A Watery Storm Blows Over, Revealing New Growth

A few years ago, when high-end bottled water got slammed with the twin effects of a deep recession and an environmental backlash, many of us called it the perfect storm. A sector that was riding high suddenly was in an impossible situation: only fairly affluent consumers could afford those brands any more, and within that social stratum it suddenly had become unfashionable to be spotted carrying around plastic bottles containing water shipped from halfway around the world. At the New York soccer field where I spend a lot of time, fields that were littered with empty half-liters of Fiji Water after youth soccer games now displayed Dasani and Poland Spring empties.  (Nope, I didn’t detect any signs, in my generally affluent nabe, that folks had returned to tap water.)

So bottled water is a goner, right? To even find a bottle in your local store, you need to crouch down on your hands and knees and bat away the cobwebs to snag one off a dusty bottom shelf. Right? Of course not. Still, I’m surprised at how many of my contacts remain under the impression that bottled water is over. True, the cloud of recession hasn’t really lifted, even if the experts say we’re in a recovery. And we all still give lip service to the notion that it’s ridiculous to ship water thousands of miles when, in most parts of the country, what comes right out of the tap is fine. Still, as far as I can tell, quite a few high-end brands are having a good run these days. After a severe downsizing and some periods of intense price promotion, Fiji Water seems to be back on track.  With a new management team at the helm, Voss Water has returned from crisis and broadened its presence, particularly at retail. European imports like San Pellegrino and Volvic seem to be doing well. Coca-Cola’s Smartwater brand continues to chug along, though there have been some worrisome signs of increasing promotional activity. The team at Icelandic Glacial, which also had to weather a U-turn in strategy at its strategic ally, Anheuser-Busch, continued to bring in new capital and lay the groundwork for success. Such premium American brands as Mountain Valley Spring and Saratoga are holding their own. A new breed of unsweetened essence waters like Hint and Balance may finally be garnering traction. Mind you, I haven’t seen Fiji empties sprouting back onto the sidelines of my local soccer pitch, and don’t expect to. (Why did sweaty 9-year-olds need to consume Fiji with their orange slices in the first place?) But with many key brands growing and refining their strategies, it certainly seems – short of a double-dip recession – that the storm has blown over.

Mind you, I’m talking about the high end of the segment, not the value end. Over there, more than a decade of relentless promotional battles among Coke, Pepsi and Nestle have sapped margins and price points to the vanishing point, and the acquisition by KO and PEP of their U.S. bottling systems greased the skids for the conversion of case-pack water into a direct-ship commodity that’s no longer worth the trouble of hoisting onto a bottler’s trucks. Even Evian, supported by what’s arguably a breakthrough global campaign (those babies!), seems stuck straddling the border between value and premium water, still adrift in an inattentive Coke distribution system. But let’s not talk about that sorry tier any more.

By contrast, at the value-added end, the stage is set for some concerted brand building that should heighten those brands’ allure. The fundamentals of its business finally sorted out, Voss Water has brought in a gifted former Snapple marketing executive, Ken Gilbert, as its chief marketing officer to rev up consumer pull. Icelandic Glacial has upped its packaging game with a more elegant plastic bottle that can better stand up to glass rivals, while embarking on an aspirational push dubbed “Source of an Epic Life.” And after muddling around for a few years, the Aquahydrate brand has brought in former Fiji Water chief John Cochran, who’s rethought the brand’s premise, devised a striking new look and is ready finally to put into place a marketing program that might effectively explain to consumers why highly alkaline water is a good thing to put in their bodies. At some point, I figure even Pepsi may start to take more of an interest in this lucrative business, now that it (like Coke) has finally gotten religion on the folly of fighting margin-sapping promo wars. (Coke has Smartwater and Dr Pepper Snapple is allied with Fiji in some markets, but Pepsi’s sole high-end play is the negligible cause-marketed brand Ethos.) Whether Pepsi creates its own high-end brand or allies itself with a potential winner developed outside the company, it could add to the vitality that is re-entering the segment.

So what about that green backlash? I suspect many consumers have moved on, having more pressing matters on their mind and failing to see why a healthful alternative to soda deserves to be demonized. Most of the white-tablecloth restaurants I’ve been in haven’t, it turns out, tossed out their bottled waters. To the extent the marketers augment their messaging about the unique properties of their brands, in contrast to the tap water brands that stand for nothing more than convenience, they will help counteract the problem. As recycling programs broaden, they will remove another negative tarring the category. Overall, then, I think it’s time for retailers and distributors to look at high-end water with fresh eyes. There’s health there, there’s margin there, and soon there will be more storytelling there too.