Scramble for a share of sparkling bottled water market

Water bottling has become a competitive business idea in the Kenyan market (Photo: Courtesy)

BY WINSLEY MASESE

KENYA: A few years ago, bottled water was a status symbol of sorts. Not anymore. An office without bottled water complete with a dispenser and disposable cups would be considered a work place with poor conditions.

For school-going children, bottled water is not just cool anymore, but has emerged as a basic necessity; it’s the same for a conference participant.

Largely boosted by the increasing health trend where majority have opted for low calorie drinks, the meteoric rise in bottling water business has emerged as a key competitor against soft drinks and other beverages. In fact, major soft drinks makers also have drinking water lines that are proving to be key revenues streams.

Growing market

Portable and considered safe for drinking, the segment has attracted the highest number of players so far, estimated at more than 90 and growing, with each trying to get a share of the lucrative market. Past statistics indicate that the sector rakes in more than Sh15 billion to the economy, but this is a conservative figure, the amount could be much more.

With increased urbanization and compounded by poor hygiene levels of the country’s tap water systems and sewage, residents have lost the confidence in water supplied by the water companies and turned to bottled water. 

Hotels and supermarkets for example have lately started branding their own mineral water and so are transport companies.

Geoffrey Injeni, the director at the School of Finance and Applied Economics, Strathmore University, says that the market, especially for mineral water is huge and would continue to grow in the near future.

“Tap water, which can be used for cleaning is not considered as safe and clean and this is likely to give mineral water a huge market forecast,” he noted.

Research firm, Euromonitor International, published a report in July 2013, projecting robust growth in total volume and current total value terms of bottled water.

The report attributed this to rising health awareness among consumers and the facts that tap water is generally of poor quality and often not safe for drinking.

Past statistics indicate that there are over 80 registered bottled water companies in Kenya and the number is more than any other registered company dealing in one line of products. In September 2013, Mumias Sugar launched into the market bottled water, Sprinkles, in its efforts to diversify its product portfolio.

By investing in bottled water, chief executive Peter Kebati reckoned the broadening of its product range would help the miller to cushion the company from volatility in the sugar industry.

“To deal with volatility, we have launched Mumias Sprinkles drinking water, which is available in 300ml, 500ml, and 1 litre bottles,” Kebati said during the launch in Nairobi. Purified bottled water for example represents an alternative to packaged beverages and other sugared drinks.

The 300ml size is the fastest growing segment in supermarkets and retail shops and can be seen in many estates. In the past, Kenya Revenue Authority announced strict measures for anybody found with unlicensed bottled water.

This is an attempt by the taxman to increase its collections from the sector and any improvement in the sector would be welcomed as it promised flow of more revenue.

Bottled water has been a major source for excise duty and an increase in the number of manufacture and consumption of the same would no doubt boost revenue collection.

However, Injeni argues that the market that has in recent years seen growing number of players has witnessed sharp drop in profit margin, as compared to four years ago.

“The returns have shrunk compared to two years when there were few players in the sector and the profit margin was at its peak,” noted Injeni.

With lack of data on the number of the workforce employed in the sector, amount of water consumed annually and players, as some operate illegally, it would be hard to measure its net worth and contribution to the country’s national wealth.

“There is no data available on the amount in volumes consumed in the country and this means that it’s difficult to measure the substantive effect of mineral water in the economy,” he said. He argues that whether mineral water informs the Consumer Price Index (CPI) is not known unless data is provided.

As the sector becomes crowded, how to beat competition becomes the greatest headache for companies to stay profitable.

“Marketing is significant in the success of any business and in the bottled water sector, visibility and brand loyalty are key,” noted Alice Mumbi, a marketing practitioner.

According to the Euromonitor for example, Aquamist leads with over 20 per cent, but in off-trade volume terms Crown Foods Ltd, which was acquired by SABMiller in late 2010, leads with 23 per cent share in 2012.

Crown’s dominance is largely attributed to brand loyalty and its long-standing presence in the market.

Besides, it benefits from strong promotional and marketing activities.

One of the advantage with Aquamist, according to the Euromonitor International report is the use of discounted pricing by selling its 330ml bottled water at the same price as they would have sold 300ml, while its 600ml water retails the same as 500ml.

Consequently, this gives them an upper hand in the market share as compared to other players. 

Despite this promising development, however, some unscrupulous traders have taken advantage of the increasing demand for bottled water to market products that are not certified.

In Machakos, Kitui and Makueni counties, past reports indicate that trade in bottled water that had a fake Kenya Bureau of Standards seal were on the streets and shops. It is the same story in Nairobi’s estates and other major towns where a number of traders operate under filthy conditions.

For example, the University of Nairobi, department of Chemistry carried a chemical composition analysis of the bottled water in the country. In one of the brands, the results from the sample taken were different from the ones on the label.

“The results from the laboratory and on the label though different, complied with standard KS 05-459 as per the Kenya Bureau of Standards,” it indicated.

Consequently, this questions the ability of the standards body to enforce the law. In the past, employees of the board have been accused of leaking the standard mark of quality to unscrupulous traders, who go ahead to bottle the water without meeting the required specifications.