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Bottled Water industry in Nepal witnessing fierce competition with over 500 players

Bottled water companies have been quenching the thirst of people across the globe. These bottled waters might succumb to contamination due to intrinsic and extrinsic factors due to which the market is volatile, fragmented etc. The companies need to focus on quality products instead of unhealthy competition.

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Definition / Scope

The U.S. Food and Drug Administration (FDA) fully regulates bottled water as a packaged food product and requires bottled water to adhere to FDA's extensive food safety, labeling and inspection requirements. Bottled water is also subject to state regulations and, at the industry level, members of the International Bottled Water Association (IBWA) are required to follow the IBWA Model Code.

Water is classified as "bottled water" or "drinking water" when it meets all applicable federal and state standards, is sealed in a sanitary container and is sold for human consumption. By law, FDA standards for bottled water must be at least as stringent and protective of public health as standards set by the U.S. Environmental Protection Agency (EPA) for public water systems.

Some beverages containing certain ingredients or additives may cause that product to be classified as a soft drink, dietary supplement or some other categorization. Soda water, seltzer water and tonic water are not considered bottled waters. They are regulated differently, may contain sugar and calories and are classified as soft drinks.[1]

Market Overview

Due to the scarcity of potable tap water in Nepal, people are compelled to find alternatives to tap water (Melamchi) using bored wells, bottled water etc. The later is popular as people trust that water quality if safer for consumption.

The government of Nepal has been trying to implement regulations pertaining to the water industry in the country, however poor enforcement has been a primary challenge that municipal water quality remains to be questionable.

Bottled water of 1L and 20L capacities are popular across the globe but the bottled water of 0.75L, 0.25L capacities are also available. Among these bottled waters of 1L or below (i.e. 0.75L and 0.25L) are automatically filled and packaged as such while filling procedure of 20L bottled water are semi-automatic or manual in some cases.

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

Due to contamination and not meeting the parameter of the Department of Food Technology and Quality Control (DFTQC) the bottled water companies have faced many backlashes and even been through litigation in some cases.

So far only the companies dedicated to quality holding IBWA certificate have been free from risk due to their quality product.

Top Market Opportunities

As potable water scarcity seems to be a persistent challenge; bottled water will likely be around in Nepal. Nonetheless, scarcity of potable tap water is not the only driver for bottled water, it is still cherished for its balanced pH, micronutrient availability, chlorine free and pathogen-free water. Additionally consumers also believe that the taste and flavor of bottled water is better than ordinary tap water

Market Drivers

  • Investments from the government in the bottled water industry for automatic machines, research and development (in polymer degradation, micronutrient levels etc) will enhance the quality of bottled water in Nepal thereby improving sales and consumption
  • Increasing consumer awareness and affinity towards water quality is a string driver for bottled water consumption
  • As disposable income of consumers grow, affordability for bottled water increases
  • Bottled water sales in Nepal are also boosted due to tourism industry who may not want to consume municipal water given questionable quality and health concerns

Market Restraints

  • Lack of research and development by both private and governmental institution have been retarding the growth/profit of the bottled water industries.
  • Competition in the industry has grown from intense to fierce. This has induced price wars directly impacting profitability of the players and everyone in the supply chain. With ever increasing pressure on revenues and margins the product quality ofter suffers
  • Poor enforcement and monitoring mechanisms from the government leads to poor product quality thereby impacting sales

Industry Challenges

  • Increasing prices of raw materials (PET bottles), shipping costs, labor and Opex exerts high pressure on business operations
  • Poor infrastructure to extract water from natural resources
  • Product imitation by smaller companies who often engage in unethical business practices and undercut pricing

Technology Trends

  • Water contamination, scarcity and unreliability of municipal water is driving bottled water industry in Nepal.
  • In general the water industry in Nepal is not sophisticated technologically and specifically bottled water still remains to be a high labor intensive industry.
  • Automation in extracting, packaging and distribution is still nascent as most of the companies (both foreign and local) depend heavily on manual labour

Pricing Trends

  • Prices among companies are more or less similar
  • However, larger organisations with better technology and brand name may charge slightly higher than smaller companies
  • A 1L bottles of water may cost about USD 0.09 and a 20L up to USD 0.18
  • There have not been any price escalations in Nepal in the last 5 years given fierce competition. This has increased pressures on margins for companies and keep their businesses viable while still maintaining water quality

Regulatory Trends

In Asia Pacific, bottled water industry is regulated at three levels, namely:

  • Codex Alimentarius
  • Country Regulations
  • Trade Association Standards

The Codex Alimentarius, or "Food Code" is a collection of standards, guidelines and codes of practice adopted by the Codex Alimentarius Commission. [2] The key codex that manufacturers of bottled water should pay attention to

  • Codex Standard for Natural Mineral Water
  • Recommended International Code for Hygienic Practice of Collecting, Processing and Marketing of Natural Mineral Water

In Nepal, country laws related to bottled water are laid down by DFTQC. DFTQC is in charge of bottled water companies to maintain and regulate the parameters. They represent the Ministry of agriculture and have even published material on the parameters. DFTQC have coordinate with Ministry of industry to provide lithological data illustrating micronutrients of the raw water.

Manufacturers in Asia should associate themselves to Asia/Middle East Bottled Water Association (ABWA) [3]

Other Key Market Trends

End User Trends

  • Bottled water manufacturers normally target on-the-go customers as their primary customers
  • Lack of clean drinking water is inducing more and more customers to rely on bottled water
  • B2B sales are seen as a potent avenue by manufacturers who supply in bulk to hospitals, hotels and schools, however, this is true for larger organisations with more reliable product quality and supply dependability
  • Due to the economic situation in Nepal, price sensitivity is very high and demand for lower end cheaper products is significantly larger than higher end bottled water

Environmental Issues

  • Rapid economic development and increasing pressure of natural resources is causing stress, in addition to lack of interest and investments in environmental infrastructure may threaten the country's environmental sustainability
  • Industrial production has been growing since the early nineties and most often these industries have inadequate infrastructure to treat their wastewater effluents. Part of rural natural water pollution originates from these smaller scale enterprises
  • Although total annual precipitation averages 1343 mm (52.9 inches) in Nepal, water supply of reliable and consistent quality is a significant challenge

Distribution Chain Analysis

  • Most companies in Nepal have local manufacturing plants and they play a dual role of manufacturer as well as supplier
  • Sales to the end customers are also done through branches established by manufacturers in Nepal - this eliminates middlemen costs for the manufacturers while also being able to forge a direct connection with their customers
  • Bottled water is manufactured and then passed on to wholesales and stockists. These wholesales supply to retailers who in turn sell to the end consumers
  • In some cases retailers directly buy from manufacturers eliminating wholesalers and driving up margins for themselves
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Competitive Landscape

  • According to DFTQC, there are 517 bottled water companies across Nepal, among which only 35% are registered.
  • Around 78 bottled water companies are located in Kathmandu valley.
  • The market is extremely fragmented and this induces intense competition. Most of these market players are small to mid size manufacturers who participate in the market given low barriers to entry

Competitive Factors

  • Price - given price sensitivity is very high in the country
  • Quality of product - Cleanliness, advanced filtration technology used etc
  • Brand recognition - International brand endorsements
  • Product attributes - Natural mineral water, purified water etc

Strategic Conclusion

  • Industry Competition - Competition from local smaller players is very high. Imitation of products is a major threat to the market
  • Potential Entrants - Barriers to market entry are low and small local players keep mushrooming in the country challenging the industry both in terms of price and product quality
  • End Users - Scarcity of clean potable water, rising health concerns and increasing affordability all propelling consumer demands for bottled water consumption

References

  1. https://www.bottledwater.org/content/faqs
  2. http://www.fao.org/fao-who-codexalimentarius/en/
  3. http://www.asiamideast.biz/

Further Reading

  1. Rani B, Maheshwari R, Garg A, Prasad M. Bottled water–A global market overview. Bull. Environ. Pharmacol. Life Sci. 2012 May 6;1(6):01-4.
  2. Brei V, Böhm S. Corporate social responsibility as cultural meaning management: a critique of the marketing of ‘ethical‘ bottled water. Business Ethics: A European Review. 2011 Jul;20(3):233-52.
  3. IBWA. Bottled water code of practice. Diagonal road, Alexandria, Egypt: International Bottled Water Association; 2012.
  4. Igbeneghu OA, Lamikanra A. The bacteriological quality of different brands of bottled water available to consumers in Ile-Ife, south-western Nigeria. BMC research notes. 2014; 7(1): 859. https://doi.org/10.1186/1756-0500-7-859
  5. Hu Z, Morton LW, Mahler RL. Bottled water: United States consumers and their perceptions of water quality. International Journal of Environmental Research and Public Health. 2011 Feb 21;8(2):565-78.

Appendix

IBWA = International bottled water association

DFTQC = Department of food technology and quality control


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