A Recommendation for Market Entry Choice of Gerolsteiner's Bottled Water Product Range

Categories: Production

Introduction

In today’s remarkably competitive global market, more and more firms resort to international expansion to maximise their sales and seize new opportunities (Hollensen, 2014, p.15). As Hollensen (2014, p.15) pointed out, international expansion provides firms with a vast array of benefits, the main ones being increased competitiveness and access to new markets, ideas and technologies. However, being international expansion a complex process that entails numerous risks, scholars and practitioners have developed ad hoc tools and frameworks which have been assisting organisations in developing effective international strategies.

Founded in Gerolstein in 1888, Gerolsteiner Brunnen GmbH (henceforth, Gerolsteiner) is a German mineral water company that began exporting to foreign countries in the late 1880s (Gerolsteiner, 2016a).

During the past five decades, the bottled water industry grew significantly as a result of the emergence of various large-scale retail surfaces which increased consumers’ demand for new types of groceries (Hollensen, 2014, pp.314-318). Despite being Germany’s largest bottled mineral water company, Gerolsteiner has failed to become a global market leader, whereas brands like Danone, Coca-Cola, Nestlé and Pepsi have been strengthening their international presence and are currently intensifying their operations in emerging markets (Lee, 2016).

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In view of these considerations, this essay proposes a market entry strategy for Gerolsteiner’s products which should help the German company strengthen its international presence.

This essay consists of five sections: the “Introduction” section provides some background information about the company being investigated and illustrates the main themes that will be covered in the following sections; in “Gerolsteiner’s performance” the company’s product portfolio, market position, competitors and overall strategy are analysed; in “Potential markets” various markets where Gerolsteiner could offer its product range are identified; “Market entry proposal” recommends a particular market where Gerolsteiner should strengthen its presence in order to seize specific opportunities; finally, the “Conclusion” section summarises the main points of this essay.

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Gerolsteiner’s Performance

Thanks to its ability to adapt its strategy to consumers’ evolving needs, Gerolsteiner is currently Germany’s most popular and best-selling mineral water brand (Gerolsteiner, 2016b).

The company has spent the last 128 years supplying its customers with high quality mineral water coming from a spring in the Volcanic Eifel, whose geological features are the main reason why Gerolsteiner’s water is particularly refreshing and rich in minerals (Gerolsteiner, 2016b). It offers both reusable and non-reusable bottles and has developed a rich product portfolio consisting of sparkling water, non-sparkling water, light soft drinks, fruit-flavoured soft drinks as well as other beverages (Gerolsteiner, 2016b; 2016c).

Gerolsteiner was the first company to manufacture reusable PET bottles in Germany and to offer glass bottles to pubs, restaurants, bars and other on-trade consumers (Hollensen, 2014, pp.314-318).. As a result of its constant commitment to innovation and quality, in 2012 Gerolsteiner produced over 600 million litres of bottled water and soft drinks and its newly-launched lightweight glass bottles has a very positive impact on its overall sales (Gerolsteiner, 2013). That being said, exports to Belgium, the Netherlands, Luxemburg, the United States, Japan and other minor foreign markets accounted for only 3% of its sales, which clearly indicated that Gerolsteiner’s international strategy was not sufficiently effective. In 2013, foreign consumers’ growing demand for high quality mineral water allowed the company to increase its international sales, to the extent that by the end of the fiscal year, exports represented 5% of its sales (Gerolsteiner, 2013).

While the company offers a wide range of flavoured beverages, its domestic and international marketing campaigns have been revolving around its core business, i.e. Sparkling water; in the United States, for example, Gerolsteiner has been prompting consumers to benefit from the outstanding properties of mineral water (Gerolsteiner, 2013).  The bottled water industry is characterised by two main marketing channels, namely on-trade (e.g. bars, restaurants, hotels and other businesses operating within the hospitality sector where beverages are consumed on the premises) and off-trade, which directly targets consumers.

As of 2011, the global bottled water industry was dominated by four key players, namely Danone, Coca-Cola, Nestlé and Pepsi, whose market shares in terms of off-trade volume were 12%, 9.5%, 9,2% and 4% respectively (Hollensen, 2014, p.316). Other bottled water companies such as Chinese Hangzhou Wahaha, Yangshengtang and Tingyi Holding, Italian Acqua Minerale and Alma Group, and OS Waters of America had a global market share of over 65% (Hollensen, 2014, p.316)

In Europe, Germany is one of the largest bottled water markets, followed by Italy, France, Spain and the United Kingdom (Hollensen, 2014, p.316). As of 2011, Gerolsteiner was Germany’s third largest bottled water company, with a market share of 4.8%, whereas its top domestic competitors, i.e. Rewer Markt and Nestlé Deutschland controlled over 14% of the market (Hollensen, 2014, p.317). Aldi and Danone, on the other hand, accounted for 8.6% of the German bottled water market. Even though Gerolsteiner has managed to become one of Germany’s leading bottled water companies, its presence in other large European markets is still relatively weak compared to its competitors. For example, the British bottled water market is dominated by Danone Waters, Tesco, Sainsbury, Asda and Nestlé Waters, whereas Nestlé, Neptune, Danone, Carrefour and SC are France’s top players. These statistics clearly suggest that Danone and Nestlé have successfully penetrated various European markets, where they compete with reputable domestic rivals.

While Gerolsteiner is well known among German consumers, the company is yet to position itself as a major player within the European market. By creating a brand that reflects its German roots and regional heritage, Gerolsteiner has failed to engage international consumers, whereas Danone and Nestlé have done an excellent job adapting their products and marketing campaigns to local needs and expectations through what is commonly referred to as “glocalisation” (Gerolsteiner, 2016b).

Glocalisation aims to combine the advantages of globalisation with the benefits of localisation; by combining these two approaches, multinational companies can minimise their costs, maximise their productivity and access various markets whilst adapting their offerings to each target market’s culture, values, needs and desires (Mendis, 2007).

The above analysis of Gerolsteiner’s market position shows that the German company’s high quality water and sustainable practices have enabled it to become Germany’s leading bottled water brand; however, its international sales account for a very low percentage of its overall profits, and its market share in other European and non-European countries is nearly non-existent compared to successful international brands like Danone and Nestlé.

Potential Markets

As Johnson, Scholes & Whittington (2009, pp.257-259) pointed out, the Ansoff matrix highlights four simple and yet highly effective directions for strategic growth/development. Specifically, a firm can strengthen its presence in its existing markets using its existing products (Alternative 1), introduce new products into its existing markets (Alternative 2), offer its existing products to new markets (Alternative 3) or develop new products for new markets (Alternative 4).

As of today, Gerolsteiner’s product range is available in numerous countries worldwide, the main ones being Germany, the BeNeLux States, the United States and Japan (Gerolsteiner, 2010). Considering the moderate growth that Gerolsteiner has recently witnesses in its existing markets, greater market penetration is an excellent option that would probably have a positive impact on the company’s profitability.

In Germany, Gerolsteiner appeals to quality-conscious consumers who are becoming increasingly concerned about the high sugar content of soft drinks and appreciate the medicinal properties of its mineral water (Euromonitor, 2016a). With people consuming an average of 39 gallons of bottled water per year, the German bottled water market is certainly appealing; moreover, German consumers’ health concerns and exposure to marketing campaigns are expected to boost bottled water sales (Euromonitor, 2016a). It is also worth mentioning that the German bottled water market is remarkably fragmented, with hundreds of small brands marketing their own water; as a result, an effective marketing strategy should allow Gerolsteiner to further increase its market share in Germany (Euromonitor, 2016a).

In Japan, the company has developed a 0.45 litre reusable bottle in order to exploit a new distribution channel which is very popular among Japanese consumers: vending machines (Gerolsteiner, 2010). Before then, the company’s 0.5 and 1 litre bottles were only available in Tokyo, where several convenience stores have been distributing its mineral water since 2007 (Gerolsteiner, 2010). Over the years, natural disasters and the release of radioactive materials into tap water have caused Japanese consumers’ demand for bottled water to soar (Euromonitor, 2015). Japan is an attractive market where bottled water sales are expected to keep growing and Gerolsteiner could definitely increase its market share.

As for the BeNeLux States, per capita consumption of bottled water in Belgium and Luxemburg went from 35.5 in 2009 to 39.4 in 2014, while Dutch consumers’ demand for healthy flavoured drinks has been growing (Euromonitor, 2016b; Statista, 2016). Thanks to its range of healthy flavoured drinks, Spadel has managed to increase its market share in the Netherlands, where very few companies have aligned their offerings with consumers’ needs (Euromonitor, 2016b). Being the BeNeLux countries very close to Germany both in cultural and geographical terms, it would be easy for Gerolsteiner to identify major opportunities and develop ad hoc strategies to seize them. Similarly, France is a highly appealing market where bottled water consumption per capita grew from 34.4 in 2009 to 37.4 in 2014 and Gerolsteiner is still a minor market player (Hollensen, 2014, p.317).

In spite of their size and remarkable potential, the United States and China are currently dominated by large domestic bottled water brands, whose deep understanding of consumers’ desires and expectations has enabled them to achieve national recognition (Hollensen, 2014, p.317).

Market Entry Proposal

After careful consideration, France has been identified as the most suitable market for further penetration of Gerolsteiner’s products. The French bottled water market is being rapidly transformed and re-shaped by consumers’ growing demand for healthy, flavoured bottled water (Euromonitor, 2016c). Domestic bottled water companies have been taking advantage of recent trends by launching new sugar-free, flavoured drinks made from natural ingredients (Euromonitor, 2016c). The market is currently dominated by Nestlé Waters, whose top brands have lost ground to Neptune and other competitors, whose highly mineralised drinks have enabled them to increase their off-trade market share (Euromonitor, 2016c).

Despite being a highly competitive market, France offers excellent growth opportunities: since only 50% of French consumers prefer tap water to bottled water and more and more people are starting to realise that carbonates are bad for their health, it is highly likely that a growing number of consumers will start purchasing bottled water in the near future (Euromonitor, 2016c).  It is also worth noting that as of 2011, France was among Europe’s largest bottled water markets in terms of market volume (Hollensen, 2014, p.317).

In the late 1990s, Solberg (1997) developed a model to help management decide whether to pursue an international strategy. His “nine strategic windows” framework has two main dimensions, namely “industry globality” and “preparedness for internationalization”, thanks to which firms can be classified as either too weak to dominate the international market – in which case they should stay at home and improve their domestic performance – or ready to strengthen their global position (Solberg, 1997, p.11). Judging from Gerolsteiner’s weak international presence, it is evident that the company lacks a well-defined international strategy that can help it succeed in the international marketplace. As explained by Solberg (1997, p.15), a firm’s preparedness for international development depends greatly on the number of managers and employees who are involved in the execution  of international operations, as well as on the extent to which the firm’s culture is flexible enough to become international.

As appealing as a large emerging market like China may be, it is believed that Gerolsteiner’s resources and capabilities would make it difficult for the German company to succeed in such a geographically and culturally distant nation. As suggested by the Uppsala model, firms should first gain experience in their domestic markets and become increasingly involved in geographically close and culturally similar markets, before targeting more distant ones. As Hollensen (2013, p.425) observed, the Uppsala school of thoughts argues that internationalisation is a gradual learning process that is fuelled by the accumulation of information and the acquisition of new skills and capabilities that enable management to handle international affairs effectively.

Based on Hofstede’s cultural dimensions theory, Germany and France are two highly individualistic societies whose members value success, ambition, freedom, independence and pragmatism (Hofstede, 1980; Hofstede & Minkov, 2010; The Hofstede Centre, 2016a; 2016b).  Furthermore, both cultures are relatively restrained and score high on the Uncertainty Avoidance dimension (The Hofstede Centre, 2016a; 2016b). With regards to communication, Hall’s (1976) research revealed that there exist two main types of cultures, namely high and low-context cultures. In high-context cultures, people rely on implicit messages and non-verbal clues when communicating, which makes it difficult for outsiders to understand what is being said; on the other hand, members of low-context cultures are usually direct and explicit. Being Germany and France two low-context cultures, Gerolsteiner would not have to train its employees or even hire some local managers in order to carry out operations in France.

In view of the above considerations, Gerolsteiner can certainly afford to maintain full control over distribution without having to commit a significant amount of resources by opting for a non-equity entry mode like direct export through sales representatives (John & Gillies, 1996, p.266).

Conclusion

Analysing Gerolsteiner’s market position, it emerged that the German company has managed to position itself as a reputable brand in its domestic market, where quality-conscious consumers appreciate it for its high content of minerals and sustainable practices. However, due to its weak presence in the international marketplace, exports only account for a small percentage of its total sales. Unlike Nestlé and Danone, which are among the world’s leading bottled water brands and are currently targeting geographically/culturally distant markets, Gerolsteiner has failed to dominate other European markets. The Uppsala theory proposes that firms should gradually intensify their operations in foreign markets and target culturally/geographically close markets before entering more culturally/geographically distant ones.

In view of these considerations, it is advisable that Gerolsteiner strengthens its position within Europe before committing more resources to larger but culturally/geographically distant markets. As one of Europe’s largest bottled water markets, France offers excellent growth opportunities with its growing demand for healthy flavoured drinks and mineral water. Using Hofstede and Hall’s frameworks, it is also found that besides being geographically close to each other, France and Germany are two very similar cultures where communication is explicit and people share similar values and aspirations.

It is expected that by entering the French market through a non-equity entry mode, Gerolsteiner would slowly intensify its international operations and establish itself as a strong European brand. At that point, it will be able to use its knowledge, experience and skills to target larger international markets.

References

  1. Euromonitor (2015). Bottled Water in Japan. [Online] Available at: <http://www.euromonitor.com/bottled-water-in-japan/report> (Accessed on 5 March 2016).
  2. Euromonitor (2016a). Bottled Water in Germany. [Online] Available at: <http://www.euromonitor.com/bottled-water-in-germany/report> (Accessed on 4 March 2016).
  3. Euromonitor (2016b). Bottled Water in the Netherlands. [Online] Available at: <http://www.euromonitor.com/bottled-water-in-the-netherlands/report
  4. Euromonitor (2016c). Bottled Water in France. [Online] Available at: <http://www.euromonitor.com/bottled-water-in-france/report> (Accessed on 4 March 2016).
  5. Gerolsteiner (2010). The Gerolsteiner brand is world market leader among carbonated mineral waters. [Press release] 12 March.  Available at: <https://www.gerolsteiner.de/en/about-us/newsroom/companynews/detailview//the-gerolsteiner-brand-is-world-market-leader-among-carbonated-mineral-waters/> (Accessed on 4 March 2016).
  6. Gerolsteiner (2013). Gerolsteiner: Modern lightweight glass bottles support export growth. [Press release] 30 September. Available at: <https://www.gerolsteiner.de/en/about-us/newsroom/companynews/detailview//gerolsteiner-modern-lightweight-glass-bottles-support-export-growth/> (Accessed on 4 March 2016).
  7. Gerolsteiner (2016a). About us. [Online] Available at: <https://www.gerolsteiner.de/en/about-us/> (Accessed on 4 March 2016).
  8. Gerolsteiner (2016b). Gerolsteiner Brunnen. [Online] Available at: <https://www.gerolsteiner.de/en/about-us/gerolsteiner-brunnen/> (Accessed on 4 March 2016).
  9. Gerolsteiner (2016c). Our Products. [Online] Available at: <https://www.gerolsteiner.de/en/products/> (Accessed on 4 March 2016).
  10. Hall, E.T. (1976). Beyond Culture. Garden City, NY; Anchor Books.
  11. Hofstede, G. & Minkov, M. (2010). Long- versus short-term orientation: New perspectives. Asia  Pacific Business Review, 16:493–504.
  12. Hofstede, G. (1980). Culture’s Consequences: International differences in work related values.
  13. Beverly Hill, CA, Sage. Hollensen, S., eds. (2014). Global Marketing. Harlow, UK: Pearson.
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  15. Johnson, G., Scholes, K. & Whittington, R., eds. (2009). Exploring Corporate Strategy. Essex, UK: Pearson Education.
  16. Lee, H. (2016). Danone vs Nestlé: The Billion Dollar Health and Wellness Businesses at a Glance. [Online] Available at: <http://blog.euromonitor.com/2016/02/danone-vs-nestle-billion-dollar-health-wellness-businesses-glance.html> (Accessed on 7 March 2016).
  17. Mendis, P. (2007). Glocalization: The Human Side of Globalization as If the Washington  Consensus Mattered. Morrisville, NC: Lulu.com.
  18. Solberg, C.A. (1997). A Framework for Analysis of Strategy Development in Globalizing Markets. Journal of International Marketing, 5(1), 9–30.
  19. Statista (2016). Per capita consumption of bottled water worldwide in 2009 and 2014, by leading countries (in gallons). [Online] Available at: <http://www.statista.com/statistics/183388/per-capita-consumption-of-bottled-water-worldwide-in-2009/> (Accessed on 7 March 2016).
  20. The Hofstede Centre (2016a). Germany. [Online] Available at: <http://geert-hofstede.com/germany.html> (Accessed on 4 March 2016).
  21. The Hofstede Centre (2016b). France.  [Online] Available at: <http://geert-hofstede.com/france.html> (Accessed on 4 March 2016).

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A Recommendation for Market Entry Choice of Gerolsteiner's Bottled Water Product Range. (2021, Sep 23). Retrieved from https://studymoose.com/a-recommendation-for-market-entry-choice-of-gerolsteiner-s-bottled-water-product-range-essay

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