Competition: Water Wars Pg.[1]

COMPETITION
Water Wars

Old cola-rivals Coke and Pepsi are discovering there is more money in water than coloured water. Things are warming up in the Rs 1,000 crore bottled-drinking-water market and competitors, including Parle's Ramesh Chauhan, face the threat of a whitewash.

By Moinak Mitra

Two parts hydrogen, one part oxygen may well be the newest get-rich-quick recipe in marketing circles. There's no questioning the existence of a market for water: the typical human needs between a litre and two a day; India's 1 billion plus populace needs between 1 billion and 2 billion litres a day; even if the number crunching is restricted to the country's 100-odd million consuming classes, the result is a staggering 100-200 million litres a day, or 36.5-73 billion litres a year. In money terms, at Rs 10 a litre, the potential market could be worth between Rs 36,500 and Rs 73,000 crore. A glass of water would be in order now.

The market is worth a measly-by-comparison Rs 1,000 crore now, but it is growing at the rate of 40 per cent a year (a claim not many markets can make). And in the last one year, the world's largest coloured water companies Coca-Cola and PepsiCo have made inroads into a market previously dominated by the Chauhan brothers. Numbers sometimes confound, but this time they are as clear as, well, pure water. According to market research firm ORG-MARG's retail audit in March 2000, Pepsi's Aquafina had a negligible presence in the market, Coke's Kinley was yet to be launched, and Ramesh Chauhan's Bisleri and Prakash Chauhan's Bailley accounted for three out of every four bottles of water sold.

A year later, in March 2001, Kinley had a 10 per cent share of the market, Aquafina, 4 per cent, and the share of Bisleri and Bailley had come down to 68 per cent. By June 2001, numbers provided by the companies to BT indicate, it had come down to 57 per cent and the cola majors, together, accounted for just over a third of the market. Numbers don't get more dramatic than that.

P.M. SINHA, CEO, PEPSICO: By June 2001, Aquafina which was launched only last year account for 7 per cent of PepsiCo's revenues in the country

Coke and Pepsi aren't the only transnationals to be drawn to this market. The world's largest water-players Danone, and Nestlé have a presence in the Indian market too. It is the potential of 36-73 billion litres that these companies find attractive.

The size of the global water market is estimated at 55 billion litres a year. The bulk of this is packaged drinking water. Some analysts predict that Coca-Cola and Pepsico will offer a stiff challenge to market leaders Danone and Nestlé. India, with its huge potential (a word most consumer marketers now use with caution) could play a crucial role in that battle. ''World leaders Danone and Nestlé can't dent our sales in India, because they have a limited presence in soft-drink outlets,'' boasts Coke's CEO Alex Von Behr. ''Out here, we make the rules.''

The Transnational Edge

''Companies like Coke and Pepsi buy sales rather than earn them,'' gripes the 50-something Ramesh Chauhan the chairman of Parle Bisleri. The unfairness of it all is a little unclear as Chauhan is referring to the huge investments both companies are making in bottling plants and distribution. By end-2002, Coke would have doubled the number of water bottling plants to 16, and Pepsi would have added seven more to its existing base of five plants. In contrast, Bisleri, a brand launched as far back as 1967, boasts a mere 15 bottling plants and three country-wide franchisees. Already Kinley reaches 500,000 retail outlets, Aquafina, between 1,50,000 and 2,50,000.

If the cola majors have an edge, it is because the key success factor in the water business is the same as that in the cola one: getting the product within arms reach of need. But with the transnationals playing the volumes-card and competing on price-a 1-litre bottle of Kinley costs Rs 10, Aquafina, Rs 11-dealer-margins have shrunk. ''In the last one year, margins have come down from Re 1 a bottle to 65 paise,'' rues Pramod Aggarwal, a Delhi-based water distributor.

What's helped companies like Coke and Pepsi is a March-2000 Ministry of Health notification making it mandatory for all bottled drinking water brands to have an ISI certification issued by the Bureau of Indian Standards. Unable to meet the bureau's none-too-taxing standards, several brands vanished from the market; and finding the 'marking fee' (the amount charged by BIS) of 2 paise for every litre too high, a few other marginal players did. That made it easy for Coke and Pepsi to establish a presence in the market.

Even Chauhan isn't happy with this fee; Bisleri's high volumes meant he had to shell out Rs 70,00,000 last year: ''BIS is charging excessively and there is no justification for this. PFA and FPO (the other two regulators) do not charge for membership. The ISI mark should be made optional.'' However, according to Rohit Verma, the Executive Director of Prime Water, some companies continue to vend their bottled water brands-Primus, Hari Ganga, Euro, and Riviera-without an ISI mark. The incidence of such non-ISI brands is high in the southern and eastern parts of the country. ''Only 15-20 companies of the 400 or so who sell water in Chennai and other parts of South India are recognised by BIS,'' concedes Ravi Shankar, the managing director of Aqua Spring, and the vice-president of the South India Packaged Drinking Water Manufacturer's Association.

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