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Output of St Kiraly is expected to reach 150 million litres by the end of this year and the brand aims to be Hungary’s market leader in both the still and sparkling segments. Features Editor Claire Phoenix spoke with Szentkirályi CEO Levente Balogh about the battle for market leadership in Hungary. Szentkirályi Mineral Water Ltd of Szentkirály, a tiny village south east of Budapest, bottles its St Kiraly brand from a mineral water spring sourced 206 metres below the ground. This company, relatively unknown elsewhere in Europe before 2000, has recently surprised the market leaders with its aggressive price cutting tactics and innovation programme. For some years Nestlé Waters has held pole position in Hungary, with its well known Theodora and Aquarel brands. The appearance of St Kiraly in bulk on many supermarket shelves rocked the acknowledged leaders’ stable position and has engendered a year of major promotional spend in order to combat this increasing competition. Suitable for mothers and babies, being low in sodium and high in calcium and magnesium, with a mineral content of 520 mg per litre, Szentkirályi has a strong story to tell, along with its willingness to sell at a lower than premium price. To its credit, Szentkirályi also won an Eauscar prize in 2004 at the Paris Aqua-Expo for the taste of its water. The company is now looking for export markets in Europe and further afield and, through its now established relationships with the major supermarkets, looks likely to succeed. Interview Features Editor Claire Phoenix spoke to Szentkirályi CEO Levente Balogh. What is your view of the bottled water market in East Europe and where is Szentkirályi currently placed? “East Europe, especially the landlocked Carpathian basin, has the largest sweetwater reserves in the world. This is due to the fact that, throughout the rest of Eastern Europe, undersurface rivers typically end up in the seas and oceans. “By 2050, several Central East European mineral water producers will become major players in global markets. Mineral water consumption is on the rise worldwide, with forecasts of a boom in sales for the next 15-20 years. "Although we have experienced an increase in lobbying activity from processed water producers, aimed at counterbalancing the growth potential of mineral water producers in the Eastern European region, we have also seen an increase in consumer awareness in sensing the difference betweeen purified and natural mineral water products." “Our combined share (carbonated and non-carbonated mineral waters) in the local market jumped from 0.2% at the end of 2003 to 12.2 % in May 2005.” Who are the major players in your market? “Most major international producers, such as Nestlé, Danone, Coca-Cola and PepsiCo are present and active in Hungary. Besides these, there are several small privately owned mineral water companies. In such a competitive market - according to the figures from the international market research firm ACNielsen - Szentkirályi took the market leading position in the non-carbonated water category, with a total market share of 18% in May 2005. “We estimate that by August 2005 Szentkirályi will be maintaining a 20% share in the local non-carbonated mineral water market and we also expect to take the lead in the carbonated water segment in the second half of 2005.” What are the current major issues for Szentkirályi? “The three burning issues for the company are increasing production capacity, launching new products and strengthening the brand both inside and outside Hungary. “When we received the Eauscar award in 2004, our production output was 4,500 litres per hour. In early June, we finalised the expansion of our plant, increasing its capacity to 600,000 litres a day - 25,000 litres an hour. We expect that our output of St Kiraly will reach 150 million litres by the end of this year. This is about one quarter of the total local mineral water consumption of 650 million litres. “The plant is also unique in terms of its state of the art filling facilities, offering sterile conditions for production. Our strategic plan is to increase annual production to around 300 million litres by the end of next year. Of this, 200 million litres will be sold in Hungary, the rest abroad.” “Since mid 2004, we have launched a new product every three months. Earlier this year, we launched a refreshing natural mineral water facial spray as well as a flavoured and functional mineral water product. “For 2006, we are planning to launch an international media campaign – the first time in our history. This will be aimed at increasing our brand presence both in this region and West Europe.” How has Szentkirályi achieved such good distribution through the major multiple supermarkets? “Our former holding company Vitapress Kft had been operating in the local market since 1989. Vitapress supported us throughout the process of being listed by all major retailers in Hungary and our strong marketing activity also helped us reach the retail chains.” Tell me about your recent flavoured water launch. ”This year we were awarded the Paris Aqua-Expo Eauscar prize for our rose flavoured mineral water, which is already available in the shops. ”The water is flavoured exclusively with natural ingredients, such as rose oil and herbal extracts, and so does not contain any preservatives. “Most recently we also launched a lemon mint flavoured water. Now both types are also available in 33 cl bottles. In fact, these are the first two functional water products in Hungary that have been made available for the horeca sector in suitable packaging. “We expect to see a major rise in the consumption of such flavoured and functional waters. They offer an alternative to those that do not find the taste of natural mineral waters acceptable, but are committed to leading a healthy lifestyle. The consumption of these products will increase at the expense of soft drinks that contain sweeteners, artificial flavours and colourings.” What do you see as Szentkirályi’s strengths and weaknesses? “Szentkirályi is a dynamically growing, small private enterprise, whose simple corporate structure ensures flexible operation and a quick response to changes in the marketplace. “The competitive edge of the company is the quality of its water: it has outstanding purity, a fine taste, an ideal dissolved mineral content and, regardless of age, anyone can drink it. “On the other hand, Szentkirályi is not a multinational company with unlimited cash to invest, so we can only increase our production capacity in line with actual growth in demand. This requires us to plan all development projects carefully and to keep an eye on the market at all times.” Which markets do you see as being right for Szentkirályi? “Besides the local marketplace, our major target markets in terms of sales volume are the Central and West European countries. As for international brand building, we are primarily targeting the US market and various countries in the Middle East. “Currently, we have export contracts in 13 countries, including the UK, Croatia, the Netherlands and Dubai in the UAE. “The East European markets are equally interesting. We are negotiating with potential partners in Ukraine, Latvia, Lithuania and Estonia.” Where do you see Szentkirályi in five years’ time? “I envisage that Szentkirályi – the absolute local market leader by then – will grow into one of the five largest mineral water producers and exporters in the Central East European region in five years. By the end of 2006, we shall double our production capacity to 300 million litres a year, which we expect to double again by the end of 2010.”