Poland Springs Create Private Label Bottled Water for Walmart

Case Type: new business; operations strategy.
Consulting Firm: LEK Consulting first round job interview.
Industry Coverage: consumer products; food & beverage; retail; general merchandisers.

Case Interview Question #00457: We are going to look at a growing trend in the Consumer Packaged Goods industry. Our client in this case is Poland Springs, a bottled water company. As a wholly owned subsidiary of Vevey, Switzerland based food and beverage company Nestle (SIX: NESN), Poland Springs sells its bottled water in the United States only. Named after the Poland Spring in Poland, Maine, it is one of the top selling bottled water brand in North America.

Recently, a major retailer Walmart (NYSE: WMT) approached our client Poland Springs with a new business proposal. Walmart wants to create a private label version of our client’s product. In other words, in addition to our client’s bottled water which they already carry, they want the client to make an additional, lower-priced bottled water which will be sold under their own brand label, e.g. Walmart Great Value Bottled Water. Should the client take Walmart’s offer? What are the pros and cons of doing this?

Possible Answer:

As it was given in the interview setting, this case question is more of a situation analysis and brainstorming exercise rather than a business case to drill down on and crack. As such, there may be many more pros/cons beyond what is listed in the example solution below. In general, it is important to be structured and try to put the pros and cons into clear buckets. Considering the 3C’s framework (e.g. impact on Customer relationship, Company‘s operational issues, and Competitive dynamics) could also be helpful in this case.

1. Pros

• Improved relationship with a powerful merchant. Client may get better shelf space and better terms on other products Walmart purchases from us as well as cross-marketing arrangements.
• Larger production may achieve better economies of scale in both fixed costs (cost/unit to produce, especially if certain operational procedures are synergistic) and variable costs (delivery, distribution, etc) in addition to the potential to negotiate better terms with suppliers due to larger orders.
• Huge potential revenue growth for our client company. Lower price but potentially very high sales volume.

2. Cons

• Cannibalization of our own private label’s water sales (cost/benefit analysis of whether the volume of Wal-Mart’s brand will make up for it).
• Possibility of lessening our power with the merchant as a supplier if private label takes off and supplants our own product.
• Higher costs (Fixed costs such as additional plant requirements due to potential capacity constraints — will the investment be worth it?)
• More complicated distribution adding additional SKU (stock-keeping unit) into the mix.
• Potentially a different market for our product which does not work synergistically with our marketing focus, for example if our product is about prestige and image, we would be catering to a different customer segment with a lower priced product.