5-force analysis of the bottled water industry

620 WordsMar 27, 20093 Pages
1. How strong are the competitive forces confronting the bottled water industry? Do a 5-force analysis to support your answer. When the bottled water industry first started out, it was such a great success. Prior to bottled water, people had to pour water into a glass using a gallon of water. Before bottled water, choices were limited as to how water can be used by people. The bottled water industry in North America is growing aggressively. It is the fastest growing segment in the beverage industry (around 30% annually, compared to 1% or so in carbonated beverages). Supermarkets have changed the industry completely. Since the costs of buying and holding shelf space is so expensive, the small firms, which used to be major water suppliers, are being priced out. Four companies now dominate the North American market for bottles water: Nestle, Danone, Coca Cola, and Pepsico. In 2002, these four companies had achieved over 60% of the water sales in the US. The 5-forces analysis I am going to discuss will provide a basis for understanding how the bottled water industry is doing in terms of sales and satisfaction. In addition, it is important to know the threats and outside influences to the industry. The first force is the threat to new entrants. Aside from the 4 companies that are dominating North America (Nestle, Danone, Coca Cola, and Pepsico), there is a minimal amount of threat that is posed to the industry. New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices and costs. When new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry. For example, Pepsi introduced something called Aquafina Essentials, which is flavored water (some sugar added). Some people might prefer this type

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