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It's been over a decade since bottled water first flooded the grocery scene in the United States. From the beginning, the category offered a safe haven from municipal water supplies, which consumers often perceived were tainted at best, contaminated at worst. Low in calories and high in purity, bottled water has grown into a beverage behemoth, second only to carbonated soft drinks in the marketplace.
"Just about everyone is drinking bottled water today," says Jeff Lowrance, spokesman for Food Lion, a 1,220-store chain with units located in 11 Southeast and Mid-Atlantic states. "You see bottled water just about everywhere you go."
"Americans are currently consuming just over 23 gallons of bottled water [per capita] per year," says Steve Seager, senior retail marketing manager for Nestlé Waters North America. "Those per caps are expected to reach the developed European average of 32 gallons per year by 2008." Seager notes that per capita consumption in California, Massachusetts, and Texas already exceeds European standards.
He ought to have a pretty good idea of consumption rates. His company, based in Greenwich, Conn., is the leading marketer of bottled water in the United States, with a balanced portfolio made up of several strong regional brands (Poland Spring, Arrowhead, Ozarka, Zephyrhills, Deer Park, Calistoga, and Ice Mountain), one national brand (Nestle; Pure Life fruit-flavored water beverage), and imports (Perrier, S. Pellegrino, Acqua Panna, Contrex).
New York-based beverage think tank Beverage Marketing Corp. puts U.S. per caps overall at about 25 gallons, and says it expects per capita consumption to continue to grow at a rate of about a gallon each year.
The category's tapping into such robust growth because its appeal goes way beyond people looking for protection from decrepit municipal systems. Bottled water consumers today span the generations, from toddlers to grandparents.
According to ACNielsen data, bottled water accounted for $3.6 billion in rings at supermarkets for the 52-week period ending Jan. 28. That represents a healthy 18.1 percent increase over the previous year. (ACNielsen's data is POS from supermarkets with $2 million or more in annual sales, excluding supercenters.)
Dollar sales alone can be misleading when trying to ascertain consumption patterns. In theory, categories can show marginal dollar growth, while actually experiencing consumption declines due to increased prices. This is a trend seen from time to time in the soft drink and beer categories.
Not so with bottled water. In fact, equivalized volume -- using a 24-case package of 12-ounce bottles as the common denominator -- for the category has virtually mirrored dollar growth in supermarkets. ACNielsen data reveals that for the year ended Jan. 28, case volume increased by 16.5 percent to 15.9 billion. And since Feb. 2, 2002, bottled water's case volume in supermarkets has grown by 50 percent.
Something in the water
Last year's hot weather no doubt had much to do with bottled water's double-digit growth in 2005, following solid -- though less explosive -- increases the previous two years. Still, most experts see no end in sight to category growth.
"Our short-term forecast for 2006 is that water will continue to grow, but at a slower rate than in the recent past—most likely in the low double digits," says David Bishop, director of Barrington, Ill.-based Willard Bishop Consulting.
"From our perspective," adds Bishop, "much of the growth has been driven by the extension of sports drinks and isotonics into the category, like Gatorade has done with Propel."
According to Bob Richardson, national category manager-beverages for Boulder Colo.-based Wild Oats Markets, which sells natural and organic foods from 101 stores in 25 states and British Columbia, "Today's consumers are more concerned with what they're putting in their bodies."
As Richardson sees it, people are looking for added benefits. "Consumers are constantly asking, 'Is it healthy? Is it going to improve my performance? Will I regret consuming it because of high fat, carbs, or sodium? Will it hydrate me?' Today's consumer is more knowledgeable about ingredients and nutritional benefits, and that consumer is willing to pay a little extra to get something healthy."
In today's marketplace, vitamins, nutrients, and flavors have been added to Mother Nature's most basic byproduct, giving consumers more and more reasons to buy.
"This [enhanced] segment has been growing, and is just now starting to make an impact on the overall numbers," observes Food Lion's Lowrance. "Flavored water is also a growing segment. Its full impact is yet to be known."
"The flavored water category is a transitional space for people who do not want highly sweetened product, but do want to stay within the bottled water category," notes Wild Oats' Richardson.
At Wild Oats, which relies on wholesome, all-natural products to fit its marketing niche, enhanced waters are just what the doctor ordered. "Glaceau has defined the category," says Richardson, adding that the Whitestone, N.Y.-based vendor not only sells its own Vitaminwater brand at Wild Oats Markets, but also produces the chain's private label and control brands (Wild Oats, Henry's, and Sun Harvest). In all, Richardson reports that Glaceau-made products comprise 90 percent of his stores' bottled water sales.
Richardson concurs with Lowrance that the flavored segment is ascending as well, even though Wild Oats doesn't carry such brands as Propel, Aquafina, Fruit2O, or Dasani because their flavored extensions don't meet the chain's nutritional guidelines. "Nutrient-enhanced, flavored waters are very important to the growth of the category," he notes. "In the natural supermarket channel, flavored waters are now an $8.5 million category, growing 17 percent last year."
Richardson also points to a comer: "Metromint is the fastest-growing brand in the flavored water segment, contributing the most of any brand to the segment's growth."
Born as a single-serve phenomenon, bottled water volume is now driven by multipacks. In pack sizes, 12s and 24s reign supreme in grocery, mass, and club, owing largely to Coke and Pepsi's entry into the game. But although margins may have dwindled somewhat, volume increases more than make up the difference for overall profitability.
As with most chains, multipacks rule the bottled water roost at Ukrop's Super Markets. But while margins may have slipped slightly on a per-ring basis (due to, among other factors, slower single-serve sales from the cold vaults at the register), the category is up 10 percent overall.
According to the Richmond, Va.-based retailer, the flavored segment grew 150 percent over the previous year, as of August 2005. Still, that represented only 3.5 percent of the category. That figure jibes with ACNielsen data provided by the Coca-Cola Co. that says flavored water beverages make up about 4 percent of the total bottled water category, and about 10 percent of its dollar sales, in U.S. supermarkets.
Merchandising strategy at Ukrop's is fairly simple. The grocer has recently gone to a CLP (consistent low price) format, offering a $4.99 price point on 24-packs for most leading brands. The chain reports selling between 2,500 to 3,000 cases per week of Deer Park alone -- with that kind of volume, it's obvious that bottled water is a thriving, profitable business.
Says Wild Oats' Richardson: "Water is a tight category not just because of the size of the packages, but by the volume that they generate. We have to make tough choices in defining which brands we stock: Does the product provide turns, but does the manufacturer also provide labor in keeping the shelves full and in full operation?
"We created the enhanced category to differentiate it from bulk water, sparkling water, and other carbonated beverages," he concludes. "This helps us to better manage the section and to contact those vendors who help us make the category profitable."