Without water, a person can only survive a few days, and it covers over 70 percent of the globe. This makes it a perfect product to sell. But just as with many businesses, the fight for every penny in the beverage sector can be brutal. Celebrity endorsements, lawsuits and stiff competition is just a normal day at the office
by Jacek Ciesnowski
The Polish beverage market is very unique. Although all the global giants are present here, they often face tough domestic competitors. In some battles, it’s Coca-Cola that’s David while a relatively unknown company, like Oshee, becomes a Goliath in the battle for quenching Poles’ thirst.
The market is huge, although like many others, it has been hit by the economic downturn. In 2013, it contracted by 1.1 percent to PLN 11.76 billion, according to research firm Nielsen. The golden era ended in 2009, when the value of the sector amounted to PLN 11 billion. That year growth was “only” 4 percent, while just two years earlier it stood at 17 percent.
The most exciting market segment in recent years has been that of energy drinks. The tug of war for clients is bitter, with the pole position changing hands constantly as three brands do battle with each other. It’s also very confusing, as companies are ranked by two different criteria – value and volume – so usually there are at least two leaders. Currently Red Bull is in the lead in the value category with some 20 percent of the market, which is worth roughly PLN 750 million. Second is FoodCare’s Black with 13.9 percent, while third place is currently taken by Maspex’s Tiger drinks with an 11.2 percent market share. But when you take into account volume, then Red Bull drops down to third position with Black in the top spot and Tiger in second.
Pulling no punches
The fight is as confusing as it is sometimes brutal. While Red Bull is pretty much doing its thing as it does in every other market, Tiger and Black are constantly at each others’ throats and are involved in a lengthy legal battle. The market is truly a battlefield, with over 200 brands on the market. “The Polish sector is very mature with a similar structure to other western countries. There is a place for premium products, saver brands as well as the cheapest ones made by private labels,” explained Dorota Liszka, Maspex’s spokesperson.
Private labels are an invisible but significant part of the market. “Combined, they control nearly 30 percent of the sector. Every retail chain has its own and I expect that even more private labels will be popping up on the market. On their own they will never be a significant competitor, but when you combine them all, they are an important player,” said Wiesław Włodarski, FoodCare CEO.
It should be noted that both Maspex and FoodCare are not only energy drink producers and their product portfolios are quite vast, ranging from pastas and cereals to carrot juices. Both companies are also exporters. Last year, FoodCare sent products worth PLN 43 million to 52 countries, while Maspex sold products worth a staggering PLN 3 billion to over 50 countries as well.
Multinationals vs domestic
The beverages segment is really unique, as very often giant, multinational companies like Coca-Cola and PepsiCo have a really tough time competing with much smaller domestic producers. Their products are usually positioned in the premium category, which very often ends in failure as customers prefer cheaper domestic brands which they already know. Such examples can be observed in the bottled water market. PepsiCo have tried to enter this market a few times already, yet their Górska Natura, Świtezianka and Aqua Minerale brands have all proved unsuccessful and as such were all withdrawn from the market. Even though multinational corporations own two of the most popular domestic bottled water brands, Żywiec Zdrój (Danone), and Nałęczowianka (Nestlé Waters), these were acquired with their established brand recognition and significant market share.
Domestic producers successfully wage wars with multinationals by offering lower prices. Perfect examples of this include Cisowianka (Nałęczów Zdrój) and the aforementioned Nałęczowianka. Both waters are drawn from the same source, but since Cisowianka is lower priced, it has managed to surpass Nałęczowianka in terms of sales.
Domestic companies have adapted multinationals’ ideas and tailored them to local conditions. An example of this is the success story of Oshee Polska, founded by two former FoodCare employees. Their company emulated Coca-Cola’s isotonic drink Powerade, released it at a much lower price, and as a result it quickly shot up to the top in its category, beating the worldwide giant with ease.
But bottled water is so passé. Despite it being the purest drink possible, which everyone has to consume, companies have found new ways to market it and increase their revenues.
Meanwhile, an enhanced drink is marketed as a water which contains additional ingredients, either vitamins, minerals, sweeteners and natural or artificial flavors. They also promise different “boosts,” like burning calories or providing energy. The marketing of enhanced water usually capitalizes on the healthy image of water combined with the perceived health, taste or functional benefits of one or more of the additional ingredients. Whether it’s all true is debatable, and the consumer advocacy group, the Center for Science in the Public Interest, is suing Coca-Cola, the manufacturer of Glaceau Vitaminwater, claiming that its marketing is “deceptive,” as each bottle contains 33 grams of sugar, which can hardly be healthy.
But with customers being more health-aware these days, enhanced water is gaining popularity and slowly replacing unhealthy carbonated soda. For example, US consumption of Coca-Cola in 2011 dropped to the similar levels last seen in 1991. What was the company’s answer to make-up for lost revenue? Enhanced drinks.
In 2007, Coca-Cola acquired the producer of Glaceau Vitaminwater, Energy Brands Inc, for a record-breaking $4.1 billion (the highest takeover in Coca-Cola’s history). The US giant had to act fast as its main competitor, PepsiCo, already had a few enhanced water brands such as Sobe, Propel or Aquafina. The steep price Coke paid seems to be paying off, as Glaceau holds some 18 percent of the market share worldwide in its category, the same as Danone’s Mizone brand. Between 2002-2011, the enhanced drinks sector has grown by a staggering 504 percent.
In Poland, however, only Glaceau is being distributed by Coca-Cola, while other international brands have not yet introduced their products yet. But this will likely change soon, as the market is rapidly developing and many Polish companies have established their footholds with their own products here. Maspex has its T-Water line, and FoodCare is planning to release its Fitella-brand water in 2015.
There are other domestic brands as well. But foreign competition is closely monitoring the situation on the market, and after Glaceau, similar brands might be introduced here. “The Polish market is not any different to other European ones. Customers are getting more wary when it comes to spending, on the other hand they’re becoming more health oriented. Poles are demanding customers and demand novelty from their favorite brands, like low levels of fat and sugar.” said Małgorzata Skonieczna, Director External Communications at PepsiCo.
According to Euromonitor International, the whole enhanced drinks sector in Poland will be worth some PLN 37.5 million in 2014, a 14 percent rise compared to last year. And this growth may be even bigger in the future, as Poland is fairly backward compared to other European markets, and as Adam Bogacz from AKB Consulting points out, Glaceau was first introduced in Europe in 2007 and it took six years to be finally sold in Poland. “This is how far we are from developed markets,” said Bogacz.