The European Point-of-use Drinking Water Association is seeking government clarification on the Waste Electrical and Electronic Equipment (WEEE) directive, following predicted costs of up to £30 per water cooler. In this issue, the EPDWA's President James Anderton explains its case. The WEEE legislation (Waste of Electronic and Electrical Equipment) will come into full effect on 1 July 2007 and for the water cooler industry, like many others, the situation is becoming serious. The EPDWA has added its voice to the Department of Trade and Industry (DTI) consultative process, which ended on 17 October, to ensure that the interests of the water cooler industry are defended. Depending on the way the WEEE legislation is implemented, it is estimated that it will cost the industry between £20 and £30 per cooler for recycling - for an estimated 100,000 coolers per year, this will mean a total cost to the industry of up to £3 million per year. These are substantial sums which no one in the industry can be expected to absorb, and inevitably the end user will have to pay. Most distributors are already building up a “war chest” by charging an environmental surcharge on their invoices. If you represent one of the few companies which is not doing so, the EPDWA would urge you to consider it very seriously - experience suggests that the great majority of end users readily accept the need for recycling and any related cost. What are these costs? The cost of WEEE can be split into three distinct elements: 1. freight 2. recycling 3. administration of the process Based on the following assumption, it is possible to calculate the total cost of WEEE for goods shipped directly from the distributor to the recycler. • 75 miles distance from the recycler to the distributor or “producer”. • 100,000 units to be recycled per year. • WEEE collection and disposal by Environmental Services: £11.50 per unit per pallet of 12, plus a Hazardous Goods charge of £25.00 per shipment - £13.60 per cooler. • Administration cost: based on the assumption that two additional heads at £40K would be required for every 5,000 units, the cost per cooler is £8.00. The cost per cooler therefore comes to £21.60. The cost to the industry for 100,000 coolers is £2.1 million - and the environmental cost of WEEE is 750,000 WEEE transport miles. If, for an unknown reason, WEEE needs to be returned by the distributor to the “producer” (the UK manufacturer or importer) who then has to pass the goods on to the recycler, the cost escalates significantly as follows: • WEEE collection and disposal doubles, because of double handling, to £27.20 per cooler. • The administration costs again double to £16.00 per cooler. The total cost per cooler therefore comes to £33.20. The total cost to the industry for 100,000 coolers comes to £3.32 million - and the environmental cost of WEEE doubles to 1.5 million WEEE transport miles. WEEE is currently considered Hazardous Goods. This means that it has to be accompanied by a Hazardous Goods Notice with the name of the driver and the vehicle registration number. This means new coolers can be shipped by normal transport, but WEEE can no longer be shipped normally. This is a strange anomaly, especially in view of the fact that all coolers must be RoHS (Restriction of Hazardous Goods) compliant. Few of this industry’s transport companies would be able to cope with this – but of course everything is possible at a price! WEEE represents a massive challenge to the industry, not only in cost but also in administration. Every cooler needs to be traceable and registered with the authorities, although it is not clear yet with whom. There is a suggestion to have a “bond” set up when the cooler is first placed, to cover the cost of future recycling. This will involve more administration. Then imagine you will need to take away and recycle around 20% of your coolers per annum – assuming an average cooler life span of five years. The EPDWA has arranged to meet with the British Water Cooler Association to agree on a common industry position to be put forward to the DTI. We are, of course, not the only industry to lobby the DTI – but we will do our best to represent you.

UK cooler company Water for Work is investing heavily in boosting the hydration message to customers both in the office and at home. Following a busy summer period, cooler innovation Editor Hannah Oakman took a trip to the company’s Kent headquarters to find out more from founder and Director Ben McGannan. Water for Work, which is in the process of changing its name to Water for Work and Home to reflect the dual approach of the business today, is what you would describe as a pretty large cooler company. In fact, with around 9,500 coolers out in the field, it is the UK’s largest independent company. With just over 100 employees, the modern day business is now firmly focused on its core mission to be drinking water specialists, servicing customers with whichever hydration solution they are looking for. Rather than a home and office delivery company, Water for Work actually began as family engineering business, George S Clayton, making plant machinery and lines for the bottled water industry. The company worked extensively with Perrier UK, then Buxton Mineral Water, and when Buxton launched its water cooler business in 1990, George S Clayton manufactured its purpose built plant. At the time, the idea of starting up a cooler business was still rather a niche one, but with hindsight, things were set to change rapidly in the UK water cooler landscape. Unlike his father, Ben McGannon, while involved in the engineering and supplier side of the business, was not an engineer by trade and realised the company might need a new focus in the future. A water cooler industry colleague and friend, Alan Cornford, had started a company called Water at Work, based in London and a fortuitous meeting between Ben, Alan and his wife Pauline, sparked the idea of setting up in the cooler industry. With Water at Work’s help with a business plan, and following a six month period spent persuading the family that going into water coolers was a good idea, the company Water for Work was founded. The company has been based in Marden, Kent ever since. starting out of the engineering office, sitting on the phone making calls for trials with the noise of banging and machinery in the background. Ben admits this was not ideal, but a start. The company then relocated to small premises and began to focus on the new Water for Work business, which has gradually grown to its current size. Ben’s wife Liz also worked for the business for over 12 years before taking a step out to concentrate on other ventures. The Marden depot is the company’s main servicing location, but with customers in London as an increasing focus, due to potential for growth, there are plans to open a second depot in Hadlow in 2008, closer to one of the company’s water sources. Two further depots in Melton Mowbray and Brandon, Suffolk, cover the rest of the deliveries. On this particular rainy October morning, the Water for Work plant is still managing to looking cheerful, thanks to an almost complete make over to brighten up the offices and reflect the hydration theme for employees and visitors to the plant. While Ben admits that the company has kept a somewhat low profile over the last few years, they now feel ready to open up the business a little more to visitors and spread the news about what direction it is headed in. The bright blue walls are soon to be decorated with artwork from a local college, commissioned to design canvases which reflect the healthy hydration message. Although Water for Work is a large company, there is a friendly, informal buzz in the air, part of what Ben tells me is the key to the business and its success - its people. Regular pub quiz nights, staff training, even white water rafting trips, keep employees on their toes and involved in the communication process. Ben recognises that the business has moved a long way from its beginnings in the 1990s. He explained more about the journey to the present and what the next phase involves. cooler innovation interview Which areas of the water cooler business do you mainly focus on? “Our main focus is still bottled water coolers. We do offer point of use, and it is an area we obviously have to take more seriously as the industry has grown. One of the shifts we have made as a business recently is to be more driven by giving choice to customers. We’ve moved from a simple 19 litre, cold cooler, cups or cones offering to responding to customer’s needs in terms of water, coolers and other choices. We also now deliver small pack glass bottled water, sports bottles and other items to people in their homes and offices.” You already offer a range of coolers - but are you always looking for the next breakthrough model? “Yes, definitely. Long term, I think the residential market is going to need something more. Ebac have done some good work here with the Slimcool. I think this area will still need more research as there is always room to improve the domestic offering, although we realise this is a big investment for manufacturers too. “We are planning a research project this November specifically to look at how people drink water in the home. We want to understand people’s usage better. If you put them in an environment with a fridge tap, water cooler, bottle of water and a filter, which age and gender will chose which product? Hopefully, this information will be useful in the future.” Do you think people are more open now to the idea of a water cooler in the home due to their proliferation in the workplace, certainly in the UK? “I think there is still catching up to do between how nice a water cooler can look and what the majority of them do look like. The traditional white box water cooler serves its purpose but it doesn’t look great. I think the general public still need educating about the great looking coolers we can now offer.” “When we started out, we had to educate people in the workplace about what exactly a water cooler is - and now we are having to do the same in the residential sector.” “The water cooler is also still something people take for granted. If you ask someone with a water cooler who their supplier is, they wouldn’t have a clue. It’s only when the cooler is empty or has a problem, that people find out who their supplier is!” How important is the home side of your business? “Water for Home is still very much a project. We believe there is massive potential out there and we are trying to get our offering right. Each year we do some new research into this. We have tried hosting stands in shopping centres and direct mail campaigns to attract the residential customer. “We now have around 2,500 domestic customers and we see it as a totally different marketplace in terms of how we operate. We offer both 12 litre and 19 litre bottles - surprisingly the 19 litre bottle has proved more popular. “The feedback we have from people with a cooler in the home is fantastic. They tell us their children are drinking lots of water and it is so convenient. But making residential customers realise they would like a cooler in the first place is the tough bit. “We estimate there are around 100,000 customers drinking from our water coolers in the workplace, so cross selling to these people in the home is a vital part of growing the residential side.” Do you offer any other products in the home? “We did have a link with English Wines which was quite successful but when we looked at our key hydration message, this was a bit at odds with it! We do deliver the small pack water, sports bottles and apple juice to customers.” Will this residential sector be profitable enough? “The potential is massive. We don’t see it as a rental market, it’s more about how efficiently you can distribute. It’s also not such a price sensitive market. The historical price cutting which goes on in the office sector does not really apply. I think you need a minimum of 10,000 residential customers to make it really profitable.” As the hydration message and importance of water becomes more mainstream, will this will help the home delivery side? “We took a long look at our business last year and conducted a complete review regarding this. The hydration issue is still an area which we feel is not taken seriously enough. People pay lip service to hydration but are not really that passionate about it. This in an area where we have even commissioned scientific research to prove the benefits of hydration. We really want to know what we are talking about and building our fact base. There is a huge amount of information about water and cancer, heart disease, benefits for the elderly and children and so on.” Are you favouring bottled water in your focus on healthy hydration? “Not at all. We would never knock tap water. At the end of the day, people need to be hydrated full stop. The message is more important than where the water comes from.” Do you work at all in the hospital and schools sector? “We do a lot of work with schools and hospitals here in Kent, with both bottled coolers and point of use. We also have several research projects underway looking at the tangible benefits of hydrating children in the classroom. As a major player in the UK market, how do you compete? “We have always focused heavily on customer service. We must not let our customers down. If they see our messages about healthy hydration and then we don’t deliver water on time, this is deadly for the business.” “Good service really pays off - around 70% of our new business is recommendations or additions from existing customers. “One of the best things about our company is the people. We have route drivers who have been here since the very beginning and a lot of key people who have been here for over ten years. I would say we are all quite passionate about the business.” Do you think the UK cooler market is in a healthy position now? “I would like to think there is a less of a focus on slashing prices to win business in today’s market. There will be companies who have done this and are not making money as a consequence. “The frustrating thing is that to give good service costs money - and companies need to make a profit. We try to invest a lot of money back into the business to improve service, but when we are competing with silly pricing, it is difficult. Are you involved in any other businesses today? “We do have a series of joint ventures - Edgars Cool Water, just outside Brighton, Office Watercoolers South West and Waterline London, based in North London - which came more out of friendships and desire to help others in the industry, than financial gains. We chose to set up joint ventures rather than have franchises because it’s all about the people; each business is run by people who are passionate about what they are doing.”

Already a well established player in the marketplace, cooler manufacturer Cosmetal has its sights set on even bigger and better things. cooler innovation Editor Hannah Oakman visited the company at its Recanati headquarters to find out more. Total drinking water solutions is the current mantra of Italian cooler company Cosmetal, but it has not always been so. The name Cosmetal is a shortened form of costruzioni metalliche (literally metallic constructions in English), reflecting the company’s past interests in manufacturing metal components for the office market. To discover the real roots of the company, you really need to visit Cosmetal’s headquarters, based just outside Recanati, a short journey from the busy port town of Ancona on Italy’s Adriatic coast. This is a relatively unspoilt part of the country, a beautiful area of sunflower filled fields, rolling hills and a coast line sparkling in the sunshine. As the birthplace of famous Italian romantic poet Giacomo Leopardi, it is not hard to see where he found inspiration. But along with lovely scenery, the area is also famous for manufacturing, from lighting specialists to musical instruments, including companies such as Clementoni, still around to this day. In fact, this is how the company founder Sen Morilli (the father of the current Chairman Fabio Morilli) started out in the 1950s, as a specialist maker of keyboards for electric organs and harmonicas. An original keyboard still sits proudly in Fabio’s office, a reminder of Cosmetal’s roots. Today, as most people in the industry are aware, Cosmetal is one of the best known and ubiquitous water cooler manufacturers both in Europe and on an intercontinental scale. The company employs around 80 people and had turnover last year of around €17 million. It shipped out around 80,000 water coolers from its wide range last year, with the majority staying in Europe, including vast new markets in Russia, along with customers in the US, Japan, where they are reportedly increasingly attracted by classic Italian design, and as far away as Australia. In fact, the company has always had an “export spirit” with exported products accounting for a very high percentage of sales. Cosmetal is currently enjoying a great deal of success in parts of the Middle East, with many units sold in Israel, Oman and Saudi Arabia, working mainly on a non exclusive basis with both local distributors and the well known multinationals. A visit to Cosmetal’s offices and plant clearly shows that working atmosphere is an important part of the business. The purpose built facility, which opened in early 2005 is light and airy, with brightly painted walls in the company’s signature blue. Even the production floor, which you might expect to be noisy and dull, is surprisingly quiet and light, due to the fact all machines are fully hand assembled and staff can enjoy the views of the Italian hills out of the windows. Tiled corridors with open plan offices off to each side reveal sales and technical teams hard at work, plus design teams using the latest computer aided design software to develop “fly throughs” of potential new cooler designs. Including this new facility, Cosmetal currently has two production sites. The older facility, nearer to Recanati is due to be relocated next to the new one, offering an 8,000 square metre production site, set to open early in 2007. Current output is around 250 machines per day, with an impressive 800 variations in the models when taking into account customers’ various preferences for colour, water types and sanitisation methods. cooler innovation interview Cosmetal Sales and Marketing Director Daniele Nava explained more about the evolving nature of the business. How did the company move from musical keyboards and metal parts manufacturing to water coolers? “In the 1970s, the company became involved in refrigeration and related projects in the catering business, which is more in line with the current business. In fact, the first coolers were produced for the catering industry. Around this time, Cosmetal launched the Niagara, the first point of use (POU) machine for the catering industry and the longest serving product in our current range. At the time, POU was a very new concept so, without really knowing it, we started to do something different. Following this came a range of fountains, including the River, aimed at schools, hospitals and the municipal market.” When did manufacturing of bottled water coolers begin? “Around the mid 1980s, we began to look at bottled water coolers, launching the Rio - a classic square water cooler. “We later brought out the Avant and Connect models, investing a lot more in these two products. The design for the Avant cooler arose from wanting to create something a little more inspired. We realise that a cooler is a cooler, and there are limitations, but we looked at developing the rounded shape, with multiple pieces which are easier to replace singularly, plus a more aesthetic built in cup dispenser. You have to combine practicality with ergonomics.” What has been the focus of some of your more recent designs? “In 2003, we launched the Jet, a POU product with hot, cold, ambient and sparkling water, using ice bank technology to produce a continuous six litre supply. The Jet is suitable for all sectors, with particular suitability to professional and industrial customers. “Sanitisation obviously remains a top priority. We offer Self Sanitising Technology (SST) to provide the highest safety levels and prevent bacterial growth within the cooler. The system has a removable reservoir which can stay in the cooler for 12 months. “We believe that we have to push the hygiene message hard. While the SST technology means distributors may not have so many opportunities to visit and sanitise their customers’ coolers, the cost can be built in by distributors, saving time on their part.” What are the most important aspects of the design process? “As well as always considering the ergonomic aspects of any new model, we are also looking at environmental issues as these are a reality and do have cost implications. We already comply with the RHOS restrictions here in Italy and the WEEE Directive is having an impact across European markets.” Which areas of the business are growing at the moment? “We are having a lot of success with our POU machines, while maintaining our share of the bottled water cooler market, which obviously has a much larger base. It does seem that POU will continue to be more and more important, but the bottled market is huge and still very important, so we cannot lose sight of this. In Italy, for example, the POU market is just starting out and the issue of poor tap water quality, perceived or otherwise, is one of the biggest barriers to growth. “We are still looking at the residential market and have plans for further innovation here. While the Jet cooler has recorded 80% of its sales in the home, it probably offers too high an output for the average family and, size wise, is still a little big for European kitchens. “In other sectors, such as schools and hospitals, the Niagara model has proved a success. With water becoming a more popular drink in schools following successive bans on soft drinks in vending around Europe and in the US, we believe this will continue to increase.” How do you win new business? “We have a certain advantage as we have been in this industry for over 30 years and have a wide range of products. In a lot of countries, Cosmetal is a well known name and we have been working with some distributors for over two decades. We are of course looking to acquire new clients, which happens through various contacts and marketing activities.” Do you face much competition or barriers to growth in the market? “We are not afraid of fair competition - it is normal practice in any industry. Competition helps our research and development teams to come up with new ideas, our sales team to be better, and our production to be more effective. It boosts the industry and means we do not focus purely on price. “But what does bother us, to a certain extent, is low price imports from certain markets. We do not know how long these imports will last but we still have to plan how we can compete. “The reality is that we are losing some clients in certain markets. They are buying cheap models and keep Cosmetal models to attract customers at the high quality end, while pushing the cheaper cooler harder. Again, this is not all bad news as it forces us to look at more efficient production methods - we have already become more competitive as a result. “The threat also varies from market to market. For example, we see the Middle East as very much a price market, whereas European distributors tend to display a bit more loyalty.” Can you compete on both quality and price? “We believe that the industry must aim to maintain quality standards. If we all just focus on price, this is the beginning of the end. It all comes down to whether price or quality issues are most important. “We made a choice that the quality is the most important. In the long term, I believe that if you don’t have quality, you will run into problems. We realise that “quality” is a word which everyone uses frequently, but we really mean it. We will not produce cheap coolers. Of course we will always look at our efficiency and staying competitive, but we will not cut quality to cut price.” Is manufacturing in West Europe now more expensive in general? “Yes, of course, more so than other areas, but we are lucky here that we are in an area where we can be competitive. If we were based in Milan, for example, our overheads would be much higher. The introduction of the euro here in Italy has affected the general cost of living but this is all relative in terms of manufacturing costs. “I do believe there are advantages to being an Italian company, as we have a great heritage of manufacturing in this country, not just in water coolers, but in many other well known household and industrial appliance brands.” How do you work with distributors? “We are willing to create exclusive agreements with distributors located globally. For example, in the UK, Spain and Ireland, there are distributors who are committed to our products and we are committed to them. We will not sell our products to anyone else, within the same product range. “However, sometimes when we become involved with the big players it can be difficult because they do not tend to create agreements. We believe in partnerships which are reciprocated and wish to create a network of partners. We always wanted to have our own independence, rather than be at the whim of the fortunes and acquisition activities of the big players.” Do you have a wish list for distributors? “Our ideal distributor is the one which values our products above others. If we are only 1% of their turnover, it’s difficult for us to have real loyalty from them. “It is a reciprocal thing. We are more than happy to work closely with distributors to look at different markets and see what the best strategy would be. We don’t want to be just supplier and client, we want to be partners looking together at co-marketing activities, trade shows, special promotional items, email marketing. In doing so, we can boost the entire market.” What does the future hold? “We are set for a busy period, with our new 8,000 square metre site due to open next door in 2007. We are also looking at expanding our marketing and sales department. While we already have managers responsible for each geographical area we focus on, our strategy for partnerships means we already need more people on the ground. “We are always looking to new markets. This includes improving our position in West Europe and developing in East Europe, with Russia as one main focus. “We want to be a truly global company and now have the capability, finances and desire to achieve this. We will expand our sales network and maybe open new operating subsidiaries in certain markets. We certainly believe our future will also be based on acquisitions, so watch this space . . .”

Many of us have visited water bars, but what about total concept of an entirely Water Shop? In 2001 José and Floriane Barroca launched Vital’ Eau in Switzerland. Claire Phoenix asked how, almost five years on, they are making water work as a retail concept. In 2001 Floriane and José Barroca launched the new concept of a Water Shop, selling originally from a car, with warehouse storage in a garage. Today their shop Vital’ Eau sits 1,000 metres above sea level opposite the station at La Chaux de Fonds in Switzerland and stocks some of the latest ideas in bottled water. It is frequented by customers who believe in its healthy ideals and by many more who utilise its nationwide delivery service. Vital’ Eau now holds stock from around 200 water and watercooler suppliers - promoting the latest in coolers, mineral waters, flavoured and functional waters, with many of the waters in beautiful collectible bottles. Products can be collected directly from the shop or is delivered by the company to homes, offices, fitness clubs, hotels and restaurants throughout Switzerland – and in the past to Aqua-Expo for its water bar. Brands currently held include Evian, Valser, Volvic, Perrier, Eptinger, Hydroxydase, Hildon, Badoit, Ty Nant, Wattwiller, Highland Spring and around 200 others. * A flavoured future? * Floriane’s idea at the beginning was to sell lemon and orange flavoured water – which she could see was part of the future for bottled water. “We soon decided to buy premises – just 50 square metres at first, which has now grown to 150 square metres. The idea was daring, but many water brands gave us strong support right from the start - they believed in us and in our unique idea.” Floriane and José were convinced that there was a future in bottled water, but saw it working differently to the traditional concept of a bar or boutique. “Mineral water producers were keen for us to communicate with those who, like us, believe in this vital element. As a result the company has a well designed website from which customers can order.“ Being a relatively small concern, the company is often willing to be flexible. For example boxes of mixed varieties of water are supplied to hotels and restaurants. Last year the company offered a mixed ‘discovery pack’ to highlight new variants in bottled water. The shop is also designed to make buying water simpler. “Our shop is divided into four sections – standard bottled and flavoured water, designer bottles, water coolers and point of use and vending. A wide range of coolers are sold including those by Ebac, Cosmetal, Dieau, Mistral and Saeco – its best selling water cooler. Recent developments have taken them into the POU and vending sectors. Each season a part of the shop is dressed to focus on a certain area of the globe. For instance this summer it was Tahiti, with bottled waters arranged to complement the theme. “Our next idea is to venture into 'Lié a l’eau'" explained Floriane. “We still believe strongly in our concept that good water is essential to a balanced lifestyle and that we need to make room for it in our homes and day to day businesses.”

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.”

As in any rapidly developing market, the challenge to attain and maintain the top slot produces intense competition. While Szentkirályi claims to have risen quickly to number one, rival market leader Nestlé Waters’ Kékkúti believes otherwise. While the numbers contradict, Kékkúti has plans to ensure its position is secure. The bottled water market in Hungary has changed a great deal in recent years, with the private label sector rapidly gaining ground. This has led to a strong reaction from the major players - from competitive pricing structures to major television and outdoor advertising initiatives and product redesigns. At the forefront of this response to market change is Nestlé Waters’ Kékkúti. “Although the Hungarian mineral water market experienced some unfavourable changes last year, Kékkúti managed to remain strong,“ commented Kékkúti Marketing Director Noémi Csete. “Not only did the company succeed in holding market leader position in take home by reaching 13.2% in volume and 19.2% in value shares, but Theodora was also the most efficient player on the market." The brand reached 11.4% volume and 16.5% value share. According to ACNielsen, it also held its number one position in the horeca segment with 35.4% volume share. “The company’s other brand Nestlé Aquarel was launched in 2002 and has been gaining reputation among consumers ever since. According to ACNielsen, the spring water doubled its market share since January 2005 reaching 3.8% in April. Aquarel is sold as being suitable for the whole family, with a quality guaranteed by Nestlé standards and an acceptable price.“ Talking specifically about the recently revamped packaging for the Theodora range, Ms Csete added: “The Hungarian mineral water market has become highly fragmented, with many new competitors. We cannot afford to wait and see. We are constantly monitoring consumers’ needs and try to do the best we can to meet their expectations. “We launched the Theodora campaign with press, television and billboard support to increase sales activity. As well as celebrating the redesign, the main messages include the brand’s heritage and the vitality Theodora gives the human body each day” A seasonal label for the horeca sector on 33cl returnable bottles is a new move for Theodora. As for Nestlé Aquarel, a new 25cl litre bottle was launched in March 2005 for horeca distribution. “Hungarian mineral water consumption has increased rapidly in the last couple of years – reaching over 60 litres per person each year. “With the help of our carefully planned marketing activity, we will do our best to keep Theodora as a trusted brand in consumers’ minds. In a survey last year by TNS 2004, 94% of consumers knew the brand. It is the best known and most often consumed mineral water on the market,” continued Ms Csete. “Quality has never been an issue for Theodora and Aquarel. These waters derive from the Káli Basin, one of the most beautiful and harmonious landscapes in Hungary and home to the perfectly reserved Balaton Upland National Park. Both versions are bottled carefully on site without spoiling the balanced mineral water and trace element composition. “Kékkúti has recently opened an eight kilometre long educational Theodora trail through the Káli basin, with 15 information stations on the region’s natural resources and water base.” Theodora was recently selected as the ’Most Trusted Brand’ in the mineral water and soft drink category by Reader’s Digest subscribers for the second time and also won Superbrand status - awarded by communication professionals to brands with strong consumer trust. * Hungary for success?* With a steadily improving economy and consumers spending proportionally more on luxury goods and eating out, the challenge presented to the established bottlers by discounters and private label has created a vibrant and exciting market, with two players battling for the number one slot and others keen to catch up.