23 April 2008 - Rising health concerns in Europe have thrown open several windows of opportunities for the bottled water industry, which has so far played second fiddle to the soft drink sector. Apart from benefiting greatly from the general reluctance to drink tap water, bottled water in Europe scores over fizzy drinks due to the latter's high calorie count.
New analysis from Frost & Sullivan, European Bottled Water Industry: Investment Analysis, finds that the market earned €24.52 billion in 2006 and is expected to grow at a compound annual growth rate of 2.5 percent in Western Europe and 17.7 percent in Eastern Europe during 2007-2010.
Obesity-related health risks are causing a gradual shift away from carbonated water toward healthier alternatives such as bottled or flavored water, giving a boost to the European bottled water industry. Being a life product, bottled water is controlled by stringent laws and regulations and is considered very safe for consumption.
“Moreover, water is perceived to be an essential part of skin hydration and is linked strongly with health and beauty,” says Frost & Sullivan Senior Research Analyst Ramakrishnan Sitaraman. “Not surprisingly, bottled water manufacturers have built on this link by positioning bottled water as a skincare product.”
Overall, the Eastern European market is likely to outstrip the Western market in growth due to its larger untapped potential. While flavored/enhanced water appears to have the brightest prospects, still water continues to account for the biggest share of the volume pie. The home and office delivery (HOD) segment also has great potential for growth, as it is a largely unexplored market.
Market entrants’, especially multinational companies’, favorite mode of entry to the European bottled water industry has been acquisitions. There have been only a few instances of institutional investment in Europe, such as those in Devin (Bulgaria) by the Austrian Wing Equity Management and in AP Aqua (Hungary) by Euroventures.
Meanwhile, the industry is readying for another major trend–the entrance of breweries and soft drink makers. All these factors will make companies amend or streamline their business strategies.
“Companies are likely to be cost conscious, since water is a low-margin, penny business,” notes Ramakrishnan. “They have begun to adopt financial management systems on a systems, applications & products in data processing (SAP) platform, which is considered one of the best practices in the industry.”
Bottled water companies will also have to put in place strategies to counter the offensive campaigns mounted by municipal utility companies on account of drawing freely available water from freshwater resources and selling them for a price. Participants need to initiate public awareness campaigns and publish statistics that prove that the actual amount of water drawn by them is negligible.
There are also concerns regarding pollution created by the disposal of non-biodegradable packaging material. Companies have to demonstrate corporate social responsibility by using environmentally safe materials.