Leading Poles to water
By : Juliet D. Golden
While vodka remains the unchallenged national drink, Poles are increasingly reaching for bottled water, spurred on in part by the poor quality of what comes out of the tap and the wish to live a more active and healthy life.
A decade ago, bottled water consumption was largely limited to the Sunday dinner table or as part of medical treatments. "Mineral water used to be associated with water from spas," said Jacek Kucharski, sales and finance director for Gerolsteiner Polska, producer of Dobrawa brand water. "Water wasn't (consumed) in order to be healthy, but it was taken to help with certain ailments, like medicine."
The rapid change in consumption patterns has caught the eye of international giants such as Switzerland's Nestle, Germany's Gerolsteiner Brunnen and Coca-Cola and Pepsico. It has also inspired a slew of Polish companies such as Zywiec Zdroj and Staropolanka to update their own technology and production capacities in a bid for market share.
And despite the deep pockets, know-how and marketing savvy of foreign companies, until now the water market in Poland has remained largely the domain of grassroots producers.
"The market for water is dominated by Polish companies," said Stanislaw Bizon, president of Zywiec Zdroj, the No. 1 Polish brand on the market.
But the verdict is still out on whether domestic companies can maintain their commanding positions. The success of local and international water bottlers in Poland has prompted other international players to take a stab at getting their share of what's shaping up to be the one of the fastest growing markets for bottled water in Europe. Earlier this month the second and third-largest water producers in the world, France's Danone and Italy's San Benedetto, announced they were teaming up to bring their bottled water to the Polish market.
"Western capital is preparing in a big way to enter this market," Bizon said. "They noticed the big achievements of Polish companies here and have decided to enter."
The thirst of international players to move into Poland is not only the result of the market's explosive growth during the last few years but also signals its long-term potential. In the mid-1990s, the average Pole drank about 18 liters of bottled water a year; by last year that number jumped to about 30 liters. While total consumption reached 1.8 billion liters in 1999, according to Mieczyslaw Kucharski, president of the recently formed national chamber of commerce for the bottlers industry, that's a far cry from the roughly 8 billion liters consumed annually in France, Italy or Germany.
"The potential is still enormous," said Aleksander Roda, sales and marketing director at Nata, a Polish producer of bottled water and other carbonated and non-carbonated soft drinks. "That's why there's movement from Danone, who see that the market can double again over the next few years."
Teraz Polska
Despite the explosion in consumption, gaining market share has not been easy. Growth among individual companies depends not only on changing consumption patterns, but on competition, too. With more than 300 producers around the country, even some international players have found it hard to grab even a fragment of the market share they enjoy at home or elsewhere.
Although Poles complain bitterly about the poor quality of tap water, as consumers at the local shop or hypermarket they tend to prefer domestic producers of bottled water rather than foreign ones.
"While Poles don't want to buy Polish cars, it's different with water," Bizon said.
That "buy local brands" mentality has made it hard for some outsiders to break in. In the four years since setting up operations here, Gerolsteiner Polska, a junior company of Gerolsteiner Brunnen, Germany's largest water producer, has managed to grab a 1-2% market share, well below the 10% it commands in Germany.
"It's a hard market," said Kucharski from Gerolsteiner Polska. "Polish brands are well known and building a national brand takes a long time and is costly."
Over the next three to four years, the company wants to more than double its present take of the market to 3-4%, Kucharski said.
In the realm of domestic producers, the reigning king is Zywiec Zdroj. With a production capacity of 1 million bottles a day, the Wegierska Gorka-based company's main challenger on the market is the world's largest water producer, Nestle. In Poland, Nestle produces water under the local brand name Naleczowianka and distributes its international brands, Perrier and Vittel.
As the leading player, Zywiec Zdroj is giving Nestle a run for its money.
"Some say we're just after Naleczowianka, others say that we're ahead," Bizon said.
Results published at the end of the last year by market researcher AC Nielson Polska gave Zywiec Zdroj and Naleczowianka a 12% share each, Gerolsteiner's Kucharski said. A host of Polish and international players such as Multico's MultiVita, Coca-Cola's Bonaqa and Pepsico's Aqua Minerale all hover around 4-5%, Kucharski said.
Drink up
The bottled water boom over the past five years has been fueled mainly by sales of relatively small, convenient packages. According to research carried out by AC Nielson, last year 64% of purchases of all carbonated and non-carbonated drinks were made in 1.5 liter bottles.
But if the bottled water craze increases, Poles could look for easier ways to quench their thirst than by lugging multiple bottles home from their local shop or hypermarket.
In the United States, 50% of all bottled water sold is delivered to homes and business in three-to-five gallon bottles, according to the 1995 report prepared by Hidell-Eyster Technical Services, a U.S.-based research firm. While sales for these large containers account for only 5-8% of all bottled water sold in Poland, according to Gerolsteiner's Kucharski, they constitute the fastest growing segment of the water market.
"(Demand) for five-gallon bottles is increasing," Kucharski said.
Over the past two years, gallon-bottle sales have been growing faster than the 20% rate in the industry as a whole, according to Jacek Lebiocki, marketing director at Eden Springs, an international company that set up in Poland three years ago. With a bottling plant in Krzeszowice near Krakow, the company focuses exclusively on the five-gallon market. In addition to delivering the bottles to households and businesses across Poland, the company also supplies each customer with a water dispenser that provides instant boiling or refrigerated water and is sanitized by the company two times a year.
In three years, Eden Springs has grabbed a 30% share of the five-gallon market, Lebiocki said. The company takes second place to Dar Natury, which commands a 60% market share and has been on the market for five years.
"This type of service ... is something people are keen on purchasing," Lebiocki said.
The results of companies such as Eden Springs and Dar Natury caught the eye of Staropolanka, a state-owned company operating as a part of the Polanica Zdroj health spa in the southwest. After six months of planning, at the end of this month Staropolanka will start delivering water to homes and businesses in five-gallon jugs.
"This market has a lot of potential," said Pawel Ksiazkiewicz, sales department manager at Staropolanka. "Many businesses are moving away from glass bottles and are looking for comfortable ways to get hot and cold water."
The bottom of the well
While Polish brands such as Zywiec or Staropolanka have proven that they can hold their own against the international giants, how they will do in the future will depend on how fast the demand continues to grow and how well Polish and international brands succeed at winning consumer loyalty.
While consumption of bottled water has doubled over the past five years, the market is still much smaller than in France and Germany. According to Hidell-Eyster, annual per-capita consumption in those countries ranges from 90-140 liters. But not all Europeans consume such large amounts of water. According to the German statistical office, in 1999 the English, Dutch and Norwegians drank between 12-16 liters of water a year on average, leaving some wondering how much potential the Polish market actually holds.
"Not all (people) in Western European countries drink such large amounts of water," Kucharski said. "Here it's a question of what direction the (Polish) market will go in."
But the trend to live a healthier lifestyle coupled with the poor quality of water flowing from the faucet will probably continue to drive growth in sales of bottled water over the next couple of years, Kucharski said.
"I'm assuming that in the next five years, a 15% growth rate will be maintained," Kucharski said. He said that by then Poland should have reached an average consumption level of about 55 liters per annum, the amount currently guzzled in the Czech Republic.
While hesitant to predict what the ceiling for consumption may be, Zywiec Zdroj's Bizon, thinks sales could maintain a 20-25% rate. "I think (market growth rate) could even speed up," he said.
How individual companies will fare with growing demand will depend on how they build an allegiance to their labels. While over the last couple of years many producers have had to boost production capacities to keep up with growing demand, over the next couple of years they will probably have to spend more time on marketing their goods to build strong brand loyalty.
And here the experience and marketing savvy of international concerns may be starting to pay off. Already in research carried out by Cal Company Assistance, Coca-Cola's Bonaqa and Nestle's Naleczowianka show the strongest brand loyalty. More than 40% of the purchasers of each of these mineral waters said they buy only these brands. In contrast, only 27% of Zywiec Zdroj aficionados said they wouldn't buy a different mineral water if Zywiec Zdroj wasn't available.
"The battle is now about getting Polish consumers to be loyal to a given brand," Nata's Roda said.
