Introduction
Recent years have witnessed a significant growth and transformation in the UK bottled water industry driven by shifting consumer preferences and a heightened awareness of health-conscious trends (Pell et al., 2021). This analysis aims to critically evaluate the UK bottled water industry, which involves both local and international companies operating in the still and sparkling water market. This paper addresses the questions provided by providing detailed information about various aspects of the industry. In subsequent sections, the paper explores sales trends within this sector and examines its market structure and non-price competition strategies adopted by key players. Moreover, the paper analyzes how Brexit has impacted this field alongside consumer price inflation before presenting the forecast for what lies ahead.
Trends in Sales and Industry Structure
Throughout 5 to 10 years ago till now, remarkable growth has been observed in the UK bottled water industry, with leading companies playing a pivotal role in shaping its market, and the UK bottled water industry is home to three well-known companies, including Nestle Waters UK Ltd, Highland Spring Ltd, and Princes Limited. With their own individual traits and shares of the market, each of these companies has become a prominent player. Nestle Waters UK Ltd functions as a branch under the umbrella of Nestle’s multinational food and drink company through its strong global presence and comprehensive distribution networks. Nestle Waters UK Ltd has managed to secure a considerable portion of the market for bottled water in the UK, and the company has a variety of bottled water products available under different brand names, such as Buxton and Perrier, including both still and sparkling options. To attract health-conscious consumers who prioritize purity and hydration, Nestle Waters UK Ltd places great emphasis on promoting its products as premium options that are high in quality.
In a similar vein, known for its natural mineral water sourced from the Ochil Hills in Scotland, Highland Spring Ltd is a prominent Scottish bottled water company. The company’s mission is centered around providing locally sourced bottled water that is of excellent quality and adheres strongly to sustainable practices. Highland Spring Ltd’s investment in eco-friendly packaging and environmental initiatives also aims to attract consumers who prioritize sustainability and environmental stewardship. Highland Spring Ltd’s commitment to quality and positive brand image has played a vital role in its substantial market presence; while Princes Limited’s primary focus may be on the food industry, it also operates within the bottled water market. Thanks to its pre-existing distribution networks and customer base, the company provides a range of still and sparkling water products under its brand name. By prioritizing affordability and accessibility as its main focus areas in the market of bottled water options, Princes Limited caters to a broad consumer base.
These dominant companies shape the oligopolistic market structure of the UK bottled water industry, and brand recognition and extensive distribution networks enable a few major players to exert dominant control over the market (Begg & Ward, 2016). Nestle Waters UK Ltd, Highland Spring Ltd, and Princes Limited are capable of influencing pricing and product differentiation and shaping market trends within the industry. However, an oligopolistic structure makes it difficult for new companies to break into the market. Economies of scale influence the market dominance of these companies, and achieving the same level of cost efficiency as companies with large-scale production and distribution capabilities is a challenge for new entrants (Begg & Ward, 2016). Moreover, brand loyalty holds immense importance as consumers commonly prefer trusted and familiar brands, which poses challenges for new businesses trying to gain market share (Sloman & Jones, 2019).
Established companies such as Nestle Waters UK Ltd, Highland Spring Ltd, and Princes Limited enjoy advantages over new competitors due to their strong distribution networks built through longstanding relationships with retailers and supermarkets, with this advantage of having more shelf space and access to a wide range of consumers.
(a) Non-Price Competition
To distinguish itself in the market, Nestle Waters UK Ltd relies on multiple non-price competition strategies as a leading bottled water company and product innovation is employed by them as a strategy. They persistently introduce new flavors and unique packaging formats that cater to the changing preferences of consumers. To illustrate, attracting new customers while retaining existing ones who desire distinct and exhilarating options in bottled water can be achieved by Nestle Waters UK Ltd through its comprehensive range of offerings.
Highland Spring Ltd stands out as a significant player in the UK bottled water industry due to its focus on branding and marketing efforts for non-price competition. Highlighting their water’s purity and natural sourcing is a primary objective for the company’s advertising campaigns. They implement initiatives including eco-friendly packaging and responsible water sourcing to emphasize their commitment to sustainability and environmental stewardship. Highland Spring Ltd aims to associate its brand with positive values and engage in corporate social responsibility to differentiate itself from competitors and build strong brand loyalty among environmentally conscious consumers.
Keep in mind that while these strategies are effective, Nestle Waters UK Ltd and Highland Spring Ltd can consolidate their market position, attract a loyal customer base, and maintain their growth in the bottled water industry in the UK by successfully implementing non-price competition strategies.
(b) Brexit Impact
The UK’s exit from the European Union (Brexit) has raised concerns and possible difficulties for bottled water businesses operating in the UK that export their products to EU countries. Before Brexit, the ease of trade and access to the single market benefitted these firms. Still, new trade barriers have transformed the backdrop where businesses now have to confront the impact of this important political and economic event (Du & Shepotylo,2022 ).
The imposition of trade barriers poses a key challenge for UK bottled water firms exporting to the EU, and one common form of barrier is tariffs that impose taxes on imported goods. If tariffs are placed on bottled water exports from the UK to the EU, it would result in increased exportation expenses and make British products relatively more costly for European consumers. Consequently, affecting the firms’ sales and profitability is a possible consequence of this anticipated decline in demand for UK bottled water products in the EU market. What’s more, Brexit has generated customs procedures and regulatory distinctions between the UK and the EU. Since leaving the EU’s single market and customs union, bottled water firms are now required to satisfy new customs criteria when transporting their products to the EU. Included in this are paperwork and documentation, as well as the possibility of longer processing times at borders, which lead to elevated administrative burdens and potential disruptions in supply chains. The relationship between firms and their EU customers can be negatively impacted if these disruptions cause delays or affect the timeliness and reliability of product deliveries (Du & Shepotylo, 2022).
(c) Consumer Price Inflation and Bank of England’s Role
The UK has seen an upward trend in consumer price inflation from 2016 to 2021 which can be attributed to various factors impacting the cost structure of goods and services, and bottled water firms are among the businesses facing increasing input costs. The production and distribution costs of bottled water are directly affected by the increasing prices of packaging materials like plastic bottles or caps and transportation expenses such as fuel costs, which may result in higher prices for consumers.
In driving consumer price inflation as well, currency fluctuations have a role. Imported goods prices, which include bottled water and its ingredients, are subject to changes caused by economic and political events that lead to fluctuations in the value of UK currency – specifically pound sterling. Potential outcomes of the pound depreciating against other currencies include higher import costs for bottled water firms and increased prices for consumers. Moreover, changes in demand and supply dynamics can also cause consumer price inflation to rise. For example, suppose that there is a higher demand for bottled water than what is available. Firms could face increased costs related to addressing the growing need, like investing in production capacity or securing additional water sources. As a result, higher prices for consumers may be a direct consequence of these increased costs.
The rising consumer price inflation in the UK can affect bottled water firms in two different ways. In the first place, it can compress the profit margins for firms as they confront elevated input costs while endeavoring to sustain competitive pricing. This can create pressure on their profitability and financial performance. Secondly, inflation can change how much consumers are able to spend (Ferguson, 2002). The increasing costs of different goods and services, including bottled water, may lead consumers to adjust their spending habits by reducing consumption of certain products, potentially impacting the demand for bottled water in the market.
To control inflation and maintain price stability, the Bank of England implements monetary policy measures. The central bank has the authority to adjust interest rates and implement quantitative easing measures to influence the overall level of economic activity and inflation. By increasing interest rates, the Bank of England aims to reduce aggregate demand in the economy, which can help moderate inflationary pressures. On the other hand, during times of low inflation or economic downturns, the bank may lower interest rates or engage in quantitative easing to stimulate economic activity and prevent deflation.
Future Outlook of the Bottled Water Industry in the UK
To conclude, there are multiple factors that impact the future of the bottled water industry in the UK. Although there have been potential challenges and uncertainties ahead for the industry, the influence of increasing environmental concerns and sustainability considerations on future consumer preferences and demand for bottled water can’t be underestimated. Besides that, the industry encounters challenges due to regulatory changes, market saturation, and competition from alternative beverages. As such, a detailed examination indicates that there is likelihood of the industry encountering a slowdown in its growth or remaining stagnant instead of declining.
References
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Ferguson, K. (2002). Essentials of Economics. New York: Palgrave.
Du, J., & Shepotylo, O. (2022). Brexit and UK services trade. The Economics of Brexit: What Have We Learned?
Highland Spring Ltd. (n.d.). Home. Retrieved from https://highlandspring.com/
Pell, D., Mytton, O., Penney, T. L., Briggs, A., Cummins, S., Penn-Jones, C., … & Adams, J. (2021). Changes in soft drinks purchased by British households associated with the UK soft drinks industry levy: controlled interrupted time series analysis. bmj, 372. https://doi.org/10.1136/bmj.n254
Nestle Waters. (n.d.). Company information. Retrieved from https://find-and-update.company-information.service.gov.uk/company/02334804
Sloman, J., & Jones, E. (2019). Essential economics for business. Pearson UK.
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