A Sparkling Future?

Bottled water is still a must for many consumers.

The recession, critics of plastic bottles, and tap water promoters may have affected bottled water sales in 2009, but the spring definitely hasn’t run dry.

Consumers have grabbed extra bottles during the steaming summer temperatures of 2010 to boost sales. Sparkling water, the new category star, continues to grow in sales as an alternative to carbonated drinks. Bottled water manufacturers are adding tempting flavors and plastic-saving packages to keep sales flowing.

To be sure, the recession exerted its mighty influence on all beverage category sales last year, according to New York-based Beverage Marketing Corp. Bottled water dropped slightly more than carbonated soft drinks (CSD) in 2009. The categories were down 2.5 percent and 2.3 percent, respectively, while the entire beverage category dropped 2.7 percent.

After sales hit new heights in 2007, at $5.2 billion, FDMx bottled water sales dropped to $4.7 billion in 2009, a report from Chicago-based market researcher Mintel notes. Many consumers took the typical recessionary route and opted for private label water, causing brands like Aquafina to drop prices, sometimes to less than a penny an ounce, or about half the typical price.

Hitting the Bottle

One Midwest retail executive who requested anonymity notes that unit sales of private label bottled water at his company’s stores are up 10 percent over last year. “Our business has been growing even with the difficult economic environment. Retail prices have been falling, and this can be attributed to lower cost of supply options available to the retailer,” according to the exec, a category management director at a grocery chain. “We had above-average temperatures this summer that supported higher sales. We also have experienced some supply disruptions with private label, as it appears some bottling companies had more demand than capacity at times this summer.”

While the recession may be one reason for sales dips in the category, there are others. Some consumers spurned bottled water because of the use of plastic, while other groups touted local tap water, citing no difference from bottled water.

To counter plastic-bottle critics, some manufacturers developed new containers such as Nestlé Waters North America’s new lighter-weight bottle with a smaller lid that uses less plastic. Aquafina, from Chicago-based PepsiCo, has a new bottle that uses 50 percent less plastic than the 2002 version. Manufacturers also countered tap water boosters by promoting water drawn from pure sources.

The Lineup

The bottled water category has three main segments: convenience serve or PET (referring to the bottle’s plastic), jug or bulk, and sparkling/mineral. Convenience serve (PET) is by far the largest of the three in sales and drives category growth.

The convenience serve segment is up 7.2 percent in supermarket sales vs. a year ago, according to Nielsen numbers. The record-hot temperatures this past summer boosted sales in the segment. “By factoring out the increase due to hot weather, convenience serve is still up between 3 percent and 5 percent this year,” notes Dan Friedrich, VP customer development for Greenwich, Conn.-based Nestlé Waters North America.

Jug/bulk water sales, the second-largest category segment, felt the recession’s pinch more than the other two categories. Sales fell $71 million, from $742 million in 2007 to an estimated $709 million in 2009, according to Mintel, which cites trading down to private label or trading out of the segment entirely as the chief culprits.

Nestlé Waters is working to improve performance in the bulk water segment. “A couple of things needed to happen to improve the multiserve category,” Friedrich explains. One was developing a more attractive, stackable display, and the other was competitive pricing. “Retailers asked us to help them with displaying this product, so Nestlé Waters came up with 3-liter displays with bottles that nest into each other so they can be stacked. The displays come on a stable, shrink-wrapped pallet ready to drop on the sales floor.”

The displays are more attractive than the old cardboard setups and waste much less paper. While it took three years to get retailers to accept the new displays, Friedrich says the 3-liters are selling well, especially at a 99-cent price point.

“By being more competitive on price, we are helping reverse this category segment’s negative trends,” he adds. “With some slight growth occurring, our goal is to bring bulk category sales up to fl at. Most growth is still in convenience serve.”

And the bubble hasn’t burst for consumers who prefer a fizzy alternative to regular bottled water. While sales of sparkling/mineral water were down in 2007 and 2008, 2009 signaled a change, with unit sales inching up 2.7 percent, while all other categories of bottled water dropped. Sales are even bubblier this year, with unit sales up 6.24 percent in this, the smallest of the bottled water categories (SymphonyIRI Group calendar years 2007, 2008, 2009 and 2010, through Aug. 8).

Water, Water Everywhere

From premium international brands such as Perrier and San Pellegrino to regional waters drawn from local springs, Nestlé Waters is the leader in bottled water, at 27.9 percent of category sales, according to Mintel. Nestlé regional spring waters include Deer Park, Ice Mountain, Ozarka, Poland Spring, Arrowhead and Zephyrhills. Poland Spring and Arrowhead are also available in sparkling varieties featuring fruit essence flavors.

Nestlé Pure Life Purified water, available across the country, is produced through a multistep filtration process and enhanced with a mineral blend. The line includes natural fruit-flavored waters. For the fourth year in a row, Nestlé Pure Life will support National Breast Cancer Awareness Month in October with pink-ribbon packaging on the half-liter 24-pack. In 2009, 2.5 million cases were sold, resulting in a $250,000 donation to the Breast Cancer Research Foundation.

Coca-Cola’s Glacéau products rank second in sales, at 21.6 percent. The brand targets young adults through events, Facebook, and ads featuring celebrities drinking its vitaminwater, Smart Water and new vitaminwaterZERO product lines. Hydration is the theme after a case was recently filed against Atlanta-based Coca-Cola by the Center for Science in the Public Interest, citing little nutrition and plenty of sugar in the drinks.

PepsiCo was third in bottled water sales in 2009, at 14 percent, per Mintel. The company targets a youthful demographic with SoBe Lifewater featuring its trademark lizard, and social marketing. marketing. Recent promotions include prizes based on cap codes and the chance to choose the newest flavor.

Potential for bottled water sales remains positive. According to data from Schaumburg, Ill.-based Nielsen for the 52 weeks ending June 12, bottled water sales in six major U.S. markets are already exceeding CSD sales and expected to surpass consumption over time. These markets include Las Vegas, San Francisco, Boston, San Diego, Miami and Los Angeles.

What’s more, bottled water is a planned purchase. According to a 2009 study by Barrington, Ill.-based consultancy Willard Bishop, over 85 percent of shoppers plan to buy bottled water before coming to the store. “Retailers need to change how they think about bottled water and how they handle it in the store,” Nestlé Waters’ Friedrich says. “It’s not a traffic draw, so they do not have to cut prices so low, because shoppers are already planning to purchase it.”