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Supermarket GROCERY Business: H2Oh!

One thing in supermarket life is certain -- the bottled water category is far from being all washed up. In fact, new bottle shapes, multibottle packaging, and calorie- and carb-free flavored waters promise that sales will be surging for the foreseeable future, especially in the single-serve bottle segment, which is tapping into the lucrative in-home consumption market.

"The water category has high growth potential," says Nicole Bradley, manager of public relations at Pepsi-Cola North America in Purchase, N.Y., the manufacturer of the leading Aquafina brand. "We expect that it will grow 20 percent to 30 percent, which will be advantageous to DSD suppliers who have the capabilities to sustain the higher volume."

"Single-serve continues to be the fastest-growing segment of the bottled water market, and has been for more than a decade now," says Gary A. Hemphill, v.p., information services at Beverage Marketing Corp., a New York-based consulting and information-tracking company. "Single-serve is really driving the overall growth of the category, growing north of 20 percent annually, while the other segments are either flat or growing in the low single digits."

For 2003, Beverage Marketing's preliminary figures show that total category sales were up 7.5 percent. In any other center store category, that growth would be seen as phenomenal, but those results are a little more tempered than in past years. Hemphill attributes that to the unusually cool and rainy summer much of the country experienced last year, along with the sheer size of the category. "Our 2003 data shows bottled water consumption is now about 23 gallons per person, which means it has actually leaped ahead of coffee and beer, and, depending on how you look at it, milk, too," he says. "Bottled water is now No. 2, behind carbonated soft drinks, which are in excess of 50 gallons per person, so there's no likelihood of bottled water surpassing carbonated soft drinks any time soon."

Three-tier merchandising

But retailers can do their part to help it get closer. "Grocers can maximize exposure and sales for bottled water by merchandising it similarly to other foods," says Stephen R. Kay, v.p., communications at the International Bottled Water Association (IBWA) in Alexandria, Va. "Endcaps, shelf talkers, etc. -- along with cross-merchandising with other food/consumer products -- can spur sales. For example, a case stacking/endcap in other food or seasonal aisles, like the barbecue section, can create impulse purchases, but water consumption isn't just a summer/hot-weather occurrence, so year-round merchandising is indeed appropriate."

Simplifying how water is merchandised in-aisle can also spur sales. "I think the water aisle is going to follow suit in categorization and differentiation, like the way wine did," says Sharon Egan, director of marketing & communications at Trinity Springs, Ltd. in Ketchum, Idaho. "Right now people walk up to the water shelf and say, 'What the hell's the difference?' I think we're going to see three categories of water -- a low tier of purified tap water, like Dasani and Aquafina, a middle tier of 'spring' waters that can be from multiple sources, and a high-end tier of source water."

That's exactly what Coca-Cola thinks. "We're doing a test right now with a Kroger store in Atlanta where we've taken the water aisle and we've segmented it, so there's a category for purified spring, imported, enhanced, gallons, and sparkling," says Eric Lewis, Dasani brand manager at Coca-Cola North America in Atlanta. "We're really taking a leadership role within the category on helping retailers understand the category and how consumers are shopping. It's a simple thought, but it really cleans up the water aisle. Right now, if you went into your supermarket, you'd have gallons here, mixed in with spring, purified, and enhanced, and there's no rhyme or reason to it. Now we've really cleaned it up."

In the Kroger test the water is merchandised with the help of graphics -- the spring section shows families, while purified shows an active lifestyle. Imported has a French Alps look, enhanced shows sports, and sparkling shows food, since it's often served with dinner.

Still, some believe that as the category becomes dominated by Coca-Cola, Pepsi, and Nestle, risks will develop, the biggest being the threat of price wars. "Bottled water is getting very, very competitive and very price-sensitive," says Joe Mihok, president and chief sales officer of Le Nature's, Inc. in Latrobe, Pa. "If you look at the numbers, bottled water volume is going up, but the pricing is going down."

Multipack marketing

"There's a fear out there that bottled water's going to become a commodity," says Darrell Jursa, managing partner at Liquid Intelligence, a Chicago-based consulting firm. "During the cola wars you could get a 24-pack of Coke for $2.99 -- a cup of Starbucks cost more money," he adds, noting that the same thing could happen to bottled water.

But Jursa's not counting the category out. Growth can still come as companies continue to expand into the category, like Dr Pepper/Seven-Up is doing with Deja Blue. "You'll still continue to see growth from generating new availability, but I think the real market push is in the home category," he says. "Bigger packs and multipacks are really where the growth is going to be."

That's what the folks at Coca-Cola believe, too. By July the company's Dasani water will be available nationwide in a 12-ounce, 12-bottle Fridge Pack. "We tested this in Charlotte, Richmond, and Knoxville, Tenn., and consumers just love the Fridge Pack!" exclaims Lewis, the Dasani brand manager.

"More and more supermarkets are starting to pick up on the fact that consumers actually like to buy water by the case," says Doug Carlson, c.e.o. of Fiji Water in Basalt, Colo. That's why Fiji recently introduced a one-liter-bottle six-pack, which is wrapped in a very clear plastic shrinkwrap. "We've had a three-pack of one-liter bottles, and now we're adding the six-pack as demand for multiples continues to grow," Carlson says.

"We've developed a Spring Pack, which is a 12-pack of bottles, for our domestic brands, including Deer Park and Ozarka," says Jane Lazgin, a spokeswoman for Nestle Waters North America, Inc. in Greenwich, Conn.

Purity reigns

Sourced from an aquifer 1,500 miles out in the Pacific Ocean, Fiji Natural Artesian Water is premium-priced and has developed a following among the Hollywood elite. It can regularly be seen on the set of "Friends" and many other TV shows and films. "I found out from Pierce Brosnan that the reason Fiji was featured in [the 1999 remake of] "The Thomas Crown Affair" is because it happened to be the water that everyone on the set was drinking," Carlson notes.

Part of Fiji's appeal is that its aquifer is so deep that the water one is drinking today is over 450 years old. Trinity Springs can do that one better -- and then some. It's sourced from the Idaho Batholith, a chunk of granite the size of New Hampshire. Trinity's source begins 2.2 miles below the earth's surface, and the water that comes out has been carbon-dated at 16,000 years old. "That means it was rain and snow at the end of the last ice age," Egan explains. "That batholith protects Trinity from mingling with any modern waters. What comes out is a rarity, which is a water that you can drink right from the source."

Trinity has had its water tested and found it to be totally free from impurities. However, since five states mandate that bottled waters undergo disinfection regardless of where they're from, Trinity isn't being marketed as a water, but as a natural mineral dietary supplement, because it's very high in the minerals fluoride and silica. Due to the water's mineral content, Trinity's instructions recommend drinking one liter of it a day. "We had many customers over the years saying they wanted to drink more than just one liter a day, so we came out with a bottled water which is partially distilled and has one-third of the mineral content," Egan says.

Trinity has also begun marketing Trinity Kids. "We distill a greater portion, so it has an even lower mineral content. It's optimal for kids and their growing teeth," Egan observes.

Other companies are looking to grow sales by changing their packaging. Aquafina plans to introduce a new sports top on some of its packaging this year and will unveil new graphics before the summer, according to Bradley.

Evian is also revamping its bottle. "The bottle has been redesigned to make it more elegant, taller, and more reflective of the brand's personality," says Susan McDermott, a Coca-Cola spokeswoman. "It's got a gripping area on the side and an etching of the Alps above the label. We're calling it a Renaissance Bottle."

Perrier bottled water is similarly undergoing a renaissance of sorts. "Perrier is breaking with tradition and will introduce a plastic PET bottle," says Nestle Waters' Lazgin. "That's the newest development in the brand's 141 years."

The plastic half-liter bottle will supplement the signature green glass bottle, which is being retained. "It has the same curvy shape, is green, and is fashioned after our famous little green bottle," Lazgin says. "It's constructed with a special nylon sleeve that will keep it from going flat. We feel this is breakthrough technology."

Other manufacturers are finding their breakthrough to be flavored waters. Le Nature's specializes in flavored waters that have no sugars, sweeteners, and carbohydrates. "We feel the next wave of bottled waters is going to be the flavored waters, because as bottled water consumption grows, people are going to get bored with 'plain' water," Mihok says.

Fun with fruit

Le Nature's comes in lemon, lime, lemon-lime, pink grapefruit, Mandarin orange, berry, peach-mango, kiwi-strawberry, and melon. "We're looking for two or three other flavors," Mihok says. "You can have our Mandarin orange or pink grapefruit for breakfast and have no carbs," he adds. "So if you want to eliminate those 30 carbs from your orange juice every day, you can have this. It has about 10 percent vitamin C from the flavoring, so you're getting some of the vitamin C back in your diet, also."

Veryfine Products also markets a line of Fruit 2 O calorie-free flavored waters sweetened with Splenda. "We're working on getting our newest flavor, Apple Fruit 2 O, introduced," says Sam Rowse, president of the Littleton, Mass.-based company. "We also have a pina colada flavor that we're working on. It's amazing how much it really tastes like pina colada, and there's not a single calorie."

Vending machines are another channel where water has been growing. "Vending machines selling purified tap water are popular in California and parts of the Southwest," Beverage Marketing Corp.'s Hemphill says. "Their success is often dictated by the economy. If the economy is a little shaky, people might trade down to it, but it's not a big growth area right now."

But single-serve bottles are growing in vending. Dasani has created a special 12-ounce bottle especially for vending machines. "Our new bottle is the height and width of a can, so it maximizes the capacity of the vending machine," Lewis says. "We can double the capacity, which reduces the chances of out-of-stocks, and it can be loaded like a regular can."

That's sure to inspire a wellspring of impulse purchases.
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