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The market selected for analysis is a UK bottled water market. At the beginning of the 21st century, this market expends its activity greatly and involves diverse manufactures and water suppliers. This demand is caused by decreased water quality around the world and increased health concerns of many people. In the UK, upstream and downstream markets have a profound impact on distribution channel. For UK bottled water market, physical distribution and channels of distribution are the two basic components of the distribution mix. Both deal with physical flows and title flows. The selection of these channels, or routes for reaching consumers, is usually based on sales, communications, and contactual considerations. The elements of a physical-distribution system include market segments, manufacturing, distribution to wholesaling and retailing points, and transportation and storage links. In order to reach its target market, Herbal Water will use multiple distribution channels (Mankiw, 2002)

In the UK bottled water market, upstream value chain consists of two main steps: exploration and production. The UK market receives bottled water from primary manufacturers, and distributes through “supermarkets and hypermarkets with a 44.8% share of the market's volume” (Bottled Water in the United Kingdom 2007). Many companies like Herbal Water itself are suppliers to food industries, hotels and spas, and cruise lines. In the UK bottled water market, these activities are designed as a coordinated system and linked with the other elements of the marketing mix. For the UK bottled water market, upstream distribution requires the logical design of distribution networks that adapt the transportation and warehousing systems to changing market conditions and variations.

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In the UK bottled water market, distributors are Danone and Pressure Coolers Limited. In the UK, too often, demand is performed as a number of independent functions rather than as a system. In the UK, Danone is one of the potential food companies for cooperation and distribution of the bottled water products (Mankiw, 2002)

The law of supply is enacted in the following way: the supply will rise in case the demand for the product constantly rises and the price rises as well. The curve of supply will rise under this condition, because supply and demand are directly interrelated, and the amount of supplied goods is directly influenced by the amount of units bought by consumers and the price stipulated by their demand (see appendix 1,2). The market supply curve is also directly influenced by the supply of all individual producers. The matter is that the more revenue every individual supplier gets from the production and selling of a particular product, the more incentive he has to produce and supply more products to the market. Thus, the price for the product is in the direct proportion with the supply, and products that are sold at higher prices usually enjoy a higher supply, which does not influence the high demand, however. In the UK, elasticity is concerned with the movement and storage of products and supplies to implement marketing strategies and tactics and satisfy customer needs. They focus on coordinating supply and demand and creating place, time, and possession utilities. There is a difference between physical supply and physical distribution, for goods can be moved in two ways. The standard of customer services offered is determined by the consideration of both customers and competitors. Elasticity is influenced by customers’ needs and preferences, tastes and life style. It is concerned with the physical flow of goods to markets (Paley, 2006). This structure of distribution is the most appropriate for the UK market because it allows the company to save costs on advertising and minimize risks (typical for direct distribution channels) (Bottled Water in the United Kingdom 2007). The main channels of direct distribution are supermarkets, convenience stores, on-trade channels. Improvements in the performance of the physical-distribution functions have led to increased marketing effectiveness and reduced costs for some industries. According to statistical results, supermarkets and hypermarkets form the most significant distribution channel in the UK bottled water market, with a 44.8% share of the market's volume, convenience stores 19.20%, on-trade 13.60%, other 22.40%” (Bottled Water in the United Kingdom 2007). The services offered by major competitors establish a general standard. If customers will accept longer delivery times without shifting their business to competitors, then more efficient use might be made of centralized processing facilities, and less efficient ones could be closed.

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