Strategic Case - Sustainability of a Mineral Water Company's Strategic Advantage

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Actually, the market share distribution in mineral water seems to be now as follows :

Sidi Ali

Sidi Harazem

Aïn Saïss

Aïn Soltane

Imported products

Market share %

50

22

12

6

10

It appears that Sidi Ali and Sidi Harazem lost parts of their market share to the new comers, and if we consider that those ones are in the place just since two years, we can imagine that they are a threat to the old established ones.

Besides, the imported products stayed at the same level. Their high price (2 to 3 times the national ones) due to import taxes and to transport costs makes their consumption very eclectic, and it's likely to stay so as the energy costs rises.

To assess the EMO Company forces and weaknesses in this industry field, we chose to use the Porter five forces model, applied only on the mineral water market.

[pic 1]

It appears from this analysis that the bargaining power is in the retailer/customer side, with two main types of retailing: stores and supermarkets. The two biggest supermarket chains (MARJANE and ACIMA) are owned by ONA Group, which own SOTHERMA, the big concurrent too. And as the Moroccan society is changing rapidly, those two chains are implementing in all the big and medium cities, and they will surely shift the power to their side instead of the small retailers.

Other important customers are restaurants and hotels which need specific marketing strategies, and which are a priori not sensitive to prices.

The substitution threat is a real one too. In 2001, EMO and Coca Cola made a big move by lunching two rival distilled bottled water, respectively BAHIA and CIEL, a low cost products which occurred to have a big influence on the customers behavior.

Those two products attracted customers with medium incomes but unhappy with the network distributed water and it appears that in 2007, the saless of "Bahia" represented 17 of the total sales of EMO. All the Companies admit that this market segment is growing faster than the mineral water one. And it sure will keep this trend especially in the actual context of a continuous lowering purchase power.

The barriers to entry seems not sufficient to protect the business from new comers, the threat is real if some Multinationals decide to join the game.

Considering rivalry, it appears that the competition is not yet as fierce as it might be, due to youth of the market itself. But it will surely be very tense in the next years considering the market expansion projected, and the attractiveness it gives to this business.

2 – Do EMO have any competitive advantage?

A competitive advantage is defined as “the unique set of assets, capabilities, positions and environmental circumstances that enable an organization to consistently out-perform its competitors in its chosen strategic outcomes”[4].

According to this definition, we will assess the competition advantage (s) of the EMO Company regarding the elements extracted from the environment and industry analysis, through three complementary ways: The position the Company is adopting, the source of it's value, and the resources and capabilities it use.

2.1 The position

In the mineral water market, the EMO Company clearly adopted a differentiation position by exploiting the image of its star product Sidi Ali as a premium product. The Porter's generic competitive strategies diagram below shows better this positioning.

[pic 2]

EMO competes in a large competitive scope with a mineral water product not considered as a low cost/low price one. It is normal then to adopt a premium price strategy and not to get involved in a prices war. That what the Company did, and it increases its prices by 10% over all the competitors in 2007 with no bad reaction from the customers or a decrease in the sales volumes.

It appears then that the customers are low price sensitive regarding the mineral water they buy (1L : 5,5 dh). But they are more sensitive to the image the product is carrying : a light mineral water for a light body (slogan of an advertising campaign), in opposition to Sidi Harazem perceived as a heavy mineral water.

The Company built over the last thirty years a real Brand name of Sidi Ali as a superior product: more refined and healthier. The natural reflex of a buyer in a small retailing shop is to ask first for a Sidi Ali, and if the product is not available for "another" product. Even if Sidi Harazem exits from thirty years ago, it failed to build such a brand name.

2.2. The source of value

Sidi Ali maintained its dominant position by an aggressive marketing, with campaigns addressed to the final customers and to intermediaries (Hotels and restaurants). The company uses too a powerful sale force with strong and personal relationship with the small retailers network.

Assuming that management, human resources, operations and distribution processes and channels are (or will be) the same, the only value source remaining is marketing. This concept can be sustainable if the Company maintains his marketing strategy and get more aggressive than the competition. But if we consider that the marketing skills could be in the future the same (if Multinationals get involved in the market), keeping the brand name ahead of competition only by marketing will be hardly difficult.

2.3 The Resources and Capabilities

The resources and capabilities of the EMO Company can be listed as follows :

Resources/Capabilities

Description

Assessment

Resources (tangible assets)

The water quality (the spring)

Considered as distinguished, light mineral water