Product and Service
Companies included in Bottled water /ice sector of food industry primarily provide bottle water and refill of bottle water based on self-service machines.
Demand for Product and Service
As indicated by comparable sales unit data, demand for bottle water has been solid and grows gradually in the past several years. And its future may depend on several factors from public awareness to business model’s innovation and competition.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- The growth in demand has been solid in purified bottled water market of US. The organic increase in sale units of bottled water shows consistent stability since 2015.
- Competition among companies in sector and from alternative products seems to have put huge pressure on price.
- Existing companies realized that their revenue will be more likely to come from bottled water related service and thus have given more focus on business model’s innovation.
- Facing competition from alternative products, companies in this sector has been increasingly dependent on office demand.
Causes behind the trend
- Increasing concerns on quality of municipal tab water such as contamination have been the driver in the residential and office market of purified bottled water in US. However, the companies in this sector have been increasingly feeling the threat from installation of filtration units, which fueled by concerns of repeatedly utility of plastic bottles.
Industry Future
Increasing awareness of healthy water will continue to push demands to go further for purified water with the concerns of quality of municipal tap water. However, it does not have to be the bottled purified water. It may come with another way such as installed filtration units and others.
Because we cannot see any significant changes in bottled water industry of US we think its future growth may heavily depend on demands of office for purified water and thus may be limited by the climate of macro-economy situation.
Numbers
General Financial Performance of Companies In the Sector
It seems demand for bottle water has been strong as indicated by continuingly increasing sales volume (10% on average annual growth in four years) with relatively stable price. However, demand for machine-based refill of water seems to be decreasing as indicated by decrease in sales volume.
As a result of upward trend in price and favourable product/mix, we have been seeing improved margin among companies in this sector in 2015/16. However, pressure on price increased since then and has been the major factor causing margins of companies to go down. The typical gross margin is about 20% in 2018. With about 11.5% SG&A, the operating is about 9%.
The typical enterprise price/EBI ratio is about 42 in 2018 with an interest/EBITDA ratio of 46%.
