CASE # 16
PERRIER COMPANY
Perrier may well be the iconic brand in the world of
mineral waters. However, regardless of the profile of the brand, the company
that produces the bottled sparkling mineral water is having a tough time. It is
the focus of what one commentator describes as “a vicious struggle underway for
the soul of the business.” The origins of the Perrier Company can be traced to
1898 when a local doctor, Louis-Eugene Perrier, bought the mineral water source
near Vergeze, France. The company grew steadily, but demand really escalated in
the late 1980s when it became highly fashionable and championed by a range of
admirers including Wall Street yuppies. At its peak (1989), Perrier sold 1.2
billion bottles (830 million in 2003), almost half to consumers in the United
States. The boom years were good for the Perrier workers. Buoyant profits were
associated with regular pay raises, social benefits, and extra holidays.
However, in 1990, the finding of a minute trace of benzene in a bottle led to
the collapse of U.S. sales. By 1992, annual output had halved and the company
was close to bankruptcy. At this point, it was bought for $2.7 billion by
Nestle, the world’s largest food company. Attracted by the combination of
bottled water as a fast-growing business and the world’s best-known mineral
water brand, Nestle identified Perrier as an attractive takeover target.
However, Perrier struggles to turn a profit. In 2003 its pretax profit margin
on $300 million of sales was only 0.6 percent, compared with 10.4 percent for
the Nestle Waters division overall. In 2004 it again recorded a loss. The
Perrier factory is on a 234-acre site on the Mediterranean coastal plain near
Nimes. The factory itself is rather nondescript, so much so that “from a
distance it could be mistaken for a power station or auto plant.” Perrier
employees work a 35-hour week and earn an average annual salary of $32,000,
which is good for this part of France and relatively high for this industry.
However, the average Perrier worker produces only 600,000 bottles a year,
compared with 1.1 million bottles at Nestle’s two other international French
mineral-water brands (Vittel and Contrex). Relations
between management and workers are not good. Almost all (93 percent) of
Perrier’s 1,650 workers belong to the CGT, a union that is viewed by the
management as consistently resisting Nestle’s attempts to improve Perrier’s
financial performance. According to Nestle CEO Peter Brabeck-Letmathe, “We have
come to the point where the development of the Perrier brand is endangered by the
stubbornness of the CGT.” Jean-Paul Franc, head of the CGT at Perrier, sees the
situation differently. In regard to the company’s plan to cut 15 percent of its
workforce, he protests, “Nestle can’t do whatever it likes.” He says, “There
are men and women who work here…Morally speaking the water and the gas stored
below this ground belong to the whole region.” When, in 2004, Danone launched a
new product (Badoit Rough) that was designed to directly compete with Perrier’s
management put bottles of Badoit Rough in the factory cafeteria. This had been
done to emphasize the point to Perrier employees that they were involved in a
head-to-head battle for that niche in the market. However, this act was not
well received. “It was a provocation,” recalls one Perrier truck driver. “We
took the bottles and dumped them in front of the factory director’s door, so he
couldn’t get into his office.”