as interest rates, affect the US bottled water industry. In 2001 the US economy was in a recovery phase therefore this meant low interest rates. What this means for the consumer is a higher disposable income. This increased disposable income will be spent on luxury products such as bottled water.

The low interest rates are beneficial to the industry within US as the cost of borrowing is low. This could prove to be an important factor when making decision concerning expansion. (See appendix A & B).

1.5 Industry Driving Forces

The driving forces within the bottled water industry are identified by Porters Five Forces Model. (See appendix A). However there are some additional driving forces such as cultural changes, technological factors and regulations.

Changes in social attitudes have contributed to the growth of bottled water in the US in recent years. This is as a result of more and more people being conscious of health and fitness issues as well as consumers' on the go lifestyles.

Another driving force of the US bottled water market is placing orders via the internet. Suntory Water group have made a success of this by introducing their own internet ordering procedure (www.water.com). This enables consumers to purchase bulk water supplies

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