Up From the Basement

So are we finally ready for bottled water 3.0? I think we may be, and not a moment too soon for a segment that deserves to be more than a collection of mediocre loss leaders at retail.

First, a brief history lesson. From today’s perspective, it may be hard to recall that bottled water in America used to be a premium segment, as it moved from novelty status to a familiar part of many Americans’ routines. Not so long ago, the nation was replete with hundreds of local spring water bottlers, and Nestle Waters North America deftly harnessed a network of regional sourced waters as a complement to its higher-end European imports.

That all began to fall apart when Coca-Cola and PepsiCo entered the fray in the early 1990s, opting for purified tap water for their Dasani and Aquafina brands so their bottlers could run these brands through their lines just like they did their sodas and cold-filled iced teas. They were quick to pass on these savings – and a lot more – to consumers. Soon enough, bottled water had become yet another front in that war of attrition called the cola wars, with 24-unit case packs of tap water becoming the promotional equivalent of 2-liter soda bottles. I suspect the two giants figured that, at worst, NWNA would knuckle under that pressure and they could split its share between themselves. But Nestle had drastically lowered its production costs and proved more than up to the job of defending itself, if not without some inevitable loss of share. To a great extent, convenience-seeking consumers were the winners in this, if you’re ready to agree that the transition from sourced water to tap water wasn’t a meaningful tradeoff. But for retailers, distributors, and the producers themselves, it led to a sort of profitless prosperity.

In recent years, Coke and Pepsi have expressed their regrets about the strategy (to the extent that they even seem to be aware that the steadily descending price spiral was an actual strategy rather than an act of God). Though their acquisitions of their biggest bottlers in North America have enabled them to take further cost out of the equation by allowing them to go direct to major retail customers, they’ve been reassuring Wall Street that they no longer will purse a beggar-they-neighbor strategy in casepack water. To this observer, prices still seem pretty low, enough to chase private-label producer Cott from the market and put a great deal of pain on smaller producers (though NWNA motors on). The green backlash against bottled water of a few years ago doesn’t seem to have inflicted permanent damage on the segment, as producers moved with alacrity to short-weight their bottles, recycling streams have grown more robust, and consumers have recognized that there’s no reason to stigmatize a segment that provides a healthy counterbalance to the sweetened beverages they’re urged to avoid.

So has all the intrigue vanished from bottled water? Though I’ve tried to argue otherwise here at times, I get the sense some in the trade believe bottled water is past history. I still respectfully disagree. A new breed of overseas imports, led by Fiji and buttressed by the likes of Voss and Icelandic Glacial, lent exotic allure and marketing finesse to the segment, and Coca-Cola proved to be a solid steward of its electrolyte-reinforced Smartwater acquisition, even as it was fumbling that brand’s now-sliding Vitaminwater sibling (which despite its name shouldn’t be classed as a bottled water, as it’s a sweetened beverage). Over the past decade many brands have launched Smartwater-like extensions, to middling success, and coconut water entered the mix. If those brands represented bottled water 2.0, we now seem to have arrived at a possible inflection point for bottled water 3.0, with the advent of a new wave of brands, many of them offering a higher degree of alkalinity, with a view to neutralizing acid in the bloodstream, boosting metabolism and better absorbing nutrients.

I’m not in a position to assess whether consumers’ health needs really demand recourse to alkaline waters (the Mayo Clinic says plain water works fine for most folks), but these brands are reasonably priced in relation to just about any other beverage alternatives besides constantly promoted casepack waters and sports drinks, and their branding offers a tad more motivation to some consumers to meet their hydration needs with water rather than sweetened drinks. After having quietly grown in the natural channel for years, Essentia is ready to step it up with some key hires and a move into broader DSD distribution, while Aquahydrate seems to have gotten a second wind, and has been riding a heavily aired Fiat TV ad in which Diddy prances around a desert oasis with a bottle of Aquahydrate, endorsing both brands. Other players like Qure are growing nicely, and you know that established water brands will be launching extensions into this realm as it builds momentum. This activity could offer a further lift to a water segment that’s still trying to climb out of the bargain basement that the tap water brands excavated.