Watered Down

By Jeffrey Klineman

What’s the problem with the water business? It turns out it’s the same problem that used to dog the water business: boredom.

Yes, five years after a person’s water bottle was considered a status symbol, the water market is at commodity pricing and there’s very little that distinguishes one brand from another. As such, the market has stagnated, with many large manufacturers staying in the category not to increase their business but to keep from losing it. And while stalwart category leader Nestle Waters remains capable of performing profitably as a highly efficient water production machine, even that company has begun looking to products like tea as a way to grow its business.

“It’s a [lousy] category now,” said Martin Chalk, the founder of Balance Water, which uses wildflower essences to infuse normal water with various functional properties. “Without adding sugar or artificial flavors, you can’t do anything to differentiate except in terms of source or package.”

For Chalk – and for a large number of unflavored water companies – the answer has been to try to add functionality without changing the taste. Companies from Balance Water to Smartwater (isotonic properties), Avitae (caffeine), Aquahydrate (increased alkalinity and as well as electrolytes and minerals), and even Function: Water have all tried to crack the code of unflavored but not uninteresting.

But another element is missing from that code, according to Adam Gayner, the founder of the hip-centric, flask-packaged Fred water brand – the real insights of the consumers.

“It’s a stagnant category in the mind of the buyer and the mind of the industry,” Gayner said. “But not a lotof people are paying attention to the minds of the consumers.”

Still, there is an argument that consumers have made it clear to distributors that their interest in water was transitional, that the category did its job just a little too well. Water sold consumers healthy alternatives to CSDs, and now they want more of them. That’s because, in the end, water is just water, and there’s no beverage more easily and cheaply available in the U.S.

The key reason that so many consumers moved from CSDs to water was because they made a large-scale decision to make themselves healthier through calorie reduction. But to hear some marketers talk, that move was just the first step in a longer consumer journey. Now, the makers of other beverages – functional waters, sports drinks, protein drinks, condition-specific products – have taken it as their mission to keep consumers moving on the road to health. And rather than take share from CSDs, they look to water as the place where they’ll fish for customers.

“When we did our ‘source of business’ for our portfolio, the number one source was water,” said Deepak Masand, the new head of marketing for newfangled sports and energy product FRS. “There’s more efficacy that people can demand from their drinks than that. The idea is you can have your body perform more effectively with another product than with water.”

While Masand’s assertion may or may not be ultimately borne out scientifically – there is certainly plenty of evidence that points to water as the key beverage when it comes to health – there is also an increasing body of sales evidence that says that consumers refuse to live by water alone. Particularly as functional alternatives continue to offer innovative choices that fuel the imagination.

And with pricing so low for the water that consumers might actually want – and ongoing backlash against companies over the potential environmental costs of extra water bottle no matter how valiantly companies have tried to innovate on their packaging – it’s no wonder that distributors might believe consumers aren’t as excited about bottled water as they could be. Especially when they know they’ll face an uphill battle against larger companies on pricing.

But, Gayner said, until independent distributors back new water brands, those new varieties that, like Fred water, do offer a chance for consumer loyalty don’t stand much of a chance.

“The category can be dull and lifeless, but there can be brands who can attract attention within it,” Gayner said. “For us, shelf space is more the problem than consumer acceptance.” •