After the successful completion of Vishal Retail’s IPO, with the issue being subscribed 82 times over, the company may stir the packaged mineral water market by launching a 1 litre bottle for as low as Rs.6, to be sold initially at Vishal Megamart stores.
The per capita bottled water consumption in India is less than 5 litres a year as compared to the global average of 24 litres. However, the annual bottled water consumption has risen rapidly in recent times and is worth Rs. 800 crore today and growing at 25% per annum, highest in the world.
India has over thousand bottled water producers having more than 200 brands, of which 80% are local producers. Despite this, the industry is dominated by big players like Parle (Bisleri), Coca-Cola (Kinley), PepsiCo (Aquafina) and Manikchand (Oxyrich).
Vishal Retail may produce in-house or buy from outside manufacturer. If the pricing point becomes a market price base from the existing Rs.10 base, then key players may be forced to rethink their strategy and cut prices.
Packaged water has 3 categories – premium natural mineral water, natural mineral water and packaged drinking water. Vishal in keeping with strategy of growing its FMCG basket, shall be catering to the last segment of packaged water.
Now the question remains as how will the company be able to sell so low. The raw material cost if just 0.02-0.03 paise and treatment and purification involves 25 paisa per litre. The next cost is the cost of bottle, cap and carton which is Rs.2.50 at lower end. But the biggest cost is the transportation and marketing cost which forms a huge chunk of the price, and this is where Vishal Megamart would score owing to its format of ‘manufacturing-to-retailing’.
Vishal Retail though may be at a certain disadvantage as it is primarily located in northern and central India while 40% of bottled water consumption is in western region, and bulk of the bottling plants are situated in Tamil Nadu.