Bottled Water - Market Overview

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Warren Chandler
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Bottled Water - Market Overview July 2012 Disclaimer The following information is offered in good faith and represents an unqualified interpretation of a range of industry commentary and market data.

1 Bottled Water - Market Overview July 2012 Disclaimer The following information is offered in good faith and represents an unqualified interpretation of a range of industry commentary and market data. It does not purport to be a detailed analysis of the market on which business strategy should be hinged to or capital investment considered without additional expert opinion being sought should that be deemed necessary. Introduction As for 2012, in 2013 the bottled water industry in Australia has remained relatively resilient over the last 12 months despite a range of competitive and market forces applying pressure to the category. Although the health benefits of bottled water are without question, the environmental impacts of the packaging and the constant cost comparison to tap water by well organised anti-industry campaigns continue to challenge market growth as it did in the previous period. Competitors The industry displays a high level of market share concentration. The top two players in the industry, Coca-Cola Amatil and Asahi Holdings Australia, account for significantly more than 70% of industry revenue in and represent approximately 85% of the volume with 50% and 36% respectively. Industry concentration has been increasing gradually over the last five years with the larger beverages companies acquiring successful bottled water brands. For example, Coca-Cola Amatil entered the bulk packaged water segments with its purchase of Peats Ridge and Neverfail several years ago. Industry enterprises ate expected to decline at an annualised rate of 3.6% in the five years through During August 2010, Asahi Breweries agreed to buy P&N Beverages for approximately $360 million. Under the plan, Asahi would combine P&N Beverages with its other Australian beverage business, Schweppes Australia, which it acquired from Cadbury Schweppes in 2009 for $962 million. The combined company would have been Australia s second largest beverage producer. In February 2011 the ACCC blocked the sale due to competitive concerns in the carbonated soft drinks and fruit juice markets. However, in August 2011 the ACCC approved Asahi s acquisition of P&N s water and juice businesses.

Key Statistics Pack Share Million litres 2012* 2011 2010 600ml PET bottle 194 189 190 - Share 35.0% 34.4% 34.9% 750ml PET bottle 34 33 33 - Share 6.1% 6.0% 6.1% 1.

2 Key Statistics Pack Share Million litres 2012* ml PET bottle Share 35.0% 34.4% 34.9% 750ml PET bottle Share 6.1% 6.0% 6.1% 1.25 litre PET bottle sparkling Share 6.8% 6.9% 5.9% 1.5 litre PET bottle Share 19.8% 20.0% 20.2% 3 litre HDPE bottle Share 4.9% 4.9% 5.0%

25 litre PET bottle sparkling 38 38 32 - Share 6.8% 6.9% 5.9% 1.

10 litre HDPE bottle 69 70 70 - Share 12.4% 12.8% 12.9% Other 83 82 82 - Share 15.0% 14.9% 15.

3 10 litre HDPE bottle Share 12.4% 12.8% 12.9% Other Share 15.0% 14.9% 15.1% Total Source: Canadean *end of data set Major forces The market is characterised by a high degree of new product introductions. Many of the major players in the industry are expanding on their product range within the bottled water segment, producing two or three products in the segment. Often these products are at different price levels, or are designed to appeal to particular segments of the market. This can be achieved through the addition of particular vitamins and minerals or by attractive or functional packaging such as pop-top bottles. Mild flavours are often also added, and the product is marketed as a near-water. External drivers affecting businesses Downstream demand from supermarket and grocery stores Much of the industry s output is sold into this market because some households purchase bottled water from a supermarket on a regular basis, and so these retailers are the most important source of immediate sales for producers in this industry. Demand from supermarkets and grocery stores is expected to increase in

Many of the major players in the industry are expanding on their product range within the bottled water segment, producing two or three products in the segment.

4 Real household discretionary income The level of disposable income is a key determinant in bottled water expenditure. This is particularly so for singleserve bottles and premium spring water, mineral water and sports water. Real household discretionary income is expected to increase in Health consciousness Consumer values regarding health and nutrition are key drivers of bottled water consumption. Increasing health awareness and greater knowledge of the benefits of adequate water consumption have boosted demand for bottled water. In particular, as consumers shift away from high sugar soft drinks, demand for bottled water increases. Health consciousness is expected to be slightly higher in , representing an opportunity for industry players. Annual mean temperature (deviation from average) During years of unusually hot summers, consumption of beverages, including bottled water, tends to increase. However, Australia s annual mean temperature is expected to be marginally lower in Public concerns over environmental issues Rising public concern over the contribution of PET plastic bottles to landfill and the unnecessary carbon emissions generated by the production and transportation of bottled water have weighed on sales in recent years. Public concerns over environmental issues is expected to increase in , posing and increasing threat to the industry. Consumer sentiment index Consumers are more likely to enjoy luxuries if confidence levels are high. Since bottled water can be seen as a luxury good, as confidence levels increase, so should consumption levels. The consumer sentiment index is expected to increase in Industry Outlook Despite criticism of the industry as was the case in 2012, it continues to grow at rates exceeding other beverage categories. The five years through appears positive for the industry, with the recovering economy, forecast rises in average temperatures, growing health awareness and consumers ongoing need for convenience set to drive sales of bottled water. Mounting environmental criticism looms as the industry s major threat. Producers have moved to counter the criticism by developing lighter, recyclable packaging and branding themselves as carbon neutral and environmentally friendly. Over the next five years, industry revenue is forecast to increase to an annualised 2.5% to total $702.4 million. This includes forecast revenue growth of 2.0% in

Health consciousness Consumer values regarding health and nutrition are key drivers of bottled water consumption.

5 NARTD Category - Australia All Channels ML % total ML %total % change vol change ML % total % change vol change ML % total % change vol change Packaged Water Bulk Water Carbonates Juice Nectars Still (Functional Waters) Squash/Syrups Energy Drinks Sports Drinks Iced Tea Iced Coffee TOTAL Source: Canadean Partner Report

0 Juice 524 10.9 519 10.9-1.0-5.0 493 10.3-5.0-26.0 488 10.1-1.0-5.0 Nectars 195 4.1 195 4.1 0.0 0.0 196 4.1 0.5 1.0 183 3.8-6.6-13.0 Still (Functional Waters) 55 1.1 53 1.1-3.6-2.0 56 1.2 5.7 3.

LIST OF CONTENTS AND TABLES

LIST OF CONTENTS AND TABLES Fruit/vegetable Juice in South Korea - Category analysis... 1 Headlines... 1 Trends... 1 Competitive Landscape... 2 Prospects... 2 Category Data... 3 Table 1 Off-trade Sales