Managing the Water category

With an increasing number of consumers hitting the bottle in favor of drinking from the tap, bottled water brands are bubbling to the surface by, well, by the truckload. For retailers, the challenge lies in finding the shelf space for it all.

Part of the problem is that not all of the $11 billion in bottled water sold in the U.S. last year is made – or marketed – equally. But that confusion also provides retailers with the opportunity to stock value, mid-range and premium brands. Especially when it comes to value-priced purified water, consumers – especially those who are in the habit of buying cases of the stuff, and who have driven the massive growth of the category – aren’t so much brand-loyal as price-loyal. When you get into the higher-end spring and artesian waters, as well as imports, the stocking equation becomes even more complicated – but it can also be an advantage.

Eric Skae, managing director of Iceland Spring in Orangeburg, New York, observes that an increasingly health-conscious America is interested in what, exactly, goes into its water. “More and more people are interested in premium water; water from a source that they know is pristine, pure, untouched,” he said, adding that his company receives regular calls inquiring about mineral content and pH levels.

Skae believes that it’s up to the water brands to convey this information to the consumer. “We have put together brochures about our water that can be laid out next to the water so that people can read about pH, mineral content, and so on,” he explained. “I think it’s the brand owner’s responsibility to do that. If the brand owner does a good job of that, it will help the retailer.”

Jackie Fox, director of sales at the Clearly Canadian Beverage Corporation in Vancouver, British Columbia, emphasizes that retailers must really know their customers in order to determine how much of each subcategory to stock. “The biggest challenge by far would be interpreting what role each different offering plays,” she said, noting that while some consumers may purchase based on price, others buy for flavor, mineral content, or how the water is distilled. The key, she says, is identifying the current consumer need that is not currently being met.

Charlie Moro, president and founder of CFS Consulting, LLC in White Plains, New York, observes that the biggest issue facing retailers is building a sound variety around the private label brand that many stores offer, rather than looking to one of the big brands like Dasani, Aquafina or the Nestle Waters of North America labels. Some opt to complement their private labels with waters from around the world, for example, while others stock premium products. “Most of them have tried to make a brand statement in terms of their private label, but there is this whole other plethora of brands, waters from different countries and flavored waters that they need to incorporate,” he said. “The struggle has been how to pick those particular players.”

The problem, Moro says, is when retailers stock too much of the same thing. “It’s one thing to have flavored waters for the sake of argument, but what you wind up seeing sometimes is four or five lines of the same thing,” he said. “Everyone has a lemon-flavored water; but you could use the space for a sparkling water, a European brand, or a premium brand.”

Like Moro, Fox cautions against stocking too many similar SKU’s, since in doing this, retailers run the risk of like-entries cannibalizing current sales. “New ‘options’ will hopefully convert other beverage consumers as well as increase the bottles purchased by current water users,” she said. However, this variety can trip up retailers: there are a number of unproven brands out there that have yet to build trust with the consumer base. “Retailers must be confident that there will be a strong launch plan to support these new brands.”

Too many SKU’s can also result in items becoming quickly out of stock. “Some retailers have a problem keeping things in stock because they have too many SKU’s,” said Tom Hipwell, at Nestle Waters North America in Greenwich, Connecticut. “They haven’t managed their assortment down so that they have proper shelf space on the products they are carrying, or the products that are selling with high velocity.”

Nor should the retailer attempt to be everything to everyone; because space is limited, stores must first determine how much real estate the category deserves, and then revert to its banner strategy to decide what brands to feature. “You need to evaluate the turn-rate of each product, growth potential of each sub-category and potential adjacencies that may not be experiencing strong growth,” Fox advised.

So, is there a magic number of brands that retailers should stock? Not really, since it all depends on your strategy, and what type of clientele you are targeting.Fox believes that each brand should be regarded as a separate entity. “A large company with multiple brands may be able to provide flashy programs, free coolers and various display vehicles, but that doesn’t necessarily mean that all of their SKU’s deserve real estate in store,” she said. At the same time, one large company may, in fact, be able to satisfy many consumer requirements. “Once the retailer develops a strategy and puts benchmarks in place for what is on their shelves, the consumer will quickly decide whether a certain offering will have longevity in store.”

Smaller brands that fall under the same large umbrella should also be treated separately, Moro says, likening the water category to the cereal section. “If Kellogg’s comes out with five more line extensions of Rice Krispies, they all need to stand on their own and bring some additional value,” he said. Similarly, if a bottled water manufacturer that releases four different sizes of the same bottle – a sport bottle, for example – retailers should choose one size, and call it a day. “At some point in time, you’ve got to say, ‘stop. I understand you have this, and I understand it’s good, but I can’t have six more varieties of the same thing.’”

Grace Jeon, vice president of marketing at artesian water manufacturer Fiji Water in Los Angeles, California, suggests that value brands be kept to a minimum – an idea which would certainly benefit her own fastcharging brand, which has sworn to be the top-selling premium water before the end of the year.

“You would certainly provide more space for those brands, but you don’t need 10 different brands within each of those [value] segments, because at the end of the day, consumers are compelled to purchase based on price,” she said. Featuring several premium brands – including the consumer education material that many of these companies supply – offers the retailer the chance to trade up those consumers who don’t necessarily look at price first.

Retailers employ a number of merchandising strategies for water – again, depending on store layout and how their customers make their purchasing decisions. Fox suggests positioning enhanced water on one side of the display, and unflavored on the other, separating the products further based on brand, size and price. Seasonality, too, plays a significant role: water sales increase, obviously, during warmer months. Fox says that retailers can cash in on this by making water more available in racks, cooler barrels, case displays and pallets.

Deep-well sets or case packs – the packages of 24 half-liter bottles – have also proved successful when retailers stock them on pallets on their bottom shelf, Hipwell notes, because it enables stores to stock large quantities. “It’s easy to manage off the pallet, and retailers are profitable,” he said. “You don’t need to sell it at cost, the way you would with carbonated soft drinks. They can sell this with a mid-teens margin and be quite successful.”

Hipwell observes that retailers face the additional challenge of stocking items that fall under the water category, but aren’t technically water. “This isn’t necessary a bad thing, but if a retailer wants to bring it in, he’s got to make space for it,” he said. “It’s important that retailers take advantage of the trends and move quickly. The ones that move quickly into taking the new items on, finding space for them and deleting space on things that are not growing, will win.”

In acknowledging that it is impossible to please everyone, those retailers that focus on what their consumers’ needs are, and which brands are focusing on building the category, will reap the most success, Fox maintains. “This is what will create pull from the stores – an offering that meets the consumer demand, turns quickly and drives growth for the supplier, and makes great profit for the retailer.”