Czech Republic: Message in a bottle - Leading mineral water producer KMV sees a source of concern in market developments
By Chris Johnstone
For The Prague Post
June 29, 2005
The huge billboards dotting the countryside, expensive TV ad campaigns and sponsorship of Miss Czech Republic, the Prague Marathon and other image-improving events are still in place, but something appears to have changed for Karlovarské minerální vody (KMV).
The Czech Republic's dominant mineral water producer, with strong brands such as Mattoni, Magnesia and Aquila, used to easily pump up its sales and profits annually.
The company even went to the lengths of bringing in top Italian design company Pininfarina, used by most of that country's car companies when they were riding high, to redesign the mineral water bottles. Last year, however, profits fell to 412 million Kc ($16.7 million) from the exceptional 696 million Kc a year earlier. This year they are expected to fall even further, suggesting more than a one-off slip. Antonio Pasquale, 72, the Italian board chairman of KMV whose strategically placed relatives at the top of the company give it the air of a family business, warned at the annual meeting June 23 that profits this year could slip even further to around 375 million Kc.
It's certainly not a crisis for one of the country's best-known brands, but it's not what the company has been used to. Pasquale blamed a cold start to the year for this year's problems, but he also said that increased competition on the Czech market was hurting sales. In the past, KMV's well-established brands, supported by generous promotion and careful targeting of different segments of the mineral water market, seemed to have given it an air of invincibility.
Other mineral water producers confirm that a tough battle for market share is taking place in which everyone is suffering. "I don't know of any company that is not seeing its profit squeezed at the moment," said Jaroslav Bavír, commercial and marketing manager of Podebradka, the Podebrady, east Bohemia-based mineral water company and the biggest local threat to KMV. "The number of companies on the market has fallen slightly over the long-term," said Bavír, "but those on the market now are strong players and there is more competition among them with a rise in the number of marketing and commercial promotions and, of course, the process of market innovation has sped up."
Podebradka also suffered a downturn in profits last year in spite of a 7.5 percent increase in sales and 2.3 percent increase in market share. It launched a line of iced-tea drinks and soft drinks to diversify its range and cut its reliance on mineral water sales alone. Sales this year, in spite of the fierce competition, are in line with its target, the company says. Celebrations for the 100th anniversary of the company this year might just feature something stronger than iced tea or water.
KMV was forced last year by the Anti-Monopoly Office (ÚOHS) to sell its shares in Podebradka after a long-running legal wrangle over whether its shareholding allowed it to influence the company's commercial behavior. The ÚOHS is now convinced there is an arm's-length relationship between the companies instead of the previous hand-in-hand relationship. Market analysts reckon KMV has around 50 percent of the Czech market for mineral water; Podebradka, its next biggest rival, has around 20 percent.
Stung at home by the ÚOHS and new rivals, KMV has sought to boost its sales abroad over the past year. Using its lead brand Mattoni as the spearhead, KMV has sought to increase exports to other Central and East European countries such as Hungary, Poland, Croatia and Russia.
There, company bosses believe, they can build on the Karlovy Vary mineral water company's established reputation, based on spa visits during the communist era.
KMV, however, has shied from attempting any onslaught on Western markets for the simple reason that even its strongest brands are almost unknown and would require considerable ad and promotional spending to get any profile and overcome lingering suspicion of goods from former Eastern bloc countries.
Alessandro Pasquale, the son of Antonio who joined the board of KMV last week, said the Czech market for mineral water now appears saturated. "We are doing the maximum to be sucessful here, but we rather see opportunities abroad," he said in an interview with Hospodárské noviny.
Western-owned supermarkets have also been eating into the markets of the brand leader by selling their own brands of mineral water. "That's a clear trend that hurts the brand leaders," said Pavel Šimonovský, client service director at market research company STEM/MARK.
On the other hand, KMV and other Czech mineral water companies have benefited from the country largely being off the radar of major Western water companies with global brands such as Perrier and Nestlé.
One exception to that pattern is French agro-food giant Danone, whose Czech branch has been promoting local sales of its Vitalinea water.
On KMV's doorstep though, new companies have also sprung up. Kofola, the Czech Republic's biggest soft-drinks producer, launched its own brand of table water, Rajec, last year on the back of strong ad campaign. Rajec is actually bottled in neighboring Slovakia. The move, together with Kofola's aggressive expansion outside the Czech Republic, helped increase across-the-board drinks sales by 23 percent.
Chris Johnstone
