Five years ago, packaged water was expected to upstage soft drinks. Today, a shakeout in the packaged water is looming large, driven by poor business parameters.
Paradoxically, even though companies are putting their brands on the block, it's turning out to be a long wait before they find takers. For the last several months, Parle Agro's packaged water brand Bailey has been doing the rounds for a potential buyer. So has Himalaya, another well-known brand.
According to industry sources, there are a few more water brands which are scouting for buyers, but the story remains the same.
On the other hand, a surprising disinterest is evident amongst many packaged water marketers. Kinley has ceased to be a focus area for Coca-Cola. Interestingly, the company was quiet bullish on the brand till as late as '03-04 and had made significant investments in brand building. Bisleri is no longer aggressive on the ground as it used to be, and has shifted its focus to bulk packs.
Parle Agro, which had mandated corporate finance advisor Ambit to look for a buyer for Bailey four months back, is still waiting for a buyer. The sources say that steep valuation by the company has kept potential buyers from stepping forward.
When contacted, Parle Agro managing director Prakash Chauhan denied any such move. “Bailey is doing fine and we have no plans to sell it,” he told ET.
According to analysts, the packaged water industry as a whole has a big profitability issue since it operates on a wafer thin margins - it (margin) is one-third that of carbonated soft drinks. This is to be shared with the contract manufacturers which puts an intense pressure on the manufacturer. For instance, Coke had entered into deals with 4-5 contract manufacturers whom it had to share the margins with.
“The packaged water business requires a seamless supply chain and has increasingly become unviable with a single brand,” says a senior Industry executive.
Another deterrent for buyers to acquire packaged water brands, which are on the block, has been a formidable unorganised sector which has given brand marketers sleepless nights. Small local brands have been eating into the market shares of organised sector through rampant price undercutting. There are an estimated 250 or so, small local brands in India today. Interestingly, Rs 1,200-crore packaged water industry which is growing at a healthy 16-18% annually.
Bailey, say the sources, had been on the decline due to poor supply and distribution for sometime now, resulting in low visibility on the retail shelves. Insiders attribute it to the problems with the contract manufacturers. When asked, Chauhan brushes it aside. “If Bailey has been low on visibility, it partially due to our preoccupation with other plans,” he says.
About five years ago, Bailey was the number four brand in the country after Bisleri, Kinley and Aquafina. Since then most players have become calculated in their approach reducing taking their focus off unprofitable areas and now.