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Nestlé Waters (France)

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Nestlé Waters is the world's biggest mineral water company, and a key part of the vast Nestlé worldwide portfolio. Although its best-known brands are the two mineral waters which made up its old name of Perrier Vittel, the company also has a large portfolio of almost 50 other international or regional brands including Pellegrino, Panna, Buxton, Poland Spring and Arrowhead. Although it is best-known for its premium brands, the company is aggressively targeting less affluent consumers in Asia and Latin America as well as in the West with its company-branded products. Nestlé Pure Life is now the word's best-selling bottled water, supported in several markets by Nestlé Aquarel. The group has an unrivalled global footprint, even though the largest proportion of sales are still generated in developed markets. Despite its size, Nestlé Waters faces considerable competitive pressure, not just in Europe from traditional global rival Danone, but more seriously from soft drink giants Coca-Cola and PepsiCo. Another challenge came during the recession of 2008/09 as consumers were tempted to trade down from more expensive bottled products to simple tap water.

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Brands & Activities

Nestlé has steadily extended its control of the most valuable global bottled water markets, putting intense pressure on its main rival Danone, especially in key markets such as North America. Although it is best-known for its international premium brands, the company is driving forcefully into less wealthy markets in Asia and Latin America with its Nestlé-branded products, capitalizing on recognition of the parent brand.

Nestlé Waters is the leading marketer of bottled water worldwide by revenues. The group has 51 water brands in total, produced at over 90 sites in 33 countries, and sold in more than 130 markets. It is the leader in North America and several major European markets including France and Italy. The brands are divided into three groupings of international brands, Nestlé brands and local brands.

Sitting at the top of the portfolio are five premium international brands, with combined sales of around SFr 1.3bn (or €1.2bn). Perrier is the world's #1 sparkling water brand. Sourced entirely from a naturally carbonated spring in Vergeze, southern France, it is now available in more than 120 countries. In addition to its natural formulation, it is produced in a variety of other formats including lightly flavoured lemon and lime versions. In several European markets, the brand also lent its name to Perrier Fluo, a flavoured single-serve variant launched in 2002 in brightly coloured packaging and targeting the teenage market. That line was discontinued in 2008 in favour of a more sober variant under the name Perrier Le Mix. Carbonated San Pellegrino (or more correctly "S Pellegrino") comes from a single spring near Bergamo, in the Italian Alps. It is now marketed in more than 110 countries. Vittel is the group's most widely distributed still water. Originating in the Vosges mountains of Eastern France, it is marketed in 80 countries. It also dabbled in spin-off products, including fruit-flavoured variants, and the Vittel+Energy sports drink, introduced in 2002. Acqua Panna is Italy's best known still mineral water. Originating in Tuscany, it now reaches 90 countries worldwide. Contrex is a calcium and magnesium rich still mineral water from Contrexéville in eastern France, marketed primarily at health-conscious drinkers. There's an even higher magnesium content in Hepar still water, marketed as a natural aid for "intestinal transit".

The five premium waters are supported by lower-priced products which exploit the main Nestlé brand. These are blended or filtered waters, aimed at the lower end of the market. First introduced in Pakistan in 1998, Nestlé Pure Life was originally targeted at emerging markets, with launches in China, Mexico, Philippines, Argentina, Thailand, India and the Middle East in 2000 and 2001. It is not spring-sourced mineral water, but a filtered and purified version of what is effectively locally produced tap water. At the end of 2003 it was introduced into the US with the rebranding of low-value water brand Aberfoyle. It arrived in the UK in 2008, and by the end of 2009 was available in 27 countries, becoming the world's top-selling bottled water brand with volumes of around 5bn litres.

Nestlé Aquarel, launched in 2000, is produced from a blend of waters from nine different springs in Europe. It is now marketed throughout the continent, and the group hopes to establish it as the region's leading low cost bottled water brand. In Italy, however, the group has relaunched its local single source brand Vera in the same segment as a low-cost mass-market brand. Pure Life and Aquarel are available in both still and sparkling forms. Combined sales of the Nestlé brands were almost SFr 2.0bn (€1.8bn) in 2015. Since 2013, Nestle Waters has also taken over management control of the Nestea RTD tea brand previously run as a joint venture with Coca-Cola.

However the biggest chunk of the group's portfolio, contributing sales of SFr 3.85bn (€3.6bn), is its collection of more than 40 local brands, bottled at springs in 30 countries around the globe. These include five regional brands in Germany including Fuerst Bismarck, Rietenauer and Klosterquelle; seven other small regional brands in France; Henniez and others in Switzerland; Levissima and four other brands in Italy; Buxton in the UK (the local #3 behind Danone's Volvic and Evian); Theodora in Hungary; Naleczowianka in Poland; Sao Lourenco in Brazil; and Nestlé Konkon Yusui in Japan. The group's North American presence comprises Montclair in Canada; and several regional US brands including Arrowhead (from the San Bernardino mountains near Los Angeles, distributed throughout the Pacific US), Calistoga (from California's Napa Valley), Ice Mountain (Mid West), Poland Spring (the #1 bottled water in New York, Boston and the rest of the North East, sourced in Maine), Deer Park (#2 in the North East, from the Appalachian mountains), Great Bear (US North East), Zephyrhills (Florida and the South East), Ozarka (Texas and surrounding states in the South West).

Despite the collection of regional mineral waters, the US portfolio is now dominated by mass-market Nestlé Pure Life, sold nationally, primarily through Walmart. It overtook Aquafina and Dasani to become the overall top-selling bottled water in the US in 2008, and has maintained that position ever since. According to figures from industry watcher Beverage Digest, Nestlé Waters is the #1 bottled water company in the US and overtook Dr Pepper Snapple for the first time in 2014 to become #3 in the wider liquid refreshment category behind Coca-Cola and PepsiCo. Total US volumes that year were around 1.69bn cases, equivalent to 11.0% share. Pure Life was the top-selling bottled water brand by volumes at 585m cases (above Coke's Dasani at 400m cases), and the overall #6 liquid refreshment brand (overtaking Sprite). Poland Spring moved up to #9 that year with around 323m cases, ahead of PepsiCo's Aquafina. SymphonyIRI figures for multichannel retail sales gave Nestle Waters an overall 33% share of the US bottled water market (ye Jan 2013 ex Walmart), with retail sales of almost $2.2bn. Newest addition to the North America portfolio is premium brand Resource, first tested in 2009 and rolled out nationally in 2013. It claims to contain "100 percent naturally occurring electrolytes". Nestle, Coke and Pepsi are effectively the only major players in the US bottled water category. Nestle itself claimed sales of $2.9bn for its US retail water division in 2013, with another $760m from home and office delivery.

In 2004, Nestlé established a joint venture with Coca-Cola to acquire a controlling stake in AAPS, the #2 in bottled water in Indonesia, with brands including AdeS, Vica and Desca. It has management control of a joint venture in Turkey which produces local market leader Erikli, and a strategic and distribution alliance in Mexico with local beverage group Modelo. It agreed a distribution alliance in China with Summergate Fine Wines & Spirits, the local #2 in wine distribution, to handle Vittel and Perrier. In Japan, Nestlé Waters' products are handled by Suntory. While expanding its presence in established markets during 2006 and 2007, the group has sold off some of its weaker products, including water brands in Spain and the Philippines, in order to concentrate on stronger markets.

In addition to these retail products, Nestlé established a leading position in the HOD (home and office delivery) watercooler market, acquiring a number of cooler supply companies in France, the UK and US. The first step in this direction was the purchase in 2001 of Aqua Cool, a leading HOD brand in the United States, United Kingdom and France, for $220m. Other purchases included US company Sparkling Spring and a one-third stake in French company Opalia in 2002, as well as outright purchase of Dar Natury in Poland, First Choice in the UK, Aquaspring in Greece and others. In 2003, the group acquired Powwow, a leading office delivery service in seven European countries from Hutchison Whampoa, followed by Russia's Clear Water. In a partial reverse of this process, the group sold its Nestle Waters Direct delivery business in Germany, the Netherlands, Russia, Poland and Portugal in 2014 to rival Eden Springs.

Like all Nestlé divisions, reported revenues have been impacted by the sharp rise in the value of the Swiss Franc against the other currencies in which the group generates most of its sales. There has also been an impact from the economic downturn, which persuaded many consumers to switch back to more affordable tap water. Nestlé also came under pressure during the recent recession from environmental and other activists over pricing and for its use of plastics for bottles.

Nestlé is the #1 bottled water company in the US, Canada, Belgium, France, Hungary, Switzerland and Italy with between 24% and 30% share. It is the #2 bottled water company in the UK, with around 18% share. IRI estimated supermarket sales of £104m for Buxton for the year to Jan 2016 (quoted in The Grocer), making it the local #2 brand behind Evian. Pure Life and San Pellegrino contributed £45m and £26m respectively. Nestle also holds second place in markets including Germany and Poland.

For 2016, divisional revenues were SFr 7.93bn (€7.3bn or US$8.1bn). Water alone contributed SFr 7.41bn, with an additional contribution from other water-based beverages such as RTD tea. North America accounted for just over half of revenues, and Europe for 25%. The fastest-growing region is Africa & the Middle East.

Background

Nestlé's flagship water Perrier is in fact one of the world's oldest brands. The spring or source situated at Vergeze in southern France was in use more than 2,000 years ago. Unlike the majority of springs, the water from Vergeze is carbonated naturally with gas released by geothermal activity deep underground, so it actually comes out of the earth warm and bubbling. The source is known to have been used by the Roman army after their invasion of what was then Gaul. Several hundred years later it was temporarily blocked up by Hannibal after he crossed the Alps.

With a few minor exceptions such as this, the mineral water from the spring was freely available for hundreds of years to anyone and people came from around the world to bathe in "Les Bouilliens" or "boiling waters". As a result, attempts to commercialise the source during the 19th century were very unpopular, but in 1863 Emperor Napoleon III sold rights to develop a hotel and spa on the site. The spa was ravaged by a fire in the early 1880s, and the site closed down altogether for several years, until acquired by local businessman Louis Rouviere in 1888. He repaired the facilities and sold the business on to the Societé des Eaux Minerales, Boissons et Produits Hygieniques de Vergeze, run by Dr Louis Perrier. One of the good doctor's wealthier English patients, St John Harmsworth (brother of the British press baron who founded the Daily Mail newspaper), was very taken with the spa and established the Compagnie de la Source Perrier in 1906 to bottle and sell its water. Green bottles were designed in the shape of the clubs used by Perrier's patients to strengthen arm muscles, and Harmsworth sent samples to virtually the whole British aristocracy, advising them to mix it with whisky.

Although French in name and location, Perrier was a British-owned business for the next 40 years. Harmsworth died in 1933, and the company passed to his heirs. However the disruption of war and a general lack of interest persuaded them to sell the company in 1945 to a group of French businessmen led by Gustave Leven. Back under French ownership the business expanded rapidly. Between 1914 and 1950, output increased from 2m bottles to 150m bottles a year. At the same time, the company was forced to find new ways to ensure that the water remained consistently bubbly in such quantities. As a result, the carbonic gas in Perrier is still natural but is now collected separately and added to the spring water in the laboratory rather than underground.

During the late 1970s and early 1980s, as a result of skilful mass-market marketing which emphasized its chic French origins and health benefits, Perrier was established as one of the world's most fashionable brands, an astonishing achievement for a product that came virtually untreated out of the earth. Between 1976 and 1979 alone, US sales jumped from just 3m bottles to more than 200m. By the end of the 1980s, the drink was one of the best-known brands on the planet, distributed worldwide, and with a virtual stranglehold on the mineral water market, especially in the key US market. In just ten years from 1980 to 1990, sales grew from 20m litres a year to 420m. In the meantime, the group had also built up substantial interests elsewhere, acquiring regional mineral water brands Poland Spring, Calistoga and Arrowhead in the US, Buxton in Britain, and Contrex, Vichy and Volvic in France. Company president Gustave Leven also established a holding company for Perrier named Exor. Backed by Italy's wealthy Agnelli family, the beneficial owners of Fiat, Exor diversified widely, acquiring substantial amounts of property in Paris, a share in the Chateau Margaux vineyard, as well as Roquefort cheese and even electric heaters.

Then disaster struck. In 1990 traces of benzene, a natural substance known to be carcinogenic, were found in the water during routine tests in the US. What happened next has become a textbook lesson in how not to manage a contamination crisis. The Perrier management's biggest mistake was initially simply to ignore the problem, thinking it would just go away. At first the company blamed the contamination on a cleaner's dirty cloth, but was later forced to admit that managers had actually neglected to change the filters at the main bottling plant. At first Perrier ordered only a small bottle recall in the US. But as negative press coverage grew elsewhere, the public began to stop buying Perrier in all its markets. By the time Perrier finally initiated a full recall, the brand had lost a huge amount of public goodwill. The scale of the exercise was enormous - Perrier was forced to take its products entirely off-sale, recalling 160m bottles worldwide, at a cost of around $150. For over two months, Perrier was completely removed from the world market. President Gustave Leven resigned, and was replaced by his deputy.

Filters were quickly altered and the company was forced to wait while the spring gradually replenished the supply chain. But the hiatus gave Perrier's competitors a huge advantage as a host of local companies rushed to fill the gap in the market, especially outside France. Perrier struggled to regain its market dominance. Even before the benzene scare, its biggest still rival Evian was doubling the size of its business in the key US market year on year, while Perrier was growing by only 1% a year. With the company's shares at an all-time low, Perrier was an ideal takeover target. In 1992, Nestlé launched a hostile bid. The Agnelli family put up a spirited defence as a potential white knight for Perrier, but was unwilling to match Nestlé's $2.7bn bid.

The Swiss company was already owner of Vittel, France's #2 still water behind Evian. Like Perrier, the Gérémoy spring in eastern France from which Vittel was collected had originally been commercialised as a spa in the 1880s. Bottled for retail sale from the 1890s, the Vittel brand grew quickly during the 20th century, becoming the country's #3 mineral water business by the 1960s. It was also the first company to utilize PVC bottles in 1968, and later expanded its presence with acquisitions in other markets including the US. Nestlé initially acquired a minority stake in Société Generale des Eaux Minerales de Vittel in the late 1960s, and took majority control of the business in 1987.

Following the acquisition of Perrier, Nestlé was forced by French regulators to sell off Volvic to France's Groupe BSN (later Danone) for $550m, but acquired the remaining minority shares in Vittel, consolidating the two businesses as Perrier Vittel. Shortly afterwards, Perrier Vittel acquired a 49% stake in Italian mineral water company San Pellegrino, acquiring the remaining 51% in 1996.

The group has developed or acquired numerous other mineral water brands since. Nestlé Pure Life was launched in Pakistan in 1998, the first water to carry the Nestlé name. Pure Life quickly captured 60% of Pakistan's small bottled water market and has gradually been rolled out in other developing nations. As competition from Danone increased in early 2000, Perrier Vittel launched new brand Aquarel, backed with $100m of investment. Drawn from springs in Spain and Belgium, the still version of Aquarel was launched in early 2000; a carbonated version of the brand launched in the second half of the year in Germany. Also in 2000, the group acquired a number of additional brands including Hungarian mineral water company Kekkuti Asvanyviz, Poland's Mazowzanka, Valvita in South Africa and Fresh Water in Argentina. The following year, the group added a number of other brands in markets where it already had a presence, and moved into Saudi Arabia with the purchase of 51% of Al Manhal, the dominant Saudi water bottler.

In a major shakeup to the marketing of main brand Perrier, the company introduced its first plastic bottles in summer 2001, initially in Europe. The group also moved aggressively into the Home & Office Delivery (HOD) watercooler market, acquiring a number of cooler supply companies, including Aqua Cool, a leading home and office supply water brand in the United States, United Kingdom and France, for $220m. In early 2002 the group entered the mainstream soft drinks market with the launch of Perrier Fluo, a range of fruit-flavoured fizzy drinks. At the same time the company changed its name from Perrier Vittel to Nestlé Waters.

Gradually, the Perrier brand had itself come to be seen as one of the weaker strands within the ever-larger portfolio. In 2004, Nestlé began a shake-up of its main Perrier plant in order to boost productivity, which remained very low compared to other springs. (The average worker at the Perrier source in Vergeze produced 600,000 bottles a year, around a third of the number produced by a worker at San Pellegrino). When unions opposed the introduction of an early retirement scheme for older workers, Nestlé threatened it would sell Perrier unless its plans were accepted. That ploy worked, and as a result the Perrier factory regained profitability for the first time in many years in 2006.

Last full revision 5th October 2016

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