Borjomi Mineral Water - Research Paper Example

Borjomi Mineral Water Executive summary The current paper is exclusive a business plan for exporting the famous mineral water brand “Borjomi” to Switzerland. The paper begins with a brief description of the company and the product “Borjomi”. Subsequently the paper also incorporates analysing the market segment and consumer profile of the targeted nation. The existing industry conditions of Switzerland have also been analysed. In order to develop suitable business strategies, it is also essential to frame adequate distribution channels. The marketing and implementation strategies for Borjomi in Switzerland have also been discussed upon, the paper concludes with a brief financial analysis of the proposed export venture. Table of Contents Executive summary 1 Company background 3 Product description 3 Market Segment Analysis and Consumer Profile 5 Industry analysis 7 Competition 7 Business environment in Switzerland for Borjomi 8 Distribution channel and strategic alliances 9 Marketing and Implementation strategies 10 Prime marketing strategies 12 Financial analysis 13 References 16 Appendix 1: Income Statement 17 Appendix 2: Balance Sheet 18 Company background Borjomi mineral water is a famous brand of naturally found mineral water in Central Georgia. Borjomi water is manufactured by IDS Borjomi Georgia, which is a part of the IDS Borjomi International. The carbonated mineral water is extracted from the springs of Borjomi Gorge, a resort town. Mineral water is the largest export industry of Georgia and Borjomi is the leader brand of this industry. IDS Borjomi is internationally recognized for their high quality water products such as “Likani”, Bakuriani”, “Borjomi Springs” and “Borjomi”. The brand exports their products to more than thirty nations worldwide. IDS Borjomi is the largest mineral water manufacturing company amongst the Baltic and the CIS states. IDS Borjomi operated on the basis of four main principles. These are essentially; indulging in continuous expansion, diversifying market and introduction of new products and conducting aggressive market campaigns. IDS Borjomi Georgia is seen to conduct business on contractual as well as corporate basis with Bottling Plant N1 and Bottling Plant N2. The company holds the license for extraction of water from the naturally existing springs of Borjomi Gorge. For doing so the company has its own extraction machines and infrastructural facilities. Broadly the company exports their products to various nations in North America, Europe, Asia and Australia. The Switzerland supply chain of Borjomi is managed by the IDS Group itself. The representing firm of the company in Switzerland is Mountec Martigny. The current business plan analyses the prospects of exporting Borjomi to Switzerland. The objective of the paper is to analyse the mineral water industry and target market condition existing in Switzerland so that an efficient export and distribution channel can be set up in the nation for Borjomi (Borjomi, 2015, IDS Borjomi Georgia, 2015a). Product description The product Borjomi is famous for its unique and complex mix of minerals. The water is essentially of volcanic origin extracted from the naturally found springs in Central Georgia. The artesian springs of the valley are fed by the water from the glaciers of the Bakuriani Mountains. The water is extracted from the springs once it rises to an adequate level without pumping. The water is transported by pipes to two bottling plants located in Borjomi. The region of Borjomi was initially famous as a tourist destination. The Russian army was the first to discover the spring in the 1820’s. Hence the history of the brand is seen to close associated with the imperial Russian dynasty. After the Russian Revolution, Borjomi was nationalized. It soon emerged as the largest Soviet Export (IDS Borjomi Georgia, 2015b). (Source: IDS Borjomi Georgia, 2015b) The brand Borjomi is famous for its positive impact upon the body. The combination of essential mineral present in the brand is known for their special cleansing properties. It is popularly promoted as a “shower from the inside”. Borjomi is considered to have medicinal properties as well. The chemical composition of the water is not only suitable for daily consumption but also helps building immunity, prevents a number of diseases and improves body tone. The water contains saturated CO2. It rises automatically to the surface without the aid of any pumps. The water of Borjomi is more than 1500 years old. The pat travelled by the water to reach the surface is enriched with 60 different types of minerals making the water highly nutritious. The pressure of carbon dioxide from underneath 1500 metres pushes the water up. IDS Borjomi has three exploitation lots located in the region. The company owns 10 wells which is capable of bottling over 1 million bottles. Borjomi accounts for 10% of the total exports of Georgia. The brand is packaged both in glass and plastic bottles. The glass bottle is greenish in colour which acts as the representative of quality and natural ingredients. A new packaging for the brand was introduced in 2011 indicating sophistication and modernity. The brand is famous over many nations in the Europe, North America, Asia and Pacific. Due to its high quality, there exist few brands in the European nations which can sufficiently compete with the brand. Borjo0mi ensures that the products bottling is carried out by meeting all sustainability related needs. Wastages and carbon footprint in the overall packaging of the water is minimum (IDS Borjomi Georgia, 2015b). Market Segment Analysis and Consumer Profile Switzerland’s population is close to 8 million. A large segment of the population constitutes of foreigners. Resident foreigners account for approximately 23% of the population. Majority of the foreign population originates from European Union nations such as Italy, Germany, Portugal, France, Serbia, Turkey, Spain and Austria. A large proportion of the Swiss permanent residents have immigrant background. The population of Switzerland can therefore be stated to be highly diverse and influenced by many different cultures. Borjomi targets to attract all types of consumers. Since the products Originates in Europe itself, the European population is more likely to get attracted towards purchasing the same. Moreover since IDS Borjomi has immense popularity and is considered to be one of largest mineral water producers in Europe, its acceptance in Switzerland is likely to remain high. Since IDS Borjomi intends to export a single product to Switzerland, it is product segmentation is not diverse. On the basis of region, the company targets all Swiss and non Swiss residents (Network Industries Quarterly, 2015). Consumers in Switzerland are seen to be highly health conscious and prefer to have high quality food and beverage products. The economy of the nation is prosperous and income distribution is seen to remain more or less even. Both consumer spending and savings are seen to continuously rise. The economic recession of 2007 was seen to have a lower impact upon the Swiss economy. As a result consumer spending upon lifestyle products had not suffered much. Demand for consumer products in the nation is seen to rise continuously. The consumption of mineral water in Switzerland as compared with other nations of the world has been shown below: (Source: Zanran, 2015) From the above figure it can be seen that Switzerland accounts for the largest consumption of mineral and bottled water. In fact the above figure shows that European countries in general consume a large portion of the world’s bottled mineral water. This is one reason why mineral water companies consider European nations apt for exporting mineral water. Consumers in Switzerland prefer having a high quality lifestyle. As a result there consumption of consumer and retail products is high. Consumers in the nation have a strong affiliation towards high quality products. Hence brands which may be popular but are qualitatively poor might not be able to create adequate market stand in Switzerland. Since Borjomi is famous in the continent of Europe for its superior quality and taste, it is likely to have a strong acceptance by the consumers of Switzerland. The beverage industry in Switzerland is overall seen to do well due to the existence of favourable consumer behaviour. Moreover the rising awareness regarding healthy drinking and eating habits makes consumers chose packaged mineral water rather than soft drinks. Although the nation of Switzerland faces no shortages in respect of drinking water, the need of bottled mineral water has been seen to continuously rise. Considering the consumer profile and the target market segment, Exporting Borjomi to Switzerland would be considered to be profitable venture as it would suitably meet consumer demand (Zanran, 2015). Industry analysis Switzerland is known for their abundant water resources. The nation has an estimated reserve of 263 billion cubic meters of water. As a result the nation can be considered to be high water availability country. The nation holds about 6% of the total fresh water reserves of the entire nation of Europe. Drinking water sources of the nation are mainly spring water, ground water and lake water. The entire nation is seen to have a well established water supply network established by the government authorities. 98% of the net population of the net population of the nation is seen to be well connected with drinking water supply. The management of water supply falls under the public law of the nation and departments provided with such tasks are strictly monitored and inspected for quality assurance and fulfilment of environment regulations (Network Industries Quarterly, 2015). Despite the availability of abundant naturally found fresh water, the demand for bottled mineral water in Switzerland faces no shortages. The sales of mineral water in the nation of Switzerland are seen to rise and more than 30% of the population of the nation is seen to consume mineral water and prefer the same over soft drinks and general tap water. The rising awareness in respect of health and healthy lifestyle is responsible behind the growth of the industry. However the industry has been faced with many challenges from environment conservationists in respect of the harmful impact of such products upon the availability of fresh water resources and its quality due to continuous extraction (Network Industries Quarterly, 2015). Competition Sales of mineral water in Switzerland are seen to be mainly dominated by international brands such as Nestle. Local brands find it difficult to establish themselves in the market. International brands are seen to mainly dominate the industry. Local firms therefore find it difficult to match the scale and brand value of such large firms. However amongst the local brands, Pure Swiss and Swiss Mountain are seen to perform well (Bottled Water of the World, 2015). Being one of the largest consumers of mineral water, companies in this sector are seen to be performing well. For Borjomi Nestlé Waters is likely to remain as one of their prime competitors. The company holds almost 20% share of the market as per the 2013 statistics. Other brands having a strong presence in Switzerland are seen to be Migros (15% share), Valser Mineralquellen (15% share) and Evian-Volvic with 12% market share. Danone is also seen to be increasingly establishing them as a strong brand in the nation. Nestle’s market share has in the recent times witnessed a slight amount of fall due to the entry of new players and improvement in the quality of products by other brands. Borjomi is therefore expected to face huge competition in the market. Considering such aspects the company is required to establish effective promotional strategies and thereby enhance the popularity of the product in the nation. However on the basis of the strong brand image that the product holds in Georgia and other European nations, the company is expected to do well even in Switzerland (Euromonitor International, 2014). Business environment in Switzerland for Borjomi As per statistics it was found that tap water in Switzerland was considered to be as safe as bottled water due to high quality control established by the government authorities. However approximately 30% of the population of the nation prefer bottled water. This makes the nation a suitable destination for many mineral water companies to expand their operations. By the end of the year 2014, 118 litres of the nation’s population was seen to consume bottled mineral water. In the recent times the business environment existing in the nation for internal mineral water brands has not been very peaceful. Many environmentalists and groups dedicated towards sustainable development have been successful at convincing the people of the nation the negative impacts of plastic bottles. However such environmental campaigns have not been successful at hard hitting the mineral water companies operating in the nation. Alternatively many mineral water companies have convinced consumers that although tap water may be considered safe, prolonged consumption may lead to health issues as tap water is treated using fluoride and other chemicals. Such aspects are not present in mineral water. Leading brands try to attract consumers by promoting the lack purity which exists in tap water. Therefore there exist strong rivalry between government authorities and the mineral water companies (Euromonitor International, 2014). Exporting to Switzerland from Georgia is seen to be governed by a series of bilateral trade agreements. The trade relations between the two nations are seen to be strongly established. However since Georgia is not a part of the European Union (EU), it does not enjoy many of the trade duty allowances and free trading facilities established between the EU and Switzerland. In general while exporting to Switzerland, duties are based on the weight of the product. This is a particular feature of Switzerland alone. The goods exported to Switzerland are subjected to sales tax or VAT (value added tax) which is calculated on the basis of the cost of goods sold, freight, insurance and any other duty. Certain category of goods is also subjected to excise duties. Such excise duties are not however applicable for exporting mineral water top Switzerland. In case of exporting Borjomi to Switzerland from Georgia, a sales tax of 2.5% would be applicable. Additionally a Most Favoured nation (MNF) duty rate of 0% + CHF1.00 per 100 kg is applicable. Also while exporting to Switzerland; Borjomi is required to comply with certain rules and regulations which are established by the environmental authorities of the nation (Euromonitor International, 2014). Apart from the legal and the social environment existing in Switzerland, Borjomi is expected to receive adequate business support for selling their products in the nation. Switzerland has a number of efficient distributors who work on the basis of swift trading policies. As a result it is possible for Borjomi to set up an efficient system of distribution and trading relation (Euromonitor International, 2014). Distribution channel and strategic alliances Migros and Coop are the most popular and preferred distributors of Switzerland. Most retailer and consumer product manufacturers are seen to prefer the services provided by Migros and Coop for the distribution for their products in the markets of Switzerland. A large number of consumers in Switzerland are seen to prefer to shop at Migros and Coop. However due to the growth of a number discounting chains, such as Aldi and Lidl, Migros and Coop is seen to face immense competition. Also in the recent times Denner has evolved as an important distributor in the market of Switzerland. In case of Borjomi, the representative company of the brand in the nation of Switzerland is Mountec Martigny. The company takes the responsibility of procuring the exported Borjomi mineral water and establishing tie ups with different distributing brands for providing the products to different regions of Switzerland (Euromonitor International, 2014). On the basis of the evaluation of the distributors existing in the market of Switzerland, it is preferred that the Borjomi develops tie ups with Migros and Coop for the distribution and selling of the product. Since in the recent times Coop is seen to overtake Migros considering market share, Borjomi may consider providing maximum distribution of their products to Coop. Together Migros and Coop account for almost 70% of the distribution of the food and beverage products in Switzerland. Both the companies are preferred by retailer giants for selling and distributing their products due to their effective strategies in respect of sale of goods and services. Moreover in the recent times in order to counter competition and to maintain markets share Coop has begun to provide discounts and frequent consumer programs. Coop’s success in the market as a strong distributor arises out of their adequate understanding of the market. Switzerland’s consumers are seen to portray a huge demand for consumer goods and products. Borjomi must select companies on the basis of their experience and understanding of the targeted market segment. As a result the company must consider developing partnerships with Migros and Coop for better market penetration and distribution activities. Distribution channels are required to be highly efficient and swift as mineral water may perish if not provided to consumers on time. Also much attention must be provided to storage as the quality of mineral water may be affected if not stored under proper conditions. Coop and Migros is preferred by most mineral water retailers in the market of Switzerland as they are seen to provide particular attention to proper storage of products. In addition to selling their products with large scale retailers, the brand may consider to develop partnerships with smaller distributing firms and departmental stores. Diversity in the distributing channel is suitable for wider market penetration. Additionally for better establishment of the product, Borjomi must consider developing tie ups with various advertising and promotional agencies of Switzerland (Honig & Karlsson, 2004). Marketing and Implementation strategies The premium pricing policy is required to be followed by Borjomi being a well known international brand. The market has a number of strong players and therefore it becomes essential that Borjomi is priced as per the exiting rates of rival brands who are mainly large scale international firms. The price must be set as per the rates charged by such eminent international brands and not as per the local brands. Since Borgomi is exported mineral water, they fall in the category of superior quality and premium products. Hence the strategies formulated must be at par with the existing branded and high quality premium brands. The competitors of Borjomi are not the local brands hence it gains the advantage of pricing their products at a higher price than the existing local brands. Also while establishing the price for the brand, the company must take into consideration the cost of taxes and duties, since the product is being exported (Honig & Karlsson, 2004). Due to such pricing polices the main targeted segment of the company is the average and high income earners. In terms of age group the brand has no specific segmentation. Consumers belonging to all ages are targeted. Since Borjomi partners with some of the most efficient and leading distributors for selling their products in Switzerland, it gains the advantage of being able to position itself widely and as a high value international brand. Also the company establishes strategic alliances with smaller retailers for a more wide spread supply chain network and to reach out to all kinds of consumers (Honig & Karlsson, 2004). Borjomi would be widely marketed as a high quality packaged mineral water from the naturally found springs of Central Georgia. The already existing high brand reputation is likely to act as a strong advantage for the brand. IDS Borjomi would be therefore promoted as a specialized and premium quality mineral water. It is likely to attract consumers who prefer high quality beverages and are health conscious. Moreover since the company already has been able to export the brand to other European nations successfully, the experience is expected to serve well for their current exporting strategies in Switzerland. In terms of publicity, media as well as print advertising strategies are required to be adopted. Online promotion is seen to be highly influential in the market of Switzerland. Hence promoting the brand through online platforms must also be considered by the brand (Hiebing & Cooper, 2000). The implementation of the export plan of Borjomi is based on the following schedule: Activities 1-2 months 3-5 month 6-8 month 9-12 month Market analysis and in depth research Selecting suitable distributors Decisions in respect of pricing and promotion. Selecting promotional agencies. Integrating product features with market needs and testing of product in the market by indulging in a small export venture. Intensifying the export of the product through developing contracts and agreements with distributors. Initiation of market communication and preliminary phase of launching of the product. Final launch of products and intensified promotions. In order to begin and properly establish the export business, the company is expected to take a time period of a year. Since the main objective of the company is to export and distribute the product in the market of Switzerland, the company need not bother about setting up of plants or offices in Switzerland. The strategic alliances developed with distributors and other firms would represent the brand in Switzerland. Hence recruiting of manpower in Switzerland, for carrying out selling and distribution activities is not required and can be avoided. Nevertheless since the firms activities are likely to expand, it may require to recruit additional employees in Georgia for better managing the task of export (Hiebing & Cooper, 2000). Prime marketing strategies Awhile exporting their products into the markets of Switzerland, Borjomi is required to focus upon the following important aspects: Brand image- Borjomi is required to capitalise its strong image existing in other nations of Europe and use the same as a strong factor for expanding their sales in Switzerland. As stated in the target consumer studies, majority consumers in the nation of Switzerland prefer products which have a high recognition. This would aid Borjomi to gain popularity and expands their operations in the nation. Informing consumers about quality- Many people avoid consuming mineral water as they are unaware of the benefits of such water upon their health. Borjomi must therefore inform consumers regarding the positive impacts of their products upon the health of consumers. Once consumers become aware of its high quality and its impact upon health, sales are likely to boost (Hiebing & Cooper, 2000). Attractive placement- Positioning a brand in the market is creates immense impact upon its sales volumes. Consumers many at times perceive a brands quality and whether they should buy a particular product or not. Brands are usually placed in a manner such that they target either all or specific segments in the market. Borjomi is required to be positioned as a luxury item in the market and must essentially target the average and high income earners. Such a placing s likely to attract even those consumers who strive to be counted or perceived as individuals who want to counted amongst the high income earners (Hiebing & Cooper, 2000). Solution to health problems- Borjomi can be placed in the market as a product which facilitates maintaining proper health and leading a proper lifestyle. As a product which solves various health issues, Borjomi may find greater acceptance in the market. Effective distribution and promotional strategies- The distribution and promotional strategies are required to be such that they do not lead to increasing the cost of the product massively. Also the companies with which Borjomi partners for distributing their products in the markets of Switzerland must possess effective supply chain systems and adequate experience in the retail industry. Swift and timely distribution network would be highly preferred (Shane & Delmar, 2004). Financial analysis For expanding the company’s operation in the nation of Switzerland through exporting, certain financial implications upon the company’s financial statements are likely to occur. Accordingly the financial statement for five years have been prepared and shown in appendix 1 and 2. Based on these financial statements some financial evaluations have been carried out as follows: Figure: Income Statement Figures. From the projected income statements, it can be seen that the sales of the company are expected to rise at the rate of 10% per annum. Accordingly the profits available for distribution amongst shareholders are also high. The efficient management at Borjomi takes adequate care so that the costs of operations remain low and there and adequate returns can be provided to all shareholders. From the income statement in appendix 1, it can be analysed that maximum expenses occur in relation to taxes and raw materials. Since the exports are likely to increase organizational tasks, expenses in relation to employee hiring is expected to rise. Figure: Balance Sheet Figures The series in the above figure corresponds to year 1 to 5. Accordingly the financials have been projected. The value of the firm as per the financial statements is seen to remain more or less stable. Summarized Cash flow (Figures in '000' CHF) Year 1 Year 2 Year 3 Year 4 Year 5 Cash from operating activities 25235 25770 26432 26324 28324 Cash flow from Investing Activities -10569 -11590 -10500 -10800 -12800 Cash flow from financing activities -12379 -10980 -12600 -11760 -11760 NET DECREASE IN CASH AND CASH EQUIVALENTS 2287 3200 3332 3764 3764 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1852 2768 2789 3200 3214 CASH AND CASH EQUIVALENTS AT END OF YEAR 435 432 543 564 550 The cash inflows from the export plan are seen to be highly positive. This indicates that the project of expanding the business into Switzerland is seen to be more or less positive. Accordingly it can be stated that the product Borjomi is expected to provide high profit to the company if exported to Switzerland. Also considering the business environment and the mineral water industry conditions of Switzerland, it is highly profitable for the company to expand their activities into the targeted nation. References Borjomi (2015). About the Company. Retrieved from http://borjomi.ch/about/company. Bottled Water of the World (2015). Bottled Water of Switzerland. Retrieved from http://www.finewaters.com/Bottled_Water/Switzerland/index.asp. Euromonitor International (2014). Bottled Water in Switzerland. Retrieved from http://www.euromonitor.com/bottled-water-in-switzerland/report. Hiebing, R. G. & Cooper, S. W. (2000). The successful marketing plan. New York: NTC/Contemporary Publishing Group. Honig, B. & Karlsson, T. (2004). Institutional forces and the written business plan. Journal of Management, 30(1), 29-48. IDS Borjomi Georgia (2015a). About the Company. Retrieved from http://www.idsborjomi.ge/en/about_compan/. IDS Borjomi Georgia (2015b). Borjomi. Retrieved from http://www.ids-borjomi.ge/en/. Network Industries Quarterly (2015). The Water Sector in Switzerland: An Innovative Approach to Restructuring. Retrieved from http://newsletter.epfl.ch/mir/index.php?module=Newspaper&func=viewarticle&np_id=37&np_eid=12&catid=0. Shane, S. & Delmar, F. (2004). Planning for the market: business planning before marketing and the continuation of organizing efforts. Journal of Business Venturing, 19(6), 767-785. Zanran (2015). Data & statistics on Bottled Water Switzerland. Retrieved from http://www.zanran.com/q/Bottled_Water_Switzerland. Appendix 1: Income Statement Appendix 2: Balance Sheet Read More