Bottled Water Market Review by Zenith Global

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specialist consultants to the food and drink industries worldwide

Zenith Market Review ‘Country’ Bottled Water 2010

STRATEGY & MANAGEMENT  MERGERS & ACQUISITIONS  COMMERCIAL & MARKET  OPERATIONS & TECHNICAL  WATER & GEOTHERMAL  ENVIRONMENT & CARBON  PACKAGING & DISTRIBUTION

Contents 1: Bottled water volume 2: Bottled water value 3: Key manufacturers 4: Key brands 5: Channel distribution 6: Packaging

ÂŠ Zenith International Ltd 2010

3 7 11 13 15 17

zenithinternational specialist consultants to the food and drink industries worldwide

1: Bottled water volume

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Market volume 2005-09 Bottled water volume 2005-09 Million litres 900

807

800

724

700

600

2005

758

2006

2007

2008

2009

Volume (mln litres)

624 520

% change

500 400

Small pack (mln litres)

300

Bulk water (mln litres)

200 100

Per capita consumption (litres)

2005

2006

2007

2008

2009

 The bottled water market in ‘Country’ had been showing strong organic double-digit growth in the past decade to reach 807 million litres in 2008.  The growth was equally dynamic for all still water types: small pack, 2-10l jugs as well as the bulk format.  Starting in the second half of 2009, the country’s economy has undergone a significant contraction, which impacted both the consumers and manufacturers of bottled water. Consequently, the market declined by 6% in volume. Most other beverage categories also declined.  In 2009, market volume amounted to just under 760 million litres, of which small pack accounts for 90%.  Thanks to a hotter climate, per capita consumption of bottled water in ‘Country’ is relatively high for East Europe, at just over 100 litres. It is currently the second highest in East Europe, behind ‘B country’, but it ranked first before the recession.

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‘Country’ bottled water Volume segmentation 2009 Volume % share 10%

Volume (mln litres)

2005

2006

2007

2008

2009

Still packaged Still packaged Sparkling packaged

Bulk water

Sparkling packaged Bulk water Total

83%

 Still packaged water fuels market development in ‘Country’. The highest increase over the years was generated through larger pack sizes: 1.5 litre, 2 litre and more importantly – 2-10l jugs, which hold 22% of the market in 2009.  In 2009, still packaged water accounted for 83% of the market and this proportion has been stable for the past 5 years.  Sparkling water accounted for just under 20% of the market in 2000, by 2009 its share went down to only 7%. The sector is still in growth but has been impacted by limited natural resources and higher price per litre. The absolute volume increase (2005-2009) is 4 million litres in the sparkling segment which compares with over 200 million in still packaged.  The bottled water cooler market in ‘Country’ has developed fairly recently – the market doubled between 2005 and 2008, but contracted in 2009. This sector has represented around 10% of the market for the past 3 years.  POU filters are very niche due to poor mains water quality. 5

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water forecast Market volume 2010-14f Bottled water volume 2010-14f Million litres 1000 900

792

830

867

901

932

800

2010f

2011f

2012f

2013f

2014f

Volume (mln litres)

700

% change

600 500

Small pack (mln litres)

400

300

Bulk water (mln litres)

200 100

Per capita consumption (litres)

2010f

2011f

2012f

2013f

2014f

 The ‘Country’ bottled water market is expected to revive and continue to increase over the next five years.  Although the ‘Country’s economy is still struggling in 2010, the heat waves of the summer are likely to boost sales.  The total market volume is forecast to reach 932 million litres by 2014, with CAGR growth around 4%.  Per capita consumption is expected to increase to 128 litres, exceeding the West European average of 116 litres.  Within the small packaged water segment, still variants are expected to continue to drive the majority of growth, while sparkling is likely to continue to lose market share.  Cooler volume is also expected to revive and increase by around 15 million litres by 2014.

zenithinternational specialist consultants to the food and drink industries worldwide

2: Bottled water value

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Market value 2005-09 Bottled water value 2005-09 Million local

423

450

2005

2007

2008

2009

406

Value (million local)

400

334

350

% growth

300 250

2006

254

Value (million €)

202

200

% growth

150 100 50 0 2005

2006

2007

2008

2009

 ‘Country’ bottled water market value stood at 406 million ‘local currency’, equivalent to 207 million Euro in 2009.  Value evolution of the ‘Country’s bottled water market has been very dynamic - especially in 2007/08, which is when the average vpl increased thanks to rising demand for smaller packs and ‘on the go’ consumption.  The market value is growing also as a result of bottled water becoming more commercialised as opposed to generic and brand equity is developing.  After a few years of 20-30% annual value growth, in 2009 the market contracted by 4%, slightly less than for volume.  The currency exchange rates between the ‘local currency’ and Euro have been stable throughout the last 5 years, hence the local currency growth and the growth in Euro terms are comparable.

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water forecast Market value 2010-14f Bottled water value 2010-14f 2010f

Million local

2011f

2012f

2013f

2014f

600 500

424

444

464

482

499

Value (million local) % growth

400

Value (million €)

300

% growth

200 100 0 2010f

2011f

2012f

2013f

2014f

 Based on volume growth estimates, the market value will potentially reach just under 500 million ‘local currency’, equivalent to €255 million by 2014. This assumption is based on value per litre remaining constant over this period.  When the ‘Country’ economic difficulties are overcome and consumer spending power is less suppressed, it is expected that the actual value per litre will increase. Added value will be driven by the market movement from generic to branded products as well as development of convenience outlets, where price points are typically higher.  At the other end of the market, however, private label is also expected to develop alongside foreign retailer investment, which might change the value dynamics in the future.

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Value per litre 2005-09 Value per litre 2005-09 2005

local 0.60

0.52

2007

2008

2009

0.54

Total value per litre (local)

0.46

0.50

0.40

2006

0.39

0.41

Small pack vpl (local) Total value per litre (€)

0.30

Small pack vpl (€)

0.20 0.10 0.00 2005

2006

2007

2008

2009

 Value per litre has shown a gradual increase from 0.39 ‘local currency’ in 2005 to 0.54 in 2009.  The inflation rate was relatively high in the past, which influenced the vpl increase, but it effectively stabilised between 2007 and 2009.  At 0.27 cent in Euro terms, the ‘Country’ vpl is one of the lowest in ‘A region’.  The relatively low value per litre is reflected in the soft drinks market as a whole and is dictated by the general economic situation of the country and purchasing power. This is likely to change in the future.  The premium bottled water segment in ‘Country’ is incredibly niche and reserved to brands imported from France and Italy.

zenithinternational specialist consultants to the food and drink industries worldwide

3: Key manufacturers

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Leading manufacturers in 2008-09, volume and market share Manufacturer volume % share, 2009

‘A manufacturer’ Devin 25%

Others 34%

Company

Volume, mln litres 2008

% volume share 2008

Volume, mln litres 2009

% volume share 2009

A manufacturer B manufacturer C manufacturer

Agrima AD ‘E manufacturer’ 1% Hissar-90 ‘D manufacturer’ 5%

Gorna ‘BBanya manufacturer’ 21%

Coca-Cola ‘C manufacturer’ 14%

D manufacturer E manufacturer Others Total

 The market is quite consolidated, with the top 5 manufacturers by volume accounting for 66% of bottled water sales.  ‘A manufacturer’ is the leading local manufacturer controlling a quarter of the market volume. The company has more than doubled its sales since 2005, to 192 million litres in 2009. ‘B manufacturer’ is the second biggest local player, offering natural mineral water ‘A brand’, and a new table water under the ‘B brand’ name since 2008. Both companies have been acquired by investment groups.  ‘C manufacturer’ is the best performing of the global 4; the acquisition of ‘D manufacturer’ in 2005 assured the company a number 3 position. Sales of ‘C brand' have been relatively consistent throughout the last few years. Sales of ‘E Manufacturer’s ‘D brand’ have been very low; it’s bottler, however, has been performing well with the ‘E brand’. Private label is insignificant but is likely to develop alongside retailers. 12

zenithinternational specialist consultants to the food and drink industries worldwide

4: Key brands

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Leading brands in 2008-09, volume and market share Company

Brand

Volume, mln litres 2008

% volume share 2008

Volume, mln litres 2009

% volume share 2009

A brand B brand C brand D brand E brand Others

Others

Total



 The bottled water market in ‘Country’ is dominated by ‘A brand’ with its eponymous water brand. In 2009, it held a 28% market share by volume, equivalent to 208 million litres.  ‘A brand’ and ‘B brand’ compete head-to-head, with both offering still and sparkling variants, although ‘B brand’ tends to command a slightly higher price per litre than ‘A brand’.  ‘C brand’ is number 2 in volume in the retail channel, however the stronger presence of ‘B brand’ in the ontrade means that the ‘B manufacturer’ owned brand ranks 2 overall in the market, with ‘C brand’ as number 3.  ‘E brand’ is expected to have further increased its market share in 2010, predominantly due to a rebranding exercise that it undertook in 2009.  In 2009, ‘A manufacturer’ announced that it would discontinue its ‘F brand’ mineral water from the market, for financial reasons. ‘A manufacturer’ has retained marketing rights to the brand. nd

zenithinternational specialist consultants to the food and drink industries worldwide

5: Channel distribution

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Distribution, 2008-09 volume and market share Channel volume % share, 2009 10%

Channel

Volume, mln litres 2008

% volume share 2008

Volume, mln litres 2009

% volume share 2009

Modern trade

Hard discount Traditional trade 13%

Modern trade Hard discount

AFH 56%

HOD

Traditional trade Away from home

12%

Home and Office Delivery Total

 The modern retail channel accounts for the majority of bottled water volume sales; in 2009, distribution through this channel represented 56% of total volume sales.  At just under 12%, discounters are increasing their share of distribution.  Traditional independent trade is still a leading sales channel, at 13% in 2009. Nevertheless, with the active expansion of retail chains, it has been losing share.  Away from home declined by 2% in 2009, mainly due to economic pressures.  Home and office delivery stood at just under 10% of the market, and is entirely focused on over 10l formats.

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6: Packaging

ÂŠ Zenith International Ltd 2010

zenithinternational specialist consultants to the food and drink industries worldwide

‘Country’ bottled water Packaging size, % volume Pack size volume % share, 2009 Pack size (% share)

10%

2005

2006

2007

2008

2009

to 2 litres to 2 litres

>2 to 10 litres

22% >2 to 10 litres >10 litres

>10 litres Total

68%

 Packaging below 2 litres is dominant at 69% in 2009. However, smaller packs up to 0.5l account for 25% of the market.  5 litre PET jugs with still water is a value offering that is very well-established. In 2009, the economic pressures fuelled the growth of this segment and they accounted for 22% of the market by volume, which translates to 14% in value terms.  Although traditionally mineral bottled water was sold in returnable glass bottles, glass packaging is now quite rare, at around 2% of the market, and most of this is in 33cl pack sizes  PET packaging is basic. Recycling issues have not been key at this stage of ‘Country’s environmental development but the consumer awareness is likely to change in the near future.

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STRATEGY & MANAGEMENT  MERGERS & ACQUISITIONS  COMMERCIAL & MARKET  OPERATIONS & TECHNICAL  WATER & GEOTHERMAL  ENVIRONMENT & CARBON  PACKAGING & DISTRIBUTION