For the purpose of this study at hand I will be comparing the bottled water industry within South Africa according to Michael Porters five forces namely: Buyer Power, Supplier power, Threat of new entrants, Threat of substitutes and degree of Rivalry (Morningstar 2012).
Buyer Power:
Buyer power is defined as the power that the buyers of a product have on the price of the product. For instance a single person may have no effect on the buyer power of a brand, but a large retail store such as Shoprite or Checkers who buy in bulk may have a very strong buyer power and are able to negotiate special deals/prices on their purchases (Morningstar 2012).
The buyer power of bottled water all depends on the demand that there is for the bottled water. Large retail stores such as Pick n Pay and Checkers will have a stronger buyer power than smaller retailers. The buyers also have control over which bottled water brands to stock, they know which brands are more popular and sell better and therefore stock more of that brand (essay24). Large retailers often buy in bulk and thus receive better prices than those retailers who don’t buy in bulk, thus leading to the larger retailers being able to sell the bottled water at a cheaper price than other retail stores. Large retail stores have a better barging power than smaller retailers. The smaller retailers are also sometimes limited to the amount of a product they can buy, due to the fact that they might not have a big storage room and have limited shelf space in there stores.
Supplier Power:
Supplier power is defined as the power that the supplier of a product holds. The more powerful and established a brand, the more supplier power that brand will have. The more supplier power a company has, the more they can dominate a market and expand e.g. SAB buying into bars and or clubs (zataki 2009).
The supplier power of the South African bottled water industry is dominated by 3 major forces Nestle, Coca-Cola and Pepsi (brandchannel 2002). These brands have a superior supplier power over smaller unknown bottled water manufactures due to there pure size and market dominance. They are all extremely well established brands and have already made names within the industry. They all have already set up distribution channels and this allows for a easier flow of there products to the retailers. Smaller unknown brands find themselves at disadvantage to these market giants as they are unknown and still have to establish themselves (essay24). Smaller unknown companies might find it relatively difficult to compete against these brands, and look for any competitive advantage that they can. The owners of various springs that supply the water to the various companies have very strong competitive forces, they are able to control who they sell there products to and at what prices (essay24).
Threat of new entrants:
This is defined as how easy it is for a new manufacture to enter a certain market. There are many factors that come into account with threats of new entrants such as economies of scale, the cost of entering a market, the ease of access to a distribution channel as well as is there a need for the product (zataki 2009).
The treat of new entrants plays a big role in the market share of the already existing firms within the market. New entrants means more competition and therefore more rivalry/ fighting for market share. There are many factors that have to be taken into account when a firm decides to enter into a market or not, in 1997 leading beverage manufactures Coca-Cola and Pepsi decided to break into the bottled water industry, this was made easy for them as they were already both extremely well established with in the beverage industry and both had established distribution channels (brandchannel 2002).
Distributing a product is sometimes a deciding fact as to whether a firm enters a market or not. The distribution of a product is extremely important and if a company doesn’t have a efficient distribution system it can add unnecessary costs onto the product, this pricing them way above their competitors and this could lead to a firms down fall. Entering a market such as the bottled water industry is extremely difficult for smaller unknown brands, this is because it is extremely difficult and costly for them to compete against dominant manufactures such as Coca- Cola and Pepsi, who have large financial backing, are already well established and have efficient distribution channels. Another fact to take into account when entering a market is, is there a big enough need/ market for the product? The bottled water industry is a growing market and therefore seems very attractive to both big and small manufactures.
Threat of substitutes:
The threat of substitutes is defined as how easily your product can be replaced or bettered. Is there a product that is cheaper or better but covers the same need/ want as mine. E.g. A email can be seen as a substitute for a fax. A threat of substitute is how easily a person will move from my product to another product (zataki 2009).
A direct threat to the bottled water industry would be tap water, which is made available to most house holds across South Africa. The advantage that bottled water has over tap water is that many people perceive tap water as being un save to drink and therefore either opt to drink bottled water, or get there taps at home fitted with a water filtering devices (finewaters 2009). Another substitute is the amount of various bottled waters made available to the consumers. Bottled waters fall under the following headings: Spring water, Purified water, Mineral water and Sparkling water (myspringwater 2007). Therefore there are many options made available to the consumers, they are not restricted to drinking one kind of bottled water, they have options to choose from. Another substitute product of bottled water is fruit juices, ice tea’s and sport drinks such as Energade and Powerade, these however are not direct substitutes as they do not fall under the bottled water category, but some consumers may opt to go for one of these products rather than a bottle of water.
Degree of rivalry:
This is defined as how competitive a market place is, how many variations of one product are available? The consumers in a highly rival market enjoy a multitude of choices when purchasing. For a market to have a high degree of rivalry switching costs of products must be relatively low or nothing, the product must satisfy the same need/ want. The more competitive a market the higher degree of rivalry (zataki 2009).
The degree of rirvalry in the South African bottled water industry is very high. According to fine waters, South Africa has 40 domestic bottled water producers (finewaters 2012). This alone is a large number and therefore makes for a very competitive market. It is extremely difficult for one company to gain a competitive advantage over another company in the bottled water industry thus due to the fact that water is water and people don’t perceive one water to be of a better quality or taste than another (brandchannel 2002) The main thing and differentiating factor in the bottled water industry is brand name, consumers are more likely to buy and support know brands such as nestle, Pepsi and Coca-Cola rather than unknown brands (brandchannel 2002). The degree of rivalry in the South African bottled water industry is very high, this is due to the fact that many leading manufactures compete within the bottled water industry, as well as the market being flooded with many little unknown manufactures.
Conclusion:
In conclusion the bottled water industry of South Africa is a growing market with many new and unknown names rising up and competing with the market. It is a very competitive market and is dominated by the beverage giants Coca-coal and Pepsi. Due to the perception of tap water being un save to drink, many people are moving towards bottled water and thus making the industry very attractive, especially to many small manufactures.
Reference List
Cravens, D.W & Pierce, N.F. 2009.Strategic marketing. 9th ed. New York, NY: McGraw Hill
Brandchannels. 2002. Brand perceptions. [Online]. Available: http://www.brandchannel.com/features_effect.asp?pf_id=88 [Accessed 24 April 2012].
Essays 24. 2012. Bottled Water Industry. [Online]. Available: http://www.essays 24.com/print/Bottled-Water-Industry-Analysis/51000.html [Accessed 24 April 2012].
SANBWA. 2012. Bottled Water Industry. [Online]. Available: http://www.sanbwa.org.za/environment.asp[Accessed 24 April 2012].
SANBWA. 2012. About Bottled Water. [Online]. Available: http://www.sanbwa.org.za/environment.asp[Accessed 24 April 2012].
Myspringwater 2012. [online]. Available: http://www.myspringwater.com/SpringWaterInformation/TypesOfWater.aspx [Accessed 24 April 2012]
Morningstar 2012. Porters. [Online] Available:http://news.morningstar.com/classroom2/course.asp?=145087&page=#&CN=C [Accessed 24 April 2012]
Zataki 2012 [Online] Available: http://zataki.blogspot.com/2009/03/porters-5-forces-explained.html [Accessed 24 April 2012]
Finewaters 2012 [Online] Available:www.finewaters.com [Accessed 24 April 2012]