The market of bottled water in Russia

Production and investments
Market segmentation
Segmentation according to the type of water
Сhannel segmentation
Segmentation according to the type of packing
Segmentation according to the value
Producers and brands
Waters of Northern Caucasia

Water is one of the most dynamically developing food market groups in Russia. According to Nielsen in 2007 the market developed by more than ... % by value. According to our assessment the bottled water market capacity in Russia made up ... -... million dal in 2007 («Biznes Analitika» assesses the last year market at ... million dal or $... billion).

According to different assessments bottled water covers about the half of nonalcoholic beverages sales in Russia and demonstrates the best dynamics among the main market segments (niche segments such as kvass, cold tea, energy drinks are increasing now over and above the rate). Thus, according to Nielsen the group ‛bottled water‛ increased by ... % by value in 2007. This compares to the increase of juice sales by ... % in 2007 and carbonated beverages by ... % by value. It being known that carbonated beverages demonstrate such good dynamics owing to ‛healthy‛ product kvass (its selling in 2007 increased by ... %).

Bottled water consumption in Russia is still far from average European one. By the most optimistic assessment it doesn’t exceed ... per man, whereas in Western Europe it is ... per man on average. For example in neighbouring Ukraine it comprises ... per man. But in spite of such a good reserve for a raise of bottled water market size in Russia everything indicates the stabilization of sale growth rate. ‛Annual sale acceleration rate in the market of mineral and drinking water has stabilized at the level of ... -... % per annum and we expect it to not come down within the next few years‛, - says Snezhana Ravliuk, sector Ad Hoc manager of the company ‛Biznes Analitika‛.

The whole market of nonalcoholic beverages shows a long-term tendency towards the rise in consumer culture which is first of all connected with the concern for health. ‛In mass media one can more frequently meet articles and programs stating the matter of quality natural water consumption as a requirement for a long and healthy life. In the past mineral water was bought mainly to slake one’s sudden thirst but today it is more often selected as the basic drink at home, at work, doing sports, for cooking at home and in suburban residencies‛, - proceeds Snezhana Ravliuk.

In any case in order to reach a new level of consumption and to bring it nearer to European indices thereby to give a stimulus for the next market growth wave, Russian consumers’ welfare should grow up. But in the current summer season (2008) inflationary developments in the country’s economy and comparatively cool summer do not act in favor of domestic bottled water producers.

Production and investments

According to the official statistics of Russia more than ... million dal of mineral water were produced in six months of 2008 which is by ... million dal or ... % more than for the relevant period of 2007. Thus, this spring the production growth rate remained at the growth rate of 2007 and comprises now ... %. (Last year more than ... million dal of mineral water were produced, which is by ... million dal more than in 2006).

The growth in 2007 became possible also owing to investments of 2006 which made up $... million and it is by six times more than in 2005. Whereas in 2007 investments comprised $... million and this, even considering immense investments of 2006, was sufficient for the enterprises to maintain the high growth rate of the production.

But in the first quarter of 2008 investments comprised a little more than $... million which makes up only ... % of contribution at the relevant period of 2007. Such an abrupt decline of investments indicates that its surge in 2006-2007 put country’s water capacities into the level necessary for the current absorption of the market.

The market of nonalcoholic beverages remains one of the most liable to season changes of sales among all food markets. Despite the fact that year after year drinking water becomes ever more an off-season product it is still far from disregarding this factor.

It is precisely the weather factor that explains the sag in June this year. Unusually cold weather for this traditionally hot month as well as inflationary processes in the country projected onto the water market by the decline in sales: in this most ‛water‛ month they fell till the level of previous year.

According to the official statistics, Yuzhniy Federal District (FD) keeps the leadership in the production of mineral water. Though, the first half-year of 2008 resulted in growth slowdown in this region. Thereby in 2007 enterprises of the district covered ... % of all-Russian production with the result of ... million dal and ... % of growth but during the two quarters of 2008 only by ... % more was produced here than at the relevant period of 2007 and so the portion of the district in the total production went down to ... % and comprised ... million dal. Next after it, Tsentralniy Federal District added to its share in the total production ... p.p. more in the first half-year of 2008, ... million dal of beverages were already produced here which is by ... % more than during the relevant period of 2007.

Privolzhskiy and Sibirskiy FD (with the growth by ... % and ... % respectively) share the third place with portions of ... % of the total production (each gave more than ... million). Uralskiy FD comes after them with more than ... million dal of production during six months of 2008.
The best dynamics of the production growth in Russia during this period (more than ... %) were shown by Northern-Western FD which gave about ... million dal of water. In Dalnevostochniy FD the production comprised more than 10 million dal (... % growth). The production results of 2007 in district differentiation are shown in the diagram «»

Concerning the distribution of investments to the sector development in the regions Yuzhniy Federal District has for the first time recently been leading here with $... million which were invested in the first quarter of this year and this makes up ... % of the total investments (according to the official statistics). Tsentralniy District, which received the lion’s share of all investments over the recent period, obtained only a little more than $... million of investments and it is significantly less than in the first quarter of the last year. Privolzhskiy and Dalnevostochniy FD come after it with investments of $... and $... million respectively, in total it is ... % of general investments to the basic capital of the bottled water producers in Russia. The results of investment activity of enterprises in district differentiation are shown in the diagram.

Market segmentation

According to the type of water

Drinking/Mineral

The world water market is stimulated by the drinking water sales: such water can be consumed regularly as a basic drink, can be used for cooking but this doesn’t apply to highly mineralized water. This trend is true for Russian market as well. And though according to the data of ‛Biznes Analitika‛ in the first half-year of 2008 as in the last year the proportion of drinking water by value is insignificantly but decreasing, this doesn’t run counter to general trend.

First of all it should be considered that drinking water is cheaper than mineral one: in large cities it has already come into the category of necessary products in the basket of goods and the producers seek to maintain the reasonable price for admass society. At the same time mineral water is not considered to be a required product in the diet of an average consumer, it is rising in price more rapidly and many brands move to a more expensive premium niche. So the proportion of drinking water on the basis of quantities is much bigger than its value interpretation: in money terms drinking water formed about ... % of bottled water sales in the first half-year of 2008.

Secondly water with low mineralization level is also labeled as mineral water, the so called mineral table water; it was this niche that led to the growth of the whole category named ‛mineral water‛. And water with low mineralization level by its consumption characteristics and therefore positioning in the market approximates to drinking one. In addition to the fact that it can be drunk with the same regularity, domestic consumers consider it to be more useful than ordinary drinking bottled water.

Carbonated/noncarbonated

The proportion of noncarbonated water in the market keeps growing. Its proportion on the basis of quantities made up ... % in 2007 but during the period from June 2007 till May 2008 it almost reached ... %. That is this segment increased till ... p.p. in terms of volume and ... p. p. by value within the period from January till March (according to Nielsen data). About ... % of sales benefit is brought by noncarbonated water currently. This trend confirms the trend of growth in the sector of drinking water for regular consumption for everyday necessities described above: it is noncarbonated water that is bought for cooking. Besides it is this type of product that is more often purchased to slake thirst as noncarbonated water is frequently thought to be more useful than carbonated one.

Niche segment of water with flavour additive (sugar-free water) which is popular in Europe is growing. This segment holds now a little more than ... % of sales on the basis of quantities in Russia. And by value the sales made up ... % in 2007, that is its proportion in the market increased by about ... times. According to Nielsen data, water with flavour additive holds ... % in terms of volume and ... % by value as of May 2008. Sales of such water almost do not differ from all-Russian in Moscow but St. Petersburg consumers are more loyal to water with flavour additive. The proportion of such water in St. Petersburg has already exceeded ... % by value.

Channel segmentation

As for bottled water channels, the so-called mixed channel is still leading here as it did before, these are super-hypermarkets, mini-markets and food shops. It holds now more than ... % of sales on the basis of quantities and ... % by value and this is already by ... p.p. more than the results of 2007 (according to the research company Nielsen). It being known that the largest volume is sold in super-hypermarkets, this channel is specifically important for big megapolis’ markets. ... % of retail sale on the basis of quantities is done through it in the capital and about ... % of bottled water in St. Petersburg.

En masse in Russia (25 largest cities) the proportion of sales through kiosks, pavilions and open markets is decreasing. The same trend is observed in Moscow and St. Petersburg. According to the results of June 2007-May 2008 ... % of water was sold through open markets and the channel kiosk/pavilion held ... % on the basis of quantities in retailed sales. It should be mentioned that in the whole the cost of water which is sold through these small channels is higher than through the main channel.

Segmentation according to the type of packing

The bulk of bottled water in the market is bottled up in more economical and easy-carrying in contrast to a glass one PET package. The proportion of glass package in total sales on the basis of quantities remains invariable and makes up to ... % now. Meanwhile en mass mineral water in glass package is sold at much higher price; its proportion by value makes up about ... % in the market and this proportion is increasing in connection with the cost increase of this for the most part premium product.

Among water bottled up in PET package, according to Nielsen data, the greater part was bottled up in the package from ... to ... of volume; ... % of the whole bottled water sales on the basis of quantities and ... % by value but this segment continues to lose market proportions. Water in this package is rather referred to as delayed consumption product and large package is getting more popular among consumers in this segment because it is more convenient and economical. Following this trend the market growth on the basis of quantities occurs exactly owing to the sales of water in large packages. According to Nielsen data, sales in packages more than ... of volume made up about ... % in 2007 and by the results of June 2007-May 2008 this proportion increased to ... %. Water in this package costs much less in comparison with other segments, thus its proportion makes up to ... % by value. The most ‛active‛ part of this niche is PET package of ... and more liters of volume: according to ‛Biznes Analitika‛ data, more than ... % of water was sold in this package during the first six months of this year (by value). On the other hand service market development of transportation of water in coolers to offices and homes can soon bring part of retailed sales of bottled water in large package to joining this market.

At the same time the portion of small-capacity PET packages is growing: package less than ... l holds now ... % of the market on the basis of quantities and ... % by value (Nielsen). According to ‛Biznes Analitika‛ data, water sales in PET packages of ... -... l are growing in this segment (the proportion of such water made up about ... % by value in the first half-year of 2008 and this is by ... p. p. more than during the relevant period of 2007). Water in small-capacity packages is an immediate consumption product, besides HoReCa bars are large consumers of small-capacity packages. Some producers of mineral water that traditionally bottled up their production in glass packages are now mastering small-capacity PET packages.

Segmentation according to the value

According to ‛Biznes Analitika‛ almost the half of water sales by value is the share of water at the cost of ... -... roubles per liter (segment ‛below the average‛). But it is precisely this segment that has been losing most of all in the share of the market in recent years. About ... % of water was sold in this segment in 2007 (and this is by ... p.p. less than in 2006) but in the first half-year of 2008 sales made up about ... % in terms of money.

The most active growth dynamics are shown by the sales of ‛premium‛ water (more than ... roubles per liter). In the first half-year of 2008 with the market share of about ... % it reached ... p. p. in comparison with the relevant period of 2007.

The general trend in economical segment of beverages (under ... roubles per liter) has somewhat changed. Till recent times their sales were growing because of increase in consumption in the regions where local manufacturers had a possibility to sell water at practically dumping price. In the first six months of this year sales of the water in the segment of lower value remained practically at the level of sales of the relevant period of 2007 and made up ... % of sales by value.

Producers and brands

 Seven largest bottled water producers according to Nielsen as of May 2008: The Coca-Cola, PepsiCo Inc, ‛Visma‛, ‛Kavminvody‛, ‛Karachinskaya‛, ‛Shishkin Les‛ and private brand products of networks (in random order). Their brands hold ... % of the market both in value and volume terms.

‛Biznes Analitika‛ provides a little bit different from Nielsen rating: the holding company ‛Narzan‛ is in the top five here and the company situated near Moscow ‛Shishkin Les‛ is extruded to the ... place, ‛Karachinskaya‛ doesn’t figure in the rating at all.

The results that the market participants showed during the first half-year of 2008 can not be referred to as unexpected but some changes in the alignment of forces have after all occurred. In 2007 sales of the water manufactured by The Coca-Cola Company (ТМ ‛Bon Aqua‛) took the lead a little bit over the market growth while PepsiCo (ТМ ‛Aqua Minerale‛) lost in shares but in the first months of this year the situation changed. The Coca-Cola Company finished the last year with the market share of ... %, and PepsiCо with a little bit more than ... % (by value), and their shares became practically equal already in this year. According to ‛Biznes Analitika‛in the first half-year of 2008 the sales of The Coca-Cola Company in the bottled water market lost ... p. p. in comparison with the relevant period of 2007 and made up ... %, while PepsiCо increased its share in total sales in ... p. p. to ... % (by value).

The holding company ‛Narzan‛ with 6% of sales is on the third place after transnational companies. The share of ‛Kavminvody‛ continues to decrease in the market. According to the results of 2007 the company moved from the third to the fourth place and in the first half-year of 2008 took the ... place of the rating with the result of ... % in the bottled water sales by value. ‛Visma‛ is the most active in the achievement of water market shares. Provided the situation remains the same, ‛Visma‛ can soon take over the leadership among domestic bottled water producers.

‛Shishkin Les Holding‛, ‛Serebrianniy Istochnik‛, ‛Wimm-Bill-Dann‛, Nestle Group (Perrier –Vittel M. T.) and ‛Merkuriy‛ follow the leading five companies (in the order of market share decreasing according to ‛Biznes Analitika‛ for the first half-year of 2008).

Category ‛Other‛ (below the tenth place in the table of ranks) holds the share of ... % of sales by value. In the largest cities the leadership of transnational companies doesn’t give the possibility for competition to small domestic market participants, but in the regions it is still quite possible. For example, in the drinking water segment ‛Aqua Minerale‛ and ‛Bon Aqua‛ occupy about ... % in Moscow but in Buryatia their cumulative share is just ... %.

Waters of Northern Caucasia

Up to ... % of the whole bottled water in Russia is bottled up in Yuzhniy Federal District for the time being; it is conditioned by the unique water deposit in the region. Five bottled water producers from the top-ten rating in the market sell water which was produced here. These are public corporation ‛Narzan‛, close corporation ‛Visma‛, close corpotation ‛Kavminvody‛, public corporation ‛Wimm-Bill-Dann‛ (‛Essentukskiy Zavod Mineralnykh Vod na KMV‛ Ltd) and public corporation ‛Merkuriy‛.

The greater part of this production is provided by the Republic of Karachay-Cherkessia and Stavropol Territory with ... and ... million dal of produced water respectively (according to official statistics) in the first half-year of 2008. And production in Karachay-Cherkessia increased by ... % whereas in Stavropol Territiry by ... % in comparison with the relevant period of 2008. It should be mentioned that such a decrease in the growth dynamics in Stavropol Territory is conditioned by the decrease in production in the region of Kavkazskie Mineralnie Vody (as compared with 2007 when the production in Stavropolye increased by ... % to ... million dal). ... million dal were bottled up (... % growth) in Karachay-Cherkessia in the same year. A lion’s share of the production in this region is provided by two enterprises: close corporation ‛Visma‛ and public corporation ‛Merkuriy‛.

Kavkazskie Mineralnie Vody

Practically the whole production of Stavropolye mineral waters is concentrated in the closely protected health resort Kavkazskie Mineralnie Vody (KMV). 37enterprises and custom shops for bottling of mineral waters are registered here. About ... of them work on the stable basis and ... enterprises worked in June.

Industrial bottling in the region somewhat reduced in 2008. And ... million dal of water were bottled during six months in 2008 which is about by ... % or about 1 million dal less than for the relevant period of 2007. It is the second case of a reduced production during the last six years together with the reduction of 2006.

Drinking water production has also slightly changed: ... million dal of drinking water were bottled and sent to selling during six months. About ... % of the region’s water is exported; this year export increased and makes up ... million dal of bottled water now .

In KMV are bottled such brands of mineral water as ‛‛Essentuki‛, ‛Narzan‛, ‛Novoterskaya Tselebnaya‛, ‛Rokadovka‛, and also ‛Slavianovskaya‛, ‛Zheleznovodskaya‛, ‛Smirnovskaya‛, ‛Nagutskaya‛ and others. These mineral waters are delivered to almost all of the regions of the Russian Federation among which the leaders are Moscow and Moscow Region, Krasnodar Territory, Rostov Region and St. Petersburg.

The largest bottling enterprises in the region are close corporation ‛Kavminvody‛, close corporation ‛Minvodypisheprodukt‛, ‛Essentukskiy Zavod Mineralnykh Vod na KMV‛ Ltd (‛Wimm-Bill-Dann), ‛Elita Mineral Grup‛ Ltd, the holding company ‛Narzan‛, ‛Aqua-White‛ Ltd, close corporation ‛KMV-plastik‛ (in the order of decreasing of the bottled water production over the period of six months in 2008).