Penta Pure --- Water Filtration Products

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Author/s: Debbie Howell
Issue: June 18, 2001

Distributors uncork the secret of bottled water

Coffee may have grown to be the hip drink over the last decade, but names likes Starbucks could be facing some tough competition in the next few years. The new kid in town is plain old bottled water, and it's becoming one of the hottest commodities in the beverage industry.

Consumption of bottled water in the United States rose 8.3% last year to 5 billion gallons. Based on its current growth rate, within the next decade bottled water could surpass milk, beer and coffee to become the second largest beverage category, behind carbonated soft drinks. It's now bigger than fruit juice or tea, with annual consumption of 18.2 gallons per capita.

Water sold at retail has become a legitimate food category that shows no signs of fading away. Concerns over tap water quality and a desire for healthier beverage choices are fueling growth. Over the last decade, wholesale sales more than doubled to $5.7 billion.

"[Bottled water] today is the fifth largest category in terms of consumption," said Gary Hemphill, vp of the Beverage Marketing Corporation. "It's still growing at a healthy rate."

The greatest growth continues to be in single-serve and multiple packs of water sold in PET containers, or clear plastic bottles of 1.5 liters or less. Data from Beverage Marketing showed the PET segment gaining 27.8% in volume sales last year, with smaller increases of 6.6% and 3.2%, respectively, for water sold in vending machines or through delivery. Not surprisingly, unit sales of water sold in jugs declined as preferences shifted to single-serve.

Retail sales of bottled water, including sparkling and flavored varieties, grew 16.9% this past year to $3.3 billion at supermarkets, mass merchants, drugstores and convenience stores, according to ACNielsen figures for the 52-week period ending April 14, 2001.

Beyond consumers' higher demand for water, other factors that are driving double-digit growth are increased distribution and retailer space devoted to the category. Both Coca-Cola and Pepsi have put their marketing muscle behind their own water brands, Dasani and Aquafina. The other major players are The Perrier Group of America and Danone Waters of North America, each of which have multiple brands sold in the United States.

Last fall, Kmart expanded the space devoted to water in all of its stores from 8 to 12 linear feet. Spokeswoman Susan Dennis said more promotional displays of bottled water were added.

"We are up double digits for the year in terms of sales of bottled water," Dennis said. "We're doing more business with multipacks instead of the single packs."

Dennis said multiple packs are selling better than either single-serve or gallon containers, though she noted gains across the board, even in such niche products as infant mineral water. She said Kmart's private-label American Fare brand of water is one of its top sellers because of the lower price point, as are name brands Aquafina, Dasani and Danone's Dannon brand.

At mass, private label accounted for half of that channel's sales of $237.5 million in bottled water during the past 12 months, according to ACNielsen. In the supermarket channel, which includes supercenters, the private-label share is 25%. Overall, private-label water sales grew 12.8%, a lower growth rate than branded products.

Many argue it's the popularity of the major brands and heightened marketing strategies in a maturing industry that are driving sales, particularly in single serve. Sport-top bottles and easier-to-carry products made for immediate consumption are appealing to consumers on the go, from working parents to children toting water to school in lunch packs. And companies are starting to develop differentiated strategies, whether through advertising or packaging.

"We're beginning to enter an era of brand building. Companies are putting more emphasis and dollars behind their brands," Hemphill said. "As the industry starts to mature, I think we'll see more development of individual brands and they'll start to take on a unique personality."

Such is the case with Evian, an imported premium water produced by Danone. The bright blue ring-top sports cap and hourglass shape on Evian's latest package, Nomad, makes it stand out, especially for display on merchandisers designed by the company. According to Danone's vp of marketing Conrad Smits, the Nomad top is easier to hold on to and open and facilitates a different flow rate. The bottling innovation is now being rolled out nationally.

A regional player, Alaska Glacier Refreshments, is also taking the high road in packaging with a 3-D picture of a glacier on its Alaska Icecap water labels.

This company, which is in the process of increasing its distribution in the United States, has found that the Eklutna Glacier in Alaska as a source for its water is a unique positioning tool to set it apart from spring waters and processed municipal waters. Alaska Icecap is marketed as a mid tier choice between mainstream brands like Aquafina and premium imports such as Evian.

"We have the purity mystique and there's the pristine nature associated with Alaska and its glaciers that is a powerful marketing tool," said Etan Tokayer, a spokesman for the company.

For beverage kingpins Pepsi and Coca-Cola, consumers can expect to see much more advertising as those companies go head to-head for share, following their late entries into the category. Aquafina, launched nationally in 1997, has now grown to the No. 1 brand in retail sales, while 2-year-old Dasani claims the No. 5 slot. Both products involve processed and purified municipal water; Dasani adds minerals back in for taste while Aquafina does not.

"We've seen very strong double-digit growth. Our plans when entering the category were to compete and win," said Chad Dick, senior marketing manager for Pepsi's Aquafina.

Aquafina is marketed as a pure form of water delivered through filtration technology. It's also positioned as a main stream beverage generally lower in price than imports and premium spring water brands. A new multimedia advertising campaign will kick off this month.

Meanwhile, Coca-Cola's Dasani recently launched its first national ad campaign that positions the product as a means to wellness. One commercial showed a woman roller-skating to music in the background from Earth, Wind & Fire, celebrating her youthful vitality by drinking Dasani.

"Our positioning is really around wellness, youth and vitality," said Katie Sullivan, associate brand manager for Dasani, whose tag line is "Treat yourself well every day."

As opposed to Aquafina, Sullivan said Coke's product adds the minerals potassium chloride and magnesium sulfate back in after the purification process for a better taste.

Realizing Pepsi and Coke can be formidable players, companies that have been in the water business for years abroad have been busy solidifying their positions, primarily through acquisitions. Though this past year was relatively quiet, both Danone and Perrier have added regional water companies to their growing portfolios of brands. Within two years, some predict these four companies will command 80% of the bottled water business in the United States.

"We've kind of reached a point where everyone's standing back and taking a breath or two to see who's left," said Andrius Dapkus, group marketing manager for Perrier.

Meanwhile, Perrier has hyped up its national advertising and put money into packaging innovations. One of its newest additions is the 32-oz., wide-mouth bottle that is being rolled out nationally in six of Perrier's regional spring water brands-Poland Spring, Deer Park, Zephyrhills, Ice Mountain, Ozarka and Arrowhead. The wider open ing "makes it easier for quick consumption, or gulpability," Dapkus explained.

Perrier is also adding a PET clear plastic product in bulk jug containers, following an industry trend, as consumers warm up to paying higher prices for branded and premium waters. While the packaging is more expensive, Dapkus said it maintains better water taste for a longer period.

In marketing, Perrier prefers a regional brand approach that's connected to a spring water source tied to the "lure of local waters and the emotions that draw people to the brand." Dapkus said this strategy has been effective for Perrier and is an important differentiator from Aquafina and Dasani, neither of which use spring water.

So far, Perrier's strongest regional brand, Poland Spring, has managed to stay ahead of Aquafina in total revenue, including retail, vending and direct delivery. Poland Spring remains the top seller in the nation with estimated wholesale sales of $450 million last year, slightly ahead of Aquafina's $444.8 million share. At retail alone, however, Aquafina is No. 1.

It's been a tougher go for Danone, which sells six primary brands in the United States. The company's two strongest labels--Sparkletts and Evian--have dropped below Aquafina in wholesale revenue. Yet, like most competitors, Danone is still benefiting from overall growth of the water market.

One way Danone has managed to maintain position is by selling private label bottled water to several major retail accounts. Another competitive move was its acquisition last year of competitors Naya and McKesson.

While smaller players have created their own niches with flavored and enhanced water products, the primary companies, for the most part, have stayed with plain bottled water. Some companies have marketed water with added vitamins and supplements, such as Energy Brands, while even Quaker Oats Company (soon to be acquired by Pepsi) has been dabbling in water with Propel, which is marketed as a fitness water with added fruit flavor and vitamins.

Even as Pepsi and Coca-Cola keep their eyes on these new developments in the water market, for the time being, the battle is being waged in control for share of plain bottled water.

"At the present time, the category is growing far too rapidly for us to consider fragmenting the marketplace," said Dapkus of Perrier. "Any additive to bottled water defeats the purpose of drinking bottled water in the first place."

Hemphill said that while it's doubtful water will ever become Americans' top beverage choice, the bottled water category has definitely been a factor in the reduced sales growth of carbonated soft drinks. For that reason and more, Smits of Danone said retailers must give water a higher profile and place it near carbonated beverages.

"If [retailers] want to keep up with this growth and capture the full opportunity of this category, they've got to expand the shelf space," Smits said. "It's a phenomenal category."