Indian Institute of Management Ahmedabad IIMA/MAR0470(A)

Revised on December 27, 2017

Aava Natural Mineral Water (A)

It was October 9, 2010. Behram Mehta, Managing Director, Sheelpe Enterprises Private
Limited, the maker of Aavaa mineral water, was taking his routine evening walk at his
riverside residence in Ahmedabad. But there was something different about this particular
day. Mehta was preoccupied with a recently published market study naming Himalayan, a
natural mineral water brand by the Tata group, as the new market leader in Western India.
Western India was a very important geography for Mehta as his brand Aava commanded a
stronghold there with weekly sales of nearly one million bottles. The market study findings
presented an additional challenge to Mehta, who was trying to establish his brand at the
national level. During the whole course of his walk that evening, Mehta thought about this
development and eventually decided to take the emerging competition head on. He called a
meeting the next day with Shiroy Mehta, Global Sales Head at Aava; Rajesh Padaliya,
General Manager, Distribution and Logistics; and Chandan Nath, ex-President, Mudra
Communications, an independent advisor on branding and marketing issues for Aava. The
agenda was to discuss the roadmap for Aava’s future growth in light of rapidly growing
competition in the natural mineral water industry in India. With more than 50% market
share, Aava had volume leadership in the natural mineral water market.

What followed during the day were multiple rounds of meetings between Mehta and senior
executives of the company. The core agenda of the meetings was to formulate an overall
strategy for Aava’s future growth. The long-term goal was to accomplish the company’s
aspiration of becoming a dominant player (perceptually and in volume and value terms) in
the natural mineral water category and to achieve the milestone of INR 500 million in sales
turnover by 2016. In the short-term, the aim was to develop an action plan to face the fast
growing competition in the market. With an expected sales turnover of nearly INR 80
million by 2010, Aava was the second largest player and volume leader in the Indian natural
mineral water industry. The brand that had won the “best packaging innovation award” for
its cup-cap bottle had started facing stiff competition from domestic as well as international
players that had recently entered the natural mineral water category.

Western India contributed nearly 40% of the total revenues of the natural mineral water
industry in India. Thus, losing even a small portion of its share in that market could have a
serious effect on the performance of a brand. Mehta and his team members were well aware
of the impact that growing competition could have on a company’s market share and
revenue. They had to take crucial strategic decisions on geographical expansion, market

a Aava in Persian means angel of water.

Prepared by Professor Anand Kumar Jaiswal and Harit Palan, Research Associate, Indian Institute of
Management, Ahmedabad and Professor Ingita Jain, K.S. School of Business Management,
Ahmedabad.The authors wish to thank Mr. Behram Mehta, Managing Director, Sheelpe Enterprises
and Mr. Shiroy Mehta, Global Marketing Head at Aava for their support and cooperation while
writing this case.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom
discussion. They are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
© 2015 by the Indian Institute of Management, Ahmedabad.
2 of 24 IIMA/MAR0470(A)

segmentation, product portfolio, and on the selection of growth verticals between the retail
and bulk water businesses.

Origin of the Bottled Water Industry

Historically, spring water, colloquially known as mineral water, was primarily used for
medicinal purposes. The trend of bottling and selling drinking water was believed to have
originated with the Ricker family in the United States in 1845.1 It gradually found its way to
consumers in other parts of the world, largely for health and hygiene reasons.2 In India, it
was an Italian company, Felice Bisleri, that began the trend of drinking bottled water in
1967. Although the concept gained some acceptance among select consumers, the bottled
water industry in India remained dormant for several years. After years of stagnation, the
industry started witnessing growth in the late 1980s. From 1993 to 1997, the market coverage
for bottled water grew from 60 to 250 towns,3 along with a significant increase in production
capacity (see Exhibit 1 for the growth of the bottled water market in India).4

Bottled Water Categorisation

The US Food and Drug Administration (FDA) categorised bottled water into seven different
types, namely, artesian, distilled, mineral, purified, sparkling, spring and well water. The
number and types of water variants sold varied from country to country. In India, bottled
water was divided into two broad categories: natural mineral water and packaged drinking
water.

Natural Mineral Water: This type of pure natural water was obtained from natural springs
or underground water sources by way of boring or hole-tapping techniques. This water
contained minerals either in their natural form or in a properly balanced form. Over the
years, with increased awareness about health and a rise in consumers’ spending propensity,
the natural mineral water category found its way into retail stores. With only 12 licensed
players operating in the sector, the natural mineral water market in India was estimated to
be about INR 1,870 million in 2010. Further, it was expected to grow to INR 10 billion,5
witnessing a compounded annual growth rate (CAGR) of 21% year-on-year during 2010 to
2020.6 Some prominent brands available in the category were Himalayan, Aava, Catch, Qua,
Vedica, Natural Spring, Evian and Perrier.

Packaged Drinking Water: This was the most commonly available type of water in the
market. Packaged drinking water was essentially water from which impurities and
chemicals were removed through various purifying processes such as deionisation, reverse
osmosis (RO) and chemical disinfection. (The salient features of packaged drinking and
natural mineral water are given in Exhibit 2). With nearly 3,800 licensees, the packaged
drinking water category in India was one of the most cluttered food and beverage (F&B)
categories. Some of the popular brands available in the packaged drinking water category
were Parle’s Bisleri, Coca-Cola’s Kinley, PepsiCo’s Aquafina, Manikchand’s Oxyrich, Parle
Agro’s Bailley and Kingfisher.

In 2010, the total bottled water market was estimated at more than INR 18 billion. Of this,
packaged drinking water accounted for 90% and natural mineral water 10% of the market.
In the natural mineral water segment, institutional customers contributed 90% of sales and
retail just 10%.7
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Sheelpe Enterprises Pvt. Ltd.

Behram Mehta and his wife Tina Mehta founded Sheelpe Enterprises in 1982. (The
organisation structure of Aava is given in Exhibit 3). The company, based in the western
Indian state of Gujarat, was initially in the business of granite mining. Mehta was a quarry
miner who entered the bottled water business entirely by chance. He never imagined that a
business that had begun as a lucky coincidence would end up becoming his main bread and
butter. Mehta commented:

I owned tracts of land in Gujarat near Taranga Hills and Hansol close to
Ahmedabad. At my Taranga quarries, there was a water source that naturally
flowed in the form of an underground stream [i.e., an aquifer] originating in
the Aravali mountain range. The water that flowed beneath the earth from
the Taranga foothills passed through several parts of Gujarat before it merged
with the sea near Porbandar in Saurashtra. Coincidentally, the same stream
passed through our manufacturing plant at Hansol as well. Some of these
water streams were very pure, sweet tasting, balanced in minerals and
potable. Over the course of time, many of the employees at our quarries
started drinking the natural water from the streams directly, avoiding the
water from the purifiers installed at our quarries. My employees used to tell
me, 'Sir aap purifiers nikal do (Sir, remove the purifiers). Natural water is
better. We will drink this water.’ Soon we realised that the stream had a good
source of natural water. Over a period of time, we realised that these streams
had plenty of natural water.

In early 2003, Mehta decided to carry out a detailed scientific hydrogeological study to better
understand the water quality and its commercial viability. The study, completed in 2005,
revealed that the water source was very pure and balanced in minerals. Mehta had always
known that the Aravali mountain range was the oldest mountain range in the world,
perhaps older than the Swiss Alps and the Himalayas; however, the discovery of the water’s
purity came as a pleasant surprise to him. Based on the results of the study, Mehta decided
to foray into the packaged natural mineral water business, and the Aava brand was born.

The company commissioned 67 independent tests on its water at laboratories certified by the
National Accreditation Board for Testing and Calibration Laboratories. As a result of various
tests, it became the only company licensed by the Bureau of Indian Standards (BIS)b outside
North India to produce natural mineral water. It also became the only company to source
natural mineral water somewhere other than the Himalayan range. (See Exhibit 4 for raw
material sources and areas of operations of various natural mineral water players in India).

Market Segmentation

Aava had a balanced product portfolio that catered to the needs of different classes of
consumers. For instance, its Aava Mini and Aava Personal, offered in 200 ml and 500 ml
bottles respectively, were targeted at large institutional clients such as airlines and hotel
chains. Aava Sports, a 750 ml bottle with a unique pull-push cap, was designed for sports
and fitness conscious people who could carry the bottle with them during sporting activities.
Aava’s 1 litre cup-cap bottle was available in retail stores, shopping malls, supermarkets and
hypermarkets. It was also sold to small institutional customers such as fine dining

bThe Bureau of Indian Standards (BIS) is India’s standards setting organisation operating under the purview of
the Ministry of Consumer Affairs, Food & Public Distribution of the Government of India. BIS is responsible for
the formulation, recognition, and promotion of Indian standards.
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restaurants, clubs, banquets and caterers. The 20 litre bulk jars were primarily for domestic
household buyers and corporate offices, which required bulk water for daily use. (Exhibit 5
provides various packaging variants of Aava).

Since its establishment, the company had primarily served high-end institutional clients in
sectors such as aviation and hospitality. It served the flight kitchens of the Oberoi and Taj
groups, which offered Aava to airlines such as Air India, Jet Airways, Swiss Air, Air France,
Lufthansa, British Airways, Singapore Airlines and Continental Airlines. In the hospitality
sector, some of its prominent clients were chains such as Four Seasons, Marriott, Hyatt,
Meridian, the Marriott Group, Oberoi Trident, Ramada Group, Fortune Landmark and ITC
Welcome Group. In the aviation sector (in-flight sales), Aava was a dominant player with
nearly 60% market share. The aviation sector contributed a majority of Aava’s sales.
Compared to its sales to institutional customers, Aava’s retail market presence was
negligible. (See Exhibit 6 for Aava’s sales from various segments).

Production and Manufacturing

In 2005, Aava established the first-of-its-kind fully automated plant for production and
packaging of natural mineral water. The company had a large source of raw material in the
form of natural water; however, it was extracting only one-tenth of its withdrawal capacity.
From the three water sources available to Aava, the company extracted nearly 10% of the
permissible water limit in 2011.

Aava was one of the few packaged water companies credited with following pharmaceutical
standards using “clean room” technology to produce pure mineral water. In 2010-2011, it
produced nearly 30,000 litres of natural mineral water every day and generated around one
million bottles every week. (Exhibit 7 shows sales of different stock keeping units (SKUs)).
Despite the advantage of low cost on the procurement of basic raw material, Aava’s profit
margin realisation had always been under pressure. To produce a 200 ml bottle, its highest
selling SKU, the company incurred INR 1.10, 0.24, 0.13, and 0.30 on the basic raw material
(plastic preform), bottle cap, label and shrink packaging, respectively. For a one-litre bottle,
its retail-cum-small institutional SKU and third highest selling variant, the cost of the plastic
preform (basic raw material), bottle cap, label and shrink packaging were INR 2.90, 0.24, 0.35
and 0.90, respectively. For both SKUs, the company had, in addition, to provide for wastage
at the rate of 3% on the basic raw material and packing cost. On its 20 litre jars, the company
incurred INR 150, 1.5 and 3 towards preform, jar cap and label, respectively. Unlike the
smaller SKUs, the 20 litre jars gave Aava the benefit of amortisation. For instance, the
company was able to reuse a single jar nearly 50 times before scrapping it. The stickers on
the jars were also reused twice and replaced thereafter. The jar cap, however, could be used
only once, and the company had to fix a new cap for every new usage. (For fixed
manufacturing and others costs, see Exhibit 8). With bulk jars, there were also some
unforeseen costs attached. For instance, theft and loss of jars was very common, and it
added nearly 20% to the variable cost of the jar in the form of wastage.

As the company catered to various types of clients, e.g., retail, small institutions (fine dining
restaurants, clubs, caterers, etc.), and large institutions (airlines, hotel chains, etc.), the tax
structure for the company varied for all types of SKUs. For instance, for its 200 ml SKU,
targeted primarily towards institutional clients, the company had to pay excise duty at the
rate of 12.36% on the total cost, inclusive of variable cost, fixed production cost and wastage.
To this was added VAT (value added tax) at the rate of 15%. For the 1 litre bottle, the retail
store-cum-small institutional SKU, Aava had to pay 15% VAT on the total cost, inclusive of
variable cost, fixed production cost and wastage. Further, excise duty at the rate of 12.36%
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was imposed on 55% of the maximum retail price (MRP) value. A majority of companies,
including Aava, normally accounted for the excise duty after considering the distribution
and logistics cost. For bulk water jars, excise duty was levied on the cost, inclusive of
variable cost, fixed production cost and distribution cost. VAT at the rate of 15%was further
imposed on the sum of such costs.c

Distribution and Logistics

While the western part of India consumed a large volume of bottled water, southern India
was also an important market as it was considered a water scarce region. Aava’s unique
geographic location gave it a natural logistical advantage in serving the lucrative territories
of western and southern India (Exhibit 9). The company also received another geographic
advantage in the form of an easily available and relatively cheap source of PET plastic raw
material, which was a prerequisite for producing PET bottles. Reliance Industries, the
biggest manufacturer of PVC granules, a key ingredient for producing PET bottles, and
many other manufacturers were based in Gujarat. Aava procured its raw material at the
most competitive rates. Mehta said:

There are two main resources involved in producing natural mineral water —
a genuine source of mineral water and a source of packaging raw material.
Aava has both these resources. It is the only water with its source in West
India. Secondly, the cost of procuring packaging raw material is also lower as
a bulk of it is produced in Gujarat itself. Therefore, essentially, we are the
only company to source water outside the Himalayas. We spend
comparatively less than others on transportation when supplying our water
to prospective markets like western and southern India, a key element that
helps us keep our logistics cost at a considerably lower level.

For instance, while other companies spent nearly INR 5 per bottle on transporting 1 litre
bottles to Mumbai, Aava spent only INR 1.40. The distribution cost for its 200 ml bottle for
Mumbai was only INR 0.50. For Ahmedabad, its local market, the company had even lower
distribution expenses of INR 0.20 and 0.50 for the 200 ml and 1 litre bottles, respectively.

Secondly, when it came to distribution, the company had always believed in serving
institutional clients itself. Mehta was of the opinion that to satisfactorily serve institutional
clients, it was good policy for the company to keep institutional distribution in its own
hands. On the other hand, for retail market expansion, it made sense for the company to
associate with other organisations for marketing and distribution. Mehta said:

When it comes to institutional sales, always keep it to yourself. With regard

to retail sales, it is fine if others do it. This is because if the distributor does
not make my water available on some retail shelves, what is the most that can
go wrong? It may look bad for my brand and I may lose few customers, but at
least I will not lose the whole contract. In the case of institutions, however, if
the distributor fails to deliver, my whole contract could get cancelled and I
would lose a particular institutional client for a lifetime.

c
Simply stated, for 200 ml and 500 ml bottles, which were often given complimentary to customers, excise paid
was on assessable value or total cost. For all the products sold in retail such as 1 litre bottles, excise was paid on
MRP minus the abatement of 45%.
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Competition

The natural mineral water category’s contribution to the overall sales of the packaged
drinking water industry was rather low. However, more recently, the category had started
attracting the attention of several domestic and global beverage companies (See Exhibit 10
for packaging variants and price ranges of leading bottled water brands). Some of the
prominent natural mineral water brands available in the Indian market are described below.

Himalayan

Himalayan was the brand of one of the most reputed business houses in India, the Tata
group. It was originally owned by Mount Everest Mineral Water Limited, a company
promoted by Dadi Balsara. The brand was sold to a set of investors and eventually acquired
by the Tata group and managed through its subsidiary Tata Global Beverages Limited
(TGBL). The company positioned Himalayan as high-quality natural water with premium
imagery.8 To make Himalayan available to its consumers across India, TGBL leveraged its
existing network of Tata Tea, which was spread across a network of nearly 20,000 retail
outlets across India comprising modern trade stores, hypermarkets and high-end grocery
stores. Leveraging the Tata network, Himalayan successfully ensured its presence in five-
star hotel chains including those of the Taj Group,d entertainment zones and fine-dining
restaurants, among others.9 To strengthen its global distribution reach, the company entered
into a 50:50 joint venture with PepsiCo’s subsidiary Nourishco.10

Superior understanding of the Indian market, sharp business acumen and the financial
strength of the Tata group soon established Himalayan as a leader in the natural mineral
water category (packaging variants and some of Himalayan’s promotional campaigns are
shown in Exhibit 11). Available in six packaging variants ranging from 200 ml to 1.5 litres,
Himalayan enjoyed the loyal patronage and trust of its consumers. Further, to create a
superior bond with consumers, the company combined the uniqueness of the Himalayan
Mountains with the trust associated with the Tata brand. For instance, its television
commercials (TVCs) urged consumers to “go back to nature with untouched, unprocessed pristine
water from the Himalayas that took 20 years gathering nature’s goodness for you”. The
advertisements displayed the elegantly designed, visually appealing, pink capped
Himalayan water bottle and underscored a subtle but lucid message: “Live natural”. The
Tata brand was prominently highlighted with the words, “a Tata product”.

Qua

Qua was the product of one of the India’s leading hospitality companies, Narang Hospitality
Services (NHS). The Mumbai-based company owned and operated several hotels, airline
catering services, confectioneries and bakeries, fine dining restaurants, lounges and
nightclubs across many metropolitan cities. Apart from that, it also owned the marketing
rights for several well-known international food and beverage (F&B) brands in India, such
as the energy drink Red Bull, Russian Standard Platinum and Imperial Vodka, France-based
Evian and Perrier natural mineral water, lly Caffe, and 1883 Routin Gourmet Syrups.11 It
also supplied Qua to fine dining restaurants and high-end hospitality companies, among
others. Qua was available in packaging variants of 500 ml and 1 litre bottles and was
positioned as fine water with balanced minerals containing the essence of the pristine

dProminently known as the Taj Hotels Resorts and Palaces, the Indian Hotels Company Limited (IHCL) was a
chain of hotels and resorts. The hospitality arm formed a part of the multi-business Tata group. The company
owned and operated 93 hotels located at 71 destinations across India and abroad (for more information on the
IHCL and Taj Hotels Resorts and Palaces, see www.tajhotels.com).
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Himalayas. Commenting on the positioning and marketing of Qua, Rahul Narang, MD and
CEO of the Narang Group, said:

Some say you are what you eat, but we believe you are what you drink. We
position Qua as the 'natural water for natural renewal' and we’ve used a top-
down strategy from day one. The brand was associated with high-profile
celebrity events, fashion shows and Bollywood awards, and the right people
were seen toting our bottles around. Within just one year of its launch, Qua
already had a 50% share of competing brands that had been in the market for
over 13 years. Today, our marketing mix of opinion leaders, word of mouth,
event associations and selective sampling has created quite a wave in the
industry. We don’t believe in endorsements, but work on outreach
programmes to [increase] trial [of] products, which lead to belief and a
passionate, enthusiastic consumer who will spread the message through
word of mouth. Everyone knows Bollywood is the unofficial religion of
[India], and what a movie star wears, eats or drinks is worshipped by many.
Our involvement with celebrities has helped Qua to be regarded as a
premium product with an aspirational value attached to it.12

The other salient feature of the Qua brand was its visual appeal. Packaged in one of the most
sophisticated, stylish and attractive bottles in the market, Qua stood out in the clutter when
it came to look and feel.13 The company also ventured into the health water segment with
Qua Plus, a functional vitamin water. Qua Plus was available in variants such as
Modelicious, Ninja Kick, Phar Burn, Rush Hour and Sin Doctor 10. (The Qua product
portfolio is given in Exhibit 12).

Vedica

Vedica was the mineral water brand of Parle Bisleri. The company’s promoter Ramesh
Chauhan was widely recognised as the father of bottled water in India. The Bisleri brand of
the company was one of the top-selling brands in the packaged drinking water segment, in
which its main competitors were Coca-Cola’s Kinley and PepsiCo’s Aquafina. To extend its
presence to the premium segment, the company launched Vedica natural mineral water.
Like most other brands, Vedica was also placed in the market as natural mountain water
sourced from the pristine Himalayas. It was available in two packaging variants of 500 ml
and 1 litre bottles priced at INR 20 and INR 30, respectively. (See Exhibit 13 for Parle Bisleri’s
product range). Vedica was positioned in the market in the “masstige” category (between
the mass and prestige markets). From years of experience in the packaged drinking water
business, Chauhan’s view was that the packaged drinking water business was not an easy
business to be in.14 The industry offered narrow margins for manufacturers and was fiercely
competitive. For instance, the retail bottled water industry in the country operated on a
standard discounting pattern where companies offered margins of approximately 45% and
50% to retailers on MRP in the cities of Ahmedabad and Mumbai, respectively.

Natural Spring

Natural Spring was a brand from the multi-business Gee Cee group of industries. The
company had a turnover of over USD 80 million in 2011. G C Beverages Private Limited, a
subsidiary of the Gee Cee group, was incorporated in 2005 for bottling and packaging
natural mineral water under the brand name Natural Spring. Situated in the state of
Himachal Pradesh in the Himalayan region, the company supplied its fine quality water to
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reputed clients across industries, including embassies of foreign countries, leading hotel
chains and airline companies. Its product portfolio ranged from 200 ml bottles to 20 litre
bottles.15

Catch

Catch was a brand from the Dharmapal Satyapal Group (DS Group). The company managed
its water business through its subsidiary DS Foods. Along with natural mineral water, the
company also produced Catch clear flavoured water in variants such as Lime n Lemon,
Black Currant and Peach. Its product portfolio also included sparkling spring water and
soda. The sparkling water was primarily targeted at the evolving health-conscious consumer
segment,16 while its Catch club soda was positioned as the only soda in the country that was
made from natural spring water. 17 Launched in October 1999, 18 Catch was available in
variants ranging from 100 ml bottles to 25 litre bulk jars.19

Evian

Owned by the global food and beverage giant Danone, the iconic French mineral water
Evian was first launched in India in 1999 by a domestic company called Radhakrishna
Foodland. In 2003, their partnership with Danone ended and Danone tied up with Indian
hospitality major Narang Hospitality Services, which also produced Qua. Unlike other
brands, Narang partnered with five-star hotels, gyms and skin clinics to market Evian. It
also created special detox menus, a signature skin conditioning treatment by Evian, and
organised detox camps to advise people on skin care in their daily lives. Through several
innovative promotional approaches of this kind, Evian sought to position itself on a different
turf in order to cater to the elite consumer class in India. It was made available in the market
in two packaging variants — 330 ml and 1 litre bottles priced at INR 25 and INR 70,
respectively. Sharing his views on the Indian market and the positioning of Evian, Marcel
Bertaud, Managing Director, Evian, Asia Pacific, said:

[It is] natural mineral water from the Alps, untouched by man. In most
countries, when you drink Evian, the perception is that you’re a discerning
consumer, making the right choice with your water as you do with all the
other lifestyle choices you make. In India, clean warehousing, trade training,
appropriate product display are all key issues. Also, the Indian consumer is
far more price sensitive than his Asian counterparts… Evian is not here to
become number one; the plan is to be available when customers look for
Evian and to be the best reference for quality bottled water.20

Perrier

Like Evian, Perrier was also a well-known natural mineral water brand from France. Perrier
was sourced from a spring in Vergèze in the south of France. Famous for its distinctive green
glass bottles, Perrier was positioned in India as a refreshing, all-natural, calorie-free
alternative beverage. Apart from pure natural water, the company also produced Perrier in
calorie-free natural flavours such as lemon, lime and orange.21 It was also imported and
marketed by Narang Hospitality Services in India and sold in pack variants of 330 ml and
750 ml.22
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The Road Ahead

Over the years, the company had consistently achieved satisfactory sales growth (Exhibit
14). However, by 2010, the natural mineral water market had witnessed the entry of several
domestic and global players, making the category all the more competitive. To safeguard
Aava’s market share and achieve future growth, Mehta and his team had to reformulate
their marketing strategy. They needed to take key decisions related to their target market
and product portfolio selection and to the introduction of new product offerings.

Selecting Market Segment and Product Portfolio

Aava had a small presence in the bulk water business. Although bulk water was a tedious
and unglamorous business compared to the retail and institutional business where smaller
SKUs were sold, it had the potential to become a sustainable business and provide higher
margins to the company. The trend of growth in the bulk water business was well predicted
by Chauhan way back when Bisleri started to face tough competition in the retail market
from global beverage giants Coca-Cola and PepsiCo. In early 2001, when the retail bottled
water market had become fiercely competitive, Chauhan aggressively ventured into the bulk
water segment, a move that helped Bisleri retain its dominance in the packaged drinking
water industry.23 Chauhan viewed bulk water as the next big opportunity as he believed it
was a business in which the demand was not seasonal and the loyalty of consumers was
very high.24

Although bulk water seemed to be a lucrative segment for Aava due to its niche product, it
was a tough and challenging business. Bulk water jars offered an amortisation benefit to the
company. The company incurred advertising and promotion expenses of merely 2% of its
selling price on bulk jars, and they fetched Aava far better margins than the smaller SKUs.
The company charged consumers INR 60 for a 20 litre jar. The only cost that significantly
affected the company’s margin in the bulk water business was the cost of distribution. The
company incurred nearly INR 10 per jar for each usage in two-way transportation costs
(from the factory to the client and back to the factory).The key constraint in the bulk water
segment was the geographic reach and scope of market expansion as supplying bulk jars
beyond a certain geographical area was very expensive (Exhibit 15 shows the logistics and
distribution network of Aava).

Although bulk water had its own challenges, Bisleri’s success in the bulk water business
showed that there was a clear opportunity in that segment for Aava to sell its niche product,
which could be promoted on a health platform. However, Mehta had several concerns about
expanding the company’s presence in the bulk water segment. He said:

At present, we have more than half of the market share in the aviation sector.
On the other hand, entering organised retail with our 1 litre bottles was a
challenging task due to the intricacies of the retail business. Essentially, in the
retail business, we not only compete with our immediate peers but also
compete with packaged drinking water players day in and day out. When
buying anything, the average Indian consumer has a typical mindset of being
highly price conscious. When it comes to mere quenching of thirst,
convincing him/her to shell out more money for a natural mineral water
bottle is an additional challenge for brands like us. Considering various
parameters, the issue confronting us is which SKU (200 ml, 1 litre or 20 litre
jars) we should focus on more from here on out. Our prime objective now is
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to achieve superior profitability and carve out a concrete path for the future
growth of Aava.

Mehta was unsure which market segment Aava should target. The company’s smallest SKU
was a typical institutional product with limited profit margins. The 1 litre bottle was a
standard retail pack, and it might be more profitable for the company if it could succeed in
convincing consumers to buy it directly through retail stores. The 1 litre bottle could also be
sold to smaller institutions. However, based on his experience of operating in the retail
business, Mehta was well aware that getting a decent profit margin would be a challenge for
the company. He commented:

In Ahmedabad and Mumbai, for instance, Aava’s dealer price for a 1 litre
bottle is INR 11 and INR 15, respectively, whereas Himalayan sells at INR 18
to its dealer even in Ahmedabad, which is essentially our home turf. So the
dilemma for us is which SKU will yield greater profitability and which one
we should focus on more for future growth, considering all the various
practical market parameters.

He needed to decide whether to try to increase the company’s market share in the local bulk
water business through expansion, which could give Aava a high margin, or whether to
focus on expanding its presence in the organised retail market similar to the strategy
adopted by its peers. Another option was to continue with its existing strategy and achieve
dominance in the large institutional business comprising of customers such as airlines and
hotel chains.

Expanding into other related product categories

Almost all the natural mineral water brands that operated in the Indian market had, over a
period of time, added various products that aligned with their core product offering. For
instance, most of the players added product variants such as natural sparkling water,
natural mineral soda and flavoured drinking water to their portfolio. With the natural
mineral water industry being a moderate size category in India, the other growth option for
Aava was to explore opportunities in alternative product categories similar to its peers. With
the growing health consciousness and spending propensity of Indian consumers, natural
health drinks in India were anticipated to become a significantly large fast moving consumer
goods (FMCG) category in the future. However, for a player like Aava, entering this product
segment was not an easy option. Aava had a very limited retail market presence and low
retail shelf visibility even for its core water product. Mehta and his team had to decide
whether it made sense for them to expand the product portfolio by launching other products
such as natural mineral soda, flavoured water and tonic water, or whether they ought to
simply stick to the water segment and develop the market for Aava mineral water with a
focused strategy.
11 of 24 IIMA/MAR0470(A)

Exhibit 1: Growth of the Bottled Water Market in India

Year Production (in million cases)

1990-91 2.00
1991-92 2.60
1992-93 3.50
1993-94 4.70
1994-95 6.50
1995-96 8.50
1996-97 11.50
1997-98 15.50
1998-99 20.00
1999-00 26.00
2000-01 33.00
2001-02 44.50
Source: Centre for Industrial and Economic Research (CIER), Industry Status Profiles (2003).

Exhibit 2: Salient Features of Packaged Drinking Water and Natural Mineral Water

Packaged Drinking Water Natural Mineral Water

This type of water in its raw form can be sourced
from any place.
The water is made potable through various
purifying processes such as distillation,
deionisation, reverse osmosis (RO), etc.
In the RO process, healthy minerals that are
present in the water are also removed.
The biggest drawback of RO water is wastage.
For instance, nearly two litres of waters may be
wasted in purifying or processing one litre.
It can have an artificial taste and
demineralised
Source: Company records.
Natural mineral water is acquired straight from its
protected natural source.
Natural mineral water is free from any chemical
processing.
Natural mineral water is a pure, balanced, healthy
drinking water. Its unique natural mineral
composition does not require any kind of
processing, which is responsible for the removal
of healthy minerals present in the water.
As there is no large scale processing required in
this type of water, there is no water wastage.
it is It is seen as more natural, tasty and healthy for
human consumption.
12 of 24 IIMA/MAR0470(A)

Exhibit 3: Organisation Structure at Aava

Board of Directors

Chariman and
Managing Director

General Manager
General Manager General Manager
(Distribution and
(Sales & Marketing) (Finance and
Logistics, Production,
Accounting)
and Stores)

Source: Company records.

13 of 24 IIMA/MAR0470(A)

Exhibit 4: Raw Material Source and Area of Operations of Natural Mineral Water Brands in
India

Company Brand Origin Market Presence in

India

Mount Everest Mineral Himalayan Sirmaur, Himachal Pan-India

Water Ltd. (Tata Global Pradesh
Beverages)
Narang Hospitality Pvt. Qua Himalayan Foothills, North and West India
Ltd. Uttrakhand

Sheelpe Enterprises Pvt. Aava Aravali Mountains, South and West

Ltd. Taranga Hills, Gujarat India

Parle Bisleri Vedica Uttrakhand (Foothills of Pan-India

the Himalayan Mountain
Range)

G. C. Beverages Pvt. Natural Springs Solan, Himachal North India

Ltd. Pradesh

Dharampal Satyalpal Catch Kullu Mountain Range, North India

Group Himachal Pradesh

Narang Hospitality Evian Swiss Alps, France Pan-India

Services (Narang
Group)*

Narang Hospitality Perrier Vergèze, Southern Pan-India

Services (Narang France
Group)*
* Narang Hospitality Services (Narang Group) is the distributor for the brands Evian and Perrier in India.

Source: Company records.

14 of 24 IIMA/MAR0470(A)

Exhibit 5: Packaging Variants of Aava

Source: Company records.

15 of 24 IIMA/MAR0470(A)

Exhibit 6: Sales Contribution for Aava from Various Client Categories

Particulars Sales Contribution (in percent)

Aviation Sector (Airlines) 65

Institutional Sales (Star hotels, prominent caterers, 23

resorts, clubs, entertainment zones, restaurants,
multiplexes, etc.)
Institutional Clients and Domestic Households (which 5
formed bulk water buyers)
Modern Retail 7

Source: Company records.

Note: The above sales contribution signifies the number of bottles sold by Aava to various clients out of the total
number of litres produced by the company. The sales figures are for the financial year 2011-2012.

Exhibit 7: SKU-wise Sales of Aava

No. of Bottles per Box No. of SKUs Sold Boxes Sold

200ml 24 29,956,368 1,248,182
500ml 20 1,721,600 86,080
1 ltr 12 1,633,497 136,125
1.5 ltr 9 313,908 34,879
20 ltr jars - 160,000 -
Source: Company records.

Note: Figures in the exhibit are for the financial year 2011-2012.
16 of 24 IIMA/MAR0470(A)

Exhibit 8: Fixed Manufacturing and Other Costs of Aava

Particulars 200 ML Bottles 1 Litre Bottles 20 Litre Jars

Electricity, labour, 0.50 0.50 0.90 0.90 5
and other
miscellaneous
expenses per unit
Interest cost on In Ahmedabad In Mumbai In Ahmedabad In Mumbai In Ahmedabad
capital employed 0.16 0.17 0.8 1.2 2.4
@ 4% of selling
price and MRP on
200 ml, 1 ltr, and
20 ltr jars,
respectively
Source: Company records.
Notes:
- All figures are for the year 2011-12 and are shown in INR
- The interest cost mentioned above on 200 ml bottles is calculated on the selling price of each SKU; for a
1 litre bottle, it is calculated on the MRP
- Some numbers in the exhibit have been disguised to protect the confidentiality of company records, but
the ratio of original figures remains unchanged

Exhibit 9: Geographical Distribution of Bottled Water Market in India

Source: Company records.

17 of 24 IIMA/MAR0470(A)

Exhibit 10: Packaging Variants and Price of Leading Bottled Water Brands in India

Brands Particulars
Sales
Packaging Variants MRP/Selling Price (in INR) Turnover
(in INR)
Aava In Ahmedabad In Mumbai 80 million
200 ml (Aava-mini) 4** 4.25**
500 ml 15 12
750 ml (sports bottle) 15 25
1 ltr 20 30
5 ltr 30 --
10 ltr 30 --
20 ltr 60 --
Himalayan In Ahmedabad In Mumbai 220 million
500 ml 18 25
1 ltr 35 45
1.5 ltr -- --
2 ltr -- --
Qua 1 ltr 45 80 million
Vedica 500 ml 20 NA
1 ltr 40
Catch 100 ml 120 million
200 ml
500 ml
1 ltr 35
1.5 ltr
25 ltr
Natural Springs 200 ml 60 million
500 ml
1 ltr 30
1.5 ltr
20 ltr
Evian 1 ltr 110 NA
Perrier 1 ltr 114 NA
Source: Company records.

Note:
- The prices shown in INR is for the year 2009-10.
- NA in the exhibit refers to not available.
- Rates with (**) are the selling price for institutional sales while the rest indicate the retail MRP rate.
- Bottles of less than 10 litres are generally disposable.
18 of 24 IIMA/MAR0470(A)

Exhibit 11a: Himalayan Natural Mineral Water Product Portfolio

Source: www.cloudfront.net.

Source: www.himalayanmineralwater.com.

Source: www.cargocollective.com.
19 of 24 IIMA/MAR0470(A)

Exhibit 11b: Promotional Campaign of Himalayan Natural Mineral Water

Source: www.blogspot.com.

Source: www.5.imimg.com.
20 of 24 IIMA/MAR0470(A)

Exhibit 12: The Qua Product Portfolio

Source: http://brandyuva.in.

Source: www.blogspot.com.
21 of 24 IIMA/MAR0470(A)

Exhibit 13: Product Portfolio of Parle Bisleri

Source: pbs.twimg.com.

Exhibit 14: Sales Revenue and Annual Growth Rate of Aava

Year 2006-2007 2007-2008 2008-2009 2009-2010

(5 months)
Sales Revenue (in INR) 4,000,000 16,000,000 40,000,000 80,000,000
Annual Growth - 400 250 200
(In percent)
Source: Company records.
22 of 24 IIMA/MAR0470(A)

Exhibit 15: Logistics and Distribution Network of Aava across Various Cities

City Network

Ahmedabad Company served its clients directly.

Surat Company served major clients directly; however,
it had a separate distributor for some
geographical areas.
Jamnagar Company had its own warehouse, vehicles,
manpower and distribution facilities and served
its clients directly without any distributors.
Anand, Nadiad, and Baroda Company served clients from these cities directly
from the Ahmedabad company headquarters.
Mumbai Company had its own warehouse, vehicles,
manpower and distribution facilities and served
its clients directly without any distributors.
Pune Managed by the Mumbai Depot of Aava.
Delhi Company had a small set-up in Delhi to serve a
select set of elite and VIP clients.
Goa Company had its own warehouse, vehicles,
manpower and distribution facilities and served
its clients directly without any distributors.
Delhi Company warehouse. Delivery vehicles and
labour were contracted, and they made the
deliveries.
Udaipur (Rajasthan) Company served major clients directly; however,
it had a separate distributor for some
geographical areas.
Delhi, Mumbai, Jaipur, Goa, Pune, Bangalore, Six company-owned trucks were used for direct
Hyderabad, Trichy, Cochin, Trivandrum, Chennai deliveries of products to various airports in India.
Airports
Source: Company records.

Note: The details of distributors mentioned above for various cities are for serving Aava’s retail and small
institutional clients only.
23 of 24 IIMA/MAR0470(A)

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2 Indiainfoline sector report (2001, February 28).

3 Hard to swallow. (1998, January 2). Business India Intelligence , pp. 7-8.

4 Center for Industrial and Economic Research (2003, September). Industry status profiles.

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