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Bottled
Water 2004:
U.S. and International Statistics and Developments
By
John G. Rodwan, Jr.
Reprinted
from the April/May 2005 issue of Bottled Water Reporter,
a publication of the International Bottled Water Association (www.bottledwater.org)
Bottled
water emerged as the second largest commercial beverage category by
volume in the United States in 2003, and, despite its significant
stature, it continued to grow at a rapid pace in 2004. The category
is growing even more forcefully on a global scale. In recent years,
U.S. volume has been increasing more rapidly than dollar sales, but
on both fronts, the industry’s performance is unparalleled.
The qualities
spurring bottled water’s growth are clear. Many consumers recognize
it to be healthy, safe and, in some instances, of superior purity
to alternative sources of water. It’s a versatile product, suitable
for consumption at any time of day and need not be kept cold (like
soft drinks or juice) or warm (like coffee or tea). As far as ready-to-drink
commercial beverages go, it’s relatively inexpensive. And as
the difference between growth rates for volume and dollars indicate,
it is becoming increasingly affordable. Various packaging types, ranging
from bulk to single-serve, facilitate a variety of uses. Consumers’
growing interest in healthy, low-calorie products that confer benefits
above and beyond refreshment also contributes to the quintessential
hydrating beverage’s performance in recent years. As concern
about obesity grows more widespread and intense, bottled water’s
calorie-free contents appear that much more attractive to consumers.
Domestic
non-sparkling water, especially the retail premium PET segment, is
the star of the U.S. packaged water industry, consistently outperforming
other segments. Indeed, it is primarily the single-serve PET segment
that is driving overall category enlargement, and leading companies
have forged new distribution arrangements in order to thrive in the
growing PET segment while also attempting to revive other segments.
Recently, imports and sparkling waters have returned to growth. Bulk
and direct delivery volumes have not enjoyed the levels of expansion
that characterize the PET water. Outside the United States, home and
office delivery (HOD) is a vigorously growing segment.
The
U.S. Numbers
In 2004,
total U.S. category volume surpassed 6.8 billion gallons, an 8.6%
advance over 2003’s volume level, according to the latest edition
of Beverage Marketing’s comprehensive study of the market, Bottled
Water in the U.S. That translates into 24.0 gallons per
person, which means U.S. residents now drink more bottled water annually
than any other beverage other than carbonated soft drinks (CSDs).
While
CSDs still have volume and average intake levels more than twice as
high as bottled water, the soft drink market has been stagnant lately,
in no small part due to competition from bottled water. Per capita
consumption of bottled water has been growing by at least one gallon
annually, thereby more than doubling in a decade. Average intake of
CSDs has dipped slightly for several consecutive years. The diet segment
has been the strongest part of the CSD business. However, bottled
water volume was almost 2.2 billion gallons larger than diet CSDs’
4.6 billion gallons, and bottled water grew at a faster clip than
diet CSDs’ 6.2% growth rate in 2004.
The
U.S. bottled water market reached new highs not only in volume but
also in wholesale dollar sales, which approached $9.2 billion in 2004.
However, not only did sales growth slow compared with the previous
year, which was not the case with volume, but sales also grew at a
lower rate than volume for the second year in a row. This reflects
the impact of price promotions, especially on PET multipacks, which
are increasingly the focus of such promotions as well central to volume
growth. Once primarily a tactic used on the West Coast, lowering prices
to attract buyers is being seen with greater frequency throughout
the United States.
Based
on historical trends and the latest developments, Beverage Marketing
expects bottled water volume to approach 7.4 billion gallons on growth
of 8.1% in 2005. Wholesale dollar sales are expected to slow again
but still advance at a solid 6.9% to reach $9.8 billion.
U.S.
Category Developments
Domestic
non-sparkling water is by far the largest component of the U.S. bottled
water market. Its 6.4 billion gallons represented 94.2% of total volume
in 2004. While the segment increased at a slightly slower rate than
the overall market, it comprises diverse components with very different
performances.
The most
vital piece of the non-sparkling segment is the retail PET segment,
which account for almost half of total bottled water volume in the
U.S. in 2004 and is projected to exceed 50% in 2005. PET volume increased
from 1.3 billion gallons in 2000 to almost 3.6 billion gallons in
2004, boosting its share of volume from 29.0% to 47.8%.
As consumers
increasingly opt for convenient PET multipacks in large format retail
channels instead of larger (1 to 2.5 gallon) sizes, retail bulk volume
has slowed. Its share eroded from nearly one-quarter of category volume
in 2000 to less than one-fifth by 2004, largely as a result of competition
from PET.
HOD volume
declined in 2003 and 2004 but losses are beginning to moderate. The
segment accounted for 19.7% of bottled water volume in 2004.
Domestic
sparkling water has revived, with market beating 9.3% volume growth
in 2004. Imported water achieved its third consecutive year of double-digit
volume growth, enlarging by 18.3%. Even with this strong showing,
imports grew less quickly than the muscular PET segment, which swelled
by 20.4%. Moreover, imports are not expected to grow nearly as fast
in 2005 as they did in 2004, while retail PET is poised to extend
its streak of double-digit annual volume growth.
The
Top Players
Reflecting the
vibrancy of the retail PET segment, the three leading companies in
that area strengthened their position in the overall U.S. bottled
water market in 2004 while companies primarily active in the HOD side
of the business lost market share. Primarily this meant strong growth
for industry leader Nestlé Waters of North America (NWNA) and
for Pepsi-Cola’s Aquafina brand and Coca-Cola’s Dasani
brand and a decline in volume for DS Waters Enterprises. The exception
to this general trend was the decrease in volume recorded for the
joint ventures between Coca-Cola and Danone Water of North America
(DWNA), which involves DWNA’s retail PET brands (and some bulk
water).
NWNA remained
the largest bottled water company in the country, with more than $2.7
billion in wholesale dollar sales. The purveyor of major regional
brands such as Poland Springs, Arrowhead and Zephyrhills accounted
for approximately 30% of total bottled water sales in 2004. Although
the United States-based subsidiary of the Swiss-based food and beverage
giant Nestlé derives a significant amount of revenues from
its HOD business, as well as its retail bulk water, NWNA increasingly
has focused on its retail PET water business, the segment of that
has seen the most growth in the past several years. While growth of
Poland Springs was slower than the overall market in 2004, the brand
remained the third largest selling brand in the United States, and
several of the company’s other brands, such as Deer Park and
Ozarka, achieved strong double-digit sales growth. NWNA, an early
entrant into the U.S. bottled water market, has earned a reputation
as an innovator in important areas such as PET packaging. It offers
its various brands in an array of package types and sizes. NWNA is
also a major player in the Canadian market, where it produces the
Montclair brand and Aberfoyle Springs, which it now imports into the
United States under the Nestlé Pure Life label.
In 2004, Pepsi-Cola’s
Aquafina, which has reigned as the number-one brand for several years,
became the U.S. bottled water business’s first billion-dollar
brand. The brand’s share of overall wholesale dollars increased
from 11.0% in 2003 to 11.3%.
Coca-Cola’s
retail PET brand, Dasani, also saw its sale grow more forcefully than
the overall market (albeit not as strongly as the PET segment itself)
and its share of sales increase to 10.0%. The brand is poised to join
Aquafina with sales greater than $1 billion in 2005 (although Aquafina
is likely to remain the leading brand).
Although Dasani
could be described as Coca-Cola’s standard-bearer in the bottled
water business, the brand serves as part of a multifaceted strategy
that entails distribution of Danone brands of various price levels.
In April 2002,
Coca-Cola and DWNA formalized a deal under which Coca-Cola would manage
all marketing execution, sales and distribution for Evian in the U.S.
and Canada. Evian is now dispersed through a direct store delivery
(DSD) distribution network. Groupe Danone retained responsibility
for global product development and brand strategy efforts for Evian.
Whereas Dasani represents Coca-Cola’s mid-priced offering, the
imported Evian is a premium-priced brand. However, so far, Coca-Cola
has not been able to revive the brand, which saw sales contract in
2004, although it sales declined at a much slower rate than in 2003.
In June 2002,
the two companies established a partnership to produce, market and
distribute most of Groupe Danone’s other U.S. bottled water
brands. The CCDA Waters venture does not include Danone’s import
brand, Volvic, Coca-Cola’s Dasani or Danone’s HOD bottled
water business (which became part of DS Waters). The earlier agreement
concerning Evian also remained intact and separate from the newer
pact. Reportedly paying $128 million for a 51% interest in the venture,
Coca-Cola gained five production facilities, a license for the Dannon
and Sparkletts bottled water trademarks and ownership of “several
value brands” in the AquaPenn roster. The deal provided the
soft drink company with various lower-priced spring and purified waters.
Although the overall volume of the brands Coca-Cola carries in connection
with Danone decline in 2004, the Dannon brand revived after a couple
of off years.
International
Developments
In almost
every major region of the world, bottled water has been one of the
most dynamic beverage categories over the last five to ten years.
While bottled water got its start primarily in Western Europe, where,
for many consumers, it has long been part of their daily consumption
ritual, it is now a truly global beverage, found even in some of the
more remote corners of the globe. Global bottled water consumption
is estimated to have approached 41.1 billion gallons mark in 2004,
according to data from the latest edition of Beverage Marketing’s
Global
Bottled Water Report: A Worldview. The global rate of
consumption rose by 6.5% in 2004. Per capita consumption was 6.4 gallons,
up three-tenths of a gallon from 2003’s 6.1 gallons. Several
Western European countries boast per capita consumption levels of
well over 25 gallons, but much of the developing world, where the
bulk of the world’s population lies, finds its per capita consumption
figures still in the low single-digit range.
While the global
per capita consumption figure may belie vast regional differences,
bottled water’s global growth is indicative of a number of salient
trends. First and foremost, bottled water has been able to make tremendous
volume gains over the last decade by successfully tapping into some
divergent consumer trends around the globe. Bottled water is in many
respects the ideal category for beverage manufacturers across the
globe. It is characterized by high gross margins, the ability to segment
the market, the possibility of trading up and high growth. Yet, the
bottled water market is still highly fragmented, leaving the window
open for acquisition and investment opportunities.
In developed countries such as the U.S., Canada and Japan, bottled
water has become the fastest growing and most dynamic major beverage
category by tapping into a growing health and well-being consciousness
on the part of consumers. This increased health awareness has helped
position bottled water as an alternative not only to tap water, but,
perhaps most important, as an alternative to carbonated soft drinks
(CSDs) and juice drinks, in the multiple beverage marketplace. Many
in the developed world see bottled water as not only a way of achieving
hydration, but as a functional beverage as well.
At
the same time, in the developing world, bottled water is increasingly
positioned as a safe and relatively affordable alternative to the
often-unsafe tap water found in many countries.
While
much of the world’s bottled water market is still highly fragmented
and controlled by local brands, consolidation is rapidly occurring,
as four companies have come to dominate much of the market. Nestlé
and Danone are the traditional leaders of the bottled water pack.
Both companies centered their operations around the core markets of
Western Europe and the United States. However, as water growth is
increasingly coming from the developing world, Nestlé and Danone
have taken their battle to the new competitive fields of Asia, Latin
America and other areas. In fact, Danone has partially retreated from
the U.S. market to focus on some of these other markets.
Complicating
matters for the two European leaders is the recent entry of CSD stalwarts
Coca-Cola and PepsiCo into the bottled water race. Beginning with
their achievements in the United States, both companies are increasingly
devoting resources and energy to developing their global bottled water
businesses. PepsiCo and Coca-Cola have already claimed the top two
spots in the U.S. bottled water market, and while they do not pose
an immediate threat to Danone and Nestlé in Western Europe,
they must both be considered serious threats in the less developed
and often high-growth bottled water markets of Asia, Eastern Europe
and South America.
Three
other trends will also be evident in the next few years as companies
increasingly use new product development to differentiate themselves
in the eyes of the consumer in what has become an increasingly competitive
marketplace. In Europe, the key question in the next five years will
be whether or not consumers will trade down, as North Americans have,
and embrace cheaper waters such as those sold by Coke and Pepsi in
the United States. Another key trend to watch in the years to come
will be the rise of nutrient-enriched waters. For example, both Danone
and Nestlé are increasingly developing calcium-enhanced waters
in Europe in the hopes that these products can become a new growth
frontier for the industry. Finally, perhaps the most widespread trend
in the industry of late has been the appearance and proliferation
of flavored waters. Almost every company now has flavored versions
of its leading brands, and particularly in the mature Western European
market. In 2005, both Coca-Cola and Pepsi-Cola introduced new flavored
version of their flagship retail PET brands.
While
Europe may be the leading regional consumer of bottled water, on a
country basis, North America boasts the two largest markets, the United
States and Mexico, which together combined for 28.2% of the world
market in 2004. Mexico accounted for 11.5% of the global volume at
4.7 billion gallons in 2004. In 2004, China stood as the third largest
market with 3.1 billion gallons. Chinese bottled water volume has
increased by double digits in four of the last five years. Brazil,
the third largest market in 2003, slid to fourth place in 2004, as
bottled water volume increased by 15.4% to nearly 3.1 billion gallons.
Italy and Germany grew by 3.0% and 3.6%, respectively. Italy ended
the year at 2.8 billion gallons and Germany at 2.7 billion gallons.
Ten of the top
15 bottled water consumers on a per capita basis are European countries,
with Italians boasting by far the most established bottled water consumption
tradition. At more than 48 gallon per person in 2004, Italians consumed
about 4 gallons more per capita than Mexico, the country with the
second highest per capita consumption at 44.5 gallons. The United
Arab Emirates (UAE) was the only other country with per capita consumption
greater than 40 gallons, although Belgium-Luxembourg and France were
close. In 2004, Spain and Germany had per capita consumption rates
of 36.1 and 33 gallons, respectively. The United States ranked 11th
in terms of per capita consumption.
John G. Rodwan, Jr., is editorial director at Beverage Marketing
Corporation, a New York-based research, consulting and financial services
firm.
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