Water wars

STATE UPDATE/TAMIL NADU

It's perhaps one of the most fiercely fought over packaged and branded drinking water markets in the country. Tamil Nadu has over 800 drinking water brands and price wars are not unknown.

What is more, manufacturers complain that profit margins are wafer-thin, thanks to the large number of brands fighting for a limited market.

Says Shaila Bhale Rao, director, Varsh Beverage, the water processing company: "Competition has heightened to such a degree that some processing unit comes up for sale every other day."

Industry sources estimate the packaged water industry's annual turnover in Tamil Nadu to be in the region of Rs.100 crore every year, of which an estimated 40 per cent comes from Chennai.

The industry recently became part of the organised organised sector, thanks to stringent quality norms fixed by the Bureau of Indian Standards (BIS).

ISI certification for packaged drinking water became mandatory in March 2001. Since then, close to 700 licences have been issued across the country, 270 of them in Tamil Nadu and 70 in Chennai.

Says V Murali, a private manufacturer of package drinking water and treasurer of the one-year-old Tamilnadu Packaged Drinking Water Manufacturers Association (TPDWMA): "There is no all-India estimate of the size of the packaged drinking water business. But going by the number of licences BIS has issued, it is quite possible that Tamil Nadu is the leading state in this segment."

The market is clearly divided into two segments "" leading national brands like Bisleri and Coca Cola's Kinley on the one side and a host of regional or Chennai-centric brands on the other.

The two national brands together have an estimated 27 per cent market share, with Bisleri leading with a 15 per cent market share.

Says M Sesha Sai, managing director, M V R Mineral Water Pvt Ltd, bottlers for Kinley in Tamil Nadu: "We have invested around Rs 8.5 crore in the last year and a half in two plants. The bulk water plant can produce 8,000 jars a day and the other plant can manufacture 120,000 bottle s a day."

Sai says the two plants are now operating at 35 per cent capacity. "The industry is growing by an estimated 25 per cent annually. We expect to touch 60 per cent capacity utilisation during the next season," he adds.

The multitude of brands in the market has become a problem for the organised sector companies. An executive at one company points out: "Some manufacturer are lending their ISI registration for brands they don't own. This has led to serious quality-related issues. As a result, consumers are not sure of the quality of water of even good brands."

Murali adds: "Today one can pay Rs.25,000 for using the ISI registration number and float a new brand and this is legal. While these brands may, in the initial days, buy water from the designated plant, they also fill unprocessed water and call it ISI approved."

TPDWMA has already written to the union government to ban the use of the ISI mark on more than one brand. "This alone will ensure the quality of water is reliable and is truly ISI approved," says Bhale Rao.

Profit margins are low. Murali gives a back of the envelope estimate to explain this. "The 100 sachet bag is supplied to the retailer at Rs 26. This is sold at Rs 100 to the end user, making the retailer the biggest beneficiary in the packaged drinking water business."

But manfacturers' costs are high. A 15,000 litre per day water processing plant could cost Rs 30 lakh today, with Rs 5 lakh spent on the testing lab itself.

The annual BIS fee is around Rs 1 lakh and the series of tests the manufacturer has to conduct throughout the year drives costs through the roof.

Says an executive at a water company: "When pesticide tests were made mandatory once in six months "" they were earlier done annually "" the labs increased the price of testing from Rs 3000 to Rs 10,000 for each test."

This, he adds, despite the fact that not one manufacturer is reported to be supplying contaminated water.

TPDWMA is working towards bringing all licensees in the state under its fold.

"Today only 150 of the 270 BIS licensee are members of the association. Once we bring the entire industry under the association, the chances of improving the quality levels is much better, " says Murali.

G Vinayagamurthy, joint general secretary, TPDWMA adds, "The association is already working towards rationalising pricing decisions. Today the same 25 litre jar is available from between Rs 20 and Rs 45."

What of the future? Certainly, the plethora of brands will be whittled down by the competition in the market. Quality will improve "" but prices won't drop either.