Published: 30/01/2012 8:50 am
Despite challenges, the bottled water industry in Oman is expected to see a steady growth
In a country where one may say that water is more expensive than petrol and tap water is not used by many for drinking, one would assume that the bottled water industry is a lucrative business to be in. There are 25 active players in the market of which 11 are UAE-based.
According to a recent AC Nielsen report, the current market size is 23mn cases (each case is eight ounce) a year with per capita consumption standing at 693 cases per annum. Those in the industry say that the market has grown by about six per cent year on year since 2007. But that does not mean that there are no challenges. With so many players in the market, competition is cutthroat and undercutting is a common practice.
Opinion is divided on who is at an advantage - the local players or the UAE-based ones. But all agree that a strong distribution network is the key when it comes to success. UAE-based Masafi has tied up with Enhance, a Towell Group company as its distribution partner. Ahmed Fathi, export manager, Masafi, says the brand's focus is mainly on urban areas and hotels and also to ensure that Masafi is available in all the leading supermarket chains and shops.
Oman is our biggest export market for water. It is also the highest revenue generating country among all our export markets. Masafi water is the market leader in the mineral water business for the past few years with approximately 20-21 per cent market share, despite the presence of leading local brands," says Fathi.
While some in the industry say that the reach and clout of the UAE-based companies are a cause of worry for local players, N Janardhan, general manager, Oasis Water Company, has a different opinion. "With regard to indigenous brands versus foreign brands, we have got ahead with the firm belief that we can produce and deliver as good a product, if not better than the imported ones. Consumers will always recognise and identify quality and value for money irrespective of whether it is a local, regional or international brand. Our success is proof."
Branding and customer relationship
With something as essential and ubiquitous as water, it is interesting to look at how the players differentiate themselves in the market and build brand loyalty. Janardhan says the differentiating factors for their success have been customer relationship, quality management and team building. This will continue to be the company's key focus areas in the future too. "The time and effort spent in nurturing customer relationships have increased our customer base and sales volume.
Over the last 17 years, Oman Oasis five-gallon water bottles have become an intrinsic part of more than 23,000 households and workplaces in Oman. More than just delivering bottled water, this service has developed a warm relationship with the customer on a one-on-one basis that has enabled us to gain the trust and confidence of our customers," says Janardhan. The company also concentrates on launching innovative variants in contemporary packaging with promotions that focus on customer and consumer satisfaction, he adds.
Biju George, general manager, direct distribution, Enhance, says the biggest advantage for brands like Masafi is consumer awareness and support. "We always ensure that the brand is within the easy reach of the consumer. Being the biggest FMCG distributor in Oman, Enhance has experience with big consumer brands and that has helped the cause."
Both Janardhan and George agree that distribution is critical for this industry. While Janardhan says this is due to the high volume and low margin effort of this industry, George points out that proper distribution is the foundation for success for any mass product. "You need to ensure that it is available readily when required. The rest is a mix of brand pull and price point. We are talking full cases of water here.
When it comes to single serve or per piece/unit, it is all the same price in the market for the consumer. But for bulk packaged products, distribution and brand pull make a vital difference. The customer looks for value for money while the retailer looks at profit per case. So a lower priced brand can actually have surprising penetration at times based on the distribution strength of the company."
Trends and challenges
The trade has two levels - one dominated by 250ml, 500ml and 1.5ltr bottles, and the other one is five-gallon segment for households and offices. Though the five-gallon (20 litre) segment dominates the market, most in the industry say competition is tougher in the smaller pack segment. Apart from competition among themselves, companies are also facing stiff competition from supermarkets that have launched their own private labels.
Consumer prices have not gone up for more than a decade, says George. "The market has not had a price correction in water for more than 15 years. The consumer price of water has remained at 200bz for a 1.5ltr bottle despite PET, packaging, fuel and operating costs going through the roof. We are looking forward to a correction sooner or later."
In the premium segment, traditionally the fight for dominance had been between Masafi and Tanuf, with Masafi gaining an upper hand in the last couple of years, say industry watchers. "Oman Oasis is also picking up due to their vigorous distribution strategy. Their turnover has made them almost at par with Masafi in the current market," says an industry analyst who did not want to be named.
Increasing cost of packaging and lack of enough local manpower are major issues for water companies. Ahmed al Hajri, sales manager, Barzman National, says, "Omani bottled water companies import raw material like PET preforms, labels, bottle caps, cups, lids and so on from other GCC countries like the UAE due to unavailability in Oman and also due to competitive prices." This pushes up the cost for Omani producers and gives the UAE companies a competitive advantage over home-grown brands.
Mohammed Salim Seid al Amri, branches manager, Dhofar Beverage & Food Stuff Company, which produces Darbat and Jarziz brands of mineral water says, "When PET prices and raw material costs went up in 2011, we did not increase our prices as the Consumer Protection Division had asked us not to do so. While the Omani companies did not increase the prices, some of the non-Omani companies did so. We hope some action from ministry in the coming days will help us to grow as Omani companies."
Fathi says competition is so fierce, many companies resort to undercutting to gain an upper hand. "We are basically facing the problem of undercutting water schemes by other brands. The competitors are always seeking more sales opportunities through providing generous discounts and more trade schemes than average and what normal trade deals are set for."
Janardhan agrees that intense competition among the market players is here to stay. He says companies that continue to focus on providing good quality water and customer service will remain the dominant players. George adds, "Maintaining sustainable coverage and ensuring volume growth in a market beset with price wars and increasing cost of operations are immediate challenges for Masafi on the horizon."
Newcomers like Barzman National, which started production in 2009, has its own share of problems. Al Hajri, says, "We entered the market with a vision of being the leading brand in Oman in the production and distribution of bottled water. We wanted to give our consumers a high quality product and an excellent service that they actually deserve, but the market factors have not helped the water bottling companies in Oman."
Another problem according to al Hajri is the lack of enough Omani drivers and salesmen who are willing to unload products to clients. "The high turnover among Omani drivers reduces efficiency of our sales routes and hinders improvement in our services."
The path ahead
Despite challenges, most are confident that the industry will continue to grow. As the market continues to grow, they believe there will always be opportunities for them to tap into." Fathi says, "Looking at the facts and trends, I can say that the industry will keep growing. It may not see the kind of growth witnessed before 2008, but it will keep on attracting new players. Existing players may go in for new product lines and value additions."
Janardhan is also confident that the industry will keep growing. "The future of the bottled water industry remains strong in terms of continuing volume growth because the country's economy is strong. The importance of packaged drinking water will continue to remain very dominant. Companies that continue to focus on providing the choice of good quality water and customer service will remain as dominant players," he says.
Oasis Water Company plans to venture out in the market with other products. "We have recently launched juices in two flavours. Our growth plans and expansion will continue to focus on providing superior quality products and further consolidating our position as the brand of choice across the region in the foods and beverages arena," adds Janardhan.
Industry watchers say that in a competitive market like Oman, the players must identify and target different market segments in order to retain the cutting edge. With a general consensus that the industry will continue to see growth despite existing challenges, it seems likely that the market may see product innovations in this sector.