If you are reading this article at your place of work in Kyiv, you could have a water cooler nearby. Perhaps you recall seeing one of the portable stands and refillable containers during a recent visit to a client's office. In any case, the water was almost certainly delivered by a local company that services the Ukrainian capital's homes as well.
Drilled and delivered
The Israeli-based water deliverer Eden has had a franchise in Kyiv for over four years, having bought out the facilities of a Ukrainian company. As in the other European and CIS cities where it operates, Eden uses locally obtained water. According to country director Ihor Nestorov, Eden is the market leader, satisfying 25% of Kyiv's demand.
But competition is tough, and the customer base still limited. Countries like Italy, France, Spain and Switzerland lead the world in the consumption of bottled water, but Ukrainians still largely drink water provided by the municipal authorities, often boiling it into tea, as was done during Soviet times. This isn't to say that many don't suspect the quality of public purification methods,
but attitudes and tastes take time and earning power to change. Nesterov says that his compatriots consume an average of 20-25 liters of bottled water per year: "Most drink from the tap, using filters... we don't have a mineral water drinking culture." There are also those, at least in Kyiv, who can be seen lugging jugs back and forth between their homes and one of the city's several artesian wells (located on busy street corners,) many of which have sprung up since independence. If salaries were higher, these people would probably get their H2O delivered to them.
All the same, home delivery currently accounts for only 1.5% of the world bottled-water market. And in the Ukrainian capital alone, there are over 30 water delivery companies fighting it out for clients. With this kind of business environment, you could reasonably assume that companies would be trying to compete by offering a better product.
Eden advertises that it gets its water 35km from Kyiv, in the elite Koncha Zaspa zone. All water drilled by the company must meet certain criteria, says Nesterov, after which it is purified using American technology. This is essentially what the customer is paying for, in addition to the delivery service. "Ukraine is rich in water," emphasizes the Ukrainian businessman, but equally important is building wells that protect the water as it is pumped from the ground. "And the analysis that we did of the water showed that there are no external factors, no external influence - nothing gets into the water."
Not surprisingly, almost all of Eden's competitors make similar claims. A look at the adverts of Kyiv water delivery companies gives one the impression that Koncha Zaspa is one big drilling well.
At the same time, several industry players don't hesitate to reveal to inquiring journalists the names of competing companies that they say get their water from municipal treatment plants - although no one denies that these same companies further filter their product.
"I can tell you that here in Kyiv, eighty percent of companies take water from the pipes and simply purify it," says Nesterov. Other companies say they get water from one area, prominently displayed on the bottle, but in fact get it from another less exotic sounding place. According to Nesterov, discovering the truth is a matter of basic economics, as a company may offer its water at such a low price that it would simply be impossible to be drawing it from a spring in, for example, Western Ukraine. "One truck, a 12-footer, a big truck, can take $800 worth of water, full, no more. Imagine the costs?"
Moreover, most municipal inspectors wouldn't be likely to question the standards of a company's water if it is coming from municipal pipes. The state bodies that regulate the business are numerous, but the main one's are the local health and epidemiology station, which tests the water, and the State Tax Administration. Although the system isn't perfect, Nesterov doesn't complain of bureaucratic interference: "You have to pay one way or the other," he says philosophically. One the other hand, he points out, Eden's facilities at Koncha Zaspa are open to the public.
So with the source of companies' products being cast into doubt, other 'market' factors come into play. "This business is complicated and it's very important to understand it," says Nesterov, "I'll put it like this. Ninety percent of companies think that they are selling water but they should think more about delivering it ... No one wants to provide better service, a higher standard water and advertising, no one wants to do this." Instead, according to Nesterov, most Kyiv companies occupy themselves with stealing competitors' clients by offering lower prices or criticizing other brands. Another popular method is proposing kickbacks to the office manager, who usually is responsible for providing his company with such services. According to Nesterov, it happens "all the time". A company director thinks he's getting a good price, giving little thought to the quality of the water that he and his people are drinking.
Zhenya Savarenko, director of the water-delivery company Ukrainochka, agrees that competition is tough and often underhanded, but "we come to agreement with everyone," he acknowledges frankly, "you don't touch my clients and I won't touch yours." Like Nesterov, Savarenko also doubts the origins of his competitors' water. Many do have a well at Koncha Zaspa, he says, but that's not where they fill most of their bottles.
Regarding purification, Savarenko alleges drawbacks in imported filter systems. "They take out all the salts from the water, and the minerals that are in it... then it's only fit for cooking. But to drink it every day is harmful." Companies that use this technology, according to Savarenko, then criticize the more natural or salty water that Ukrainochka and others provide as having a 'residue'.
What about the Health and Epidemiological Station? There is favoritism, Savarenko says, towards "those who pay more." Any big company is going to get more respect, because the inspector doesn't know what kind of clout that company may have with his superiors. As far as size, Ukrainochka is somewhere in the middle of Kyiv's small water delivery market. They used to sell bottled water in shops and kiosks too but were pushed out by bigger companies, says Savarenko, who says his company now has around 10% of the city's delivery service.
From bottle to belly
The drinking water business is, in fact, segmented according to the size of the containers in which the water is sold. Water delivery companies sell in bigger volumes; however a much larger and more profitable market is bottled water - the kind we buy at super markets and kiosks. The maximum packaging volume in this sector is usually two liters. Although some companies cover both delivery and retail venues, the bottled-water business is an entirely different league.
The IDS Group is a good example of where the bottled-water industry is going in Ukraine. According to PR manager Dmitro Oltarzhevskyy, IDS controls 20% of the market for the entire country, having merged two leading producers: Mirgorodskaya (Poltava) and Morshinskaya (Lviv) last year. In addition, the group has exclusive distribution rights in Ukraine for the former Soviet Union's classic mineral water - Borjomi.
Although the merger process "is still taking place," says Oltarzhevskyy, IDS currently employs over 2,000 people and reported $40 million in sales for the first eight months of this year.
According to IDS estimates, the Ukrainian bottled water market is expected to grow 20% annually. That's probably why the international beverage giant Coca Cola has already secured itself a position in the country with its Bon Aqua brand, although Oltarzhevskyy says the American based multinational currently satisfies less than 7% of demand.
The Morshinskaya and Mirgorodskaya brands are not upstarts in this part of the world, operating as private companies since the early 1990s. "Thanks to it (the merging), the brand Mirgorodskaya, which is just one of the brands on our market of mineral waters, is the number one brand, which practically has no close competitors," says Oltarzhevskyy.
Judging from the airtime devoted to their products on national television, neither Coca Cola nor IDS has scrimped on advertising.
And with so much riding on product image, the old question of where the water originates returns to the spotlight. "While the facilities of Bon Aqua can be launched, roughly speaking, anywhere - in the provinces, near Kyiv, literally anywhere, at any location - our facilities are tied to these springs (in Poltava and Lviv)," says Oltarzhevskyy.
But doesn't this create lots of transport costs? "Delivery, of course, makes up a big percentage, that is to say, it takes away from our profits. Nevertheless, it's profitable," he explains, adding that prices at retail outlets have to reflect the spending power of Ukrainians: "It's not expensive because our society is not yet so rich to buy water at all. Only now the market is developing." Presumably, IDS compensates for transport and a low-income population by the scale of its operations.
So as the Ukrainian company has expanded, it hasn't entirely over looked the little delivery sector, but, explains Oltarzhevskyy, "as a rule, this is small volumes and small money." And precisely because the sector is small, so many small companies have survived to date. Like guerilla groups, some are just able to hold on to the territory they currently control, often forced to employ less than reputable maneuvers in order to survive. "They can afford to bottle their water where they want and how they want. Because, for example, their profits are not so big, so, second their reputation is not as dear to them."
The bottled-water business, however, is also not immune to dirty business practices. In fact, if a consumer is going to be tricked into buying a fancy labeled bottle of tap water, it will most likely happen at a kiosk, where leading brands are sold. The problem is particularly common in warmer months when demand grows, says Nesterov, and the saltier waters are a prime target because "if you add a little soda, a little salt and then carbonate it, no one but a specialist would taste that it's not the real thing." As it turns out, fakes in the delivery business are more difficult if for no other reason than the companies deliver it to the customers themselves, rather than selling it through retail outlets.
In September, Georgian Glass & Mineral Water, which exclusively produces and bottles Borzhomi, went on a campaign to deny falsifications of its exports. "I want to go on the record as saying that statements on the sale of fake Borzhomi in Ukraine don't at all correspond to reality," General Director Zaza Kikvadze told journalists in Kyiv. Thereafter the company launched advertisement that prominently displayed barges shipping Borzhomi across the Black Sea. It was the chairman of Ukraine's State Committee for technical regulation and consumer policy, Mykola Negrich, who'd raised doubts in the first place.
Negrich "was being silly," says Oltarzhevskyy, who plays down any major problems with fakes. "No. We had one kind of problem at one point, one time. But we are not talking about the national level here. It was a small local point. We have a security service that monitors the situation in Ukraine." The response by Georgian Glass & Mineral Water isn't surprising, as Ukraine is the company's biggest foreign market besides Russia. As Ukrainians continue to develop a taste for bottled water, if for no other reason than they don't trust what they're getting from the tap, the bottled water and water delivery business will continue to grow, while the companies that work in this sector will be under greater pressure to maintain public confidence in the face of a competition so dependent on image.
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