Even if it only represents 6 percent of the total global packaged water market, premium water has enjoyed strong growth in recent years as consumer preferences shift towards healthier options that often also include some kind of functional benefit.
As the category becomes more competitive and retailers and distributors have a broader range of choices from which to build their premium water portfolios, the question is not whether the category will continue growing, but how? Brands are taking different approaches towards defining “premium,” but merchandising, marketing and positioning at retail may ultimately have as much or more influence on individual labels’ success or failure as what’s actually in the bottle.
SMARTWATER SETS PACE
In the U.S., the premium market is worth about $2.8 billion, according to statistics from Portland, Ore.-based market analytics firm Allied Market Research. The category pacesetter remains Glaceau’s Smartwater, which was acquired as part of The Coca-Cola Company’s $4.1 billion purchase of the brand in 2007. While sales of Vitaminwater have slowed in recent years, Smartwater has been gaining ground, representing 7.6 percent of the bottled water market share. The brand hit over $1 billion in sales for the first time in 2015.
According to data from market research firm IRI, Smartwater brought in around $864 million in multi-outlet and c-store sales alone in a 52-week period ending on October 2, 2016, a increase of almost 13 percent from the same period in the prior year.
During the company’s 2016 Q4 earnings call, Coca-Cola noted that premium water has seen double-digit unit case volume growth during the year in North America, and was the primary driver behind a 3 percent increase in full year still beverage volume for the company.
DISTRIBUTORS AND RETAIL
Brands see the market for premium water that Smartwater has energized, and they’re eager to get after it, and from a variety of approaches. But creating an appealing product offering is no guarantee of success on its own. Distributors and retailers, particularly in the convenience store channel, which accounts for around 60 percent of revenue for premium water brands, play key roles in building the category through merchandising and positioning. And they’ve been adding brands for the past few years, even to the point where they will take several brands at once.
Overall, brands are welcoming of the increased competition in premium water.
“I’m a firm believer that it’s in the industry’s and category’s best interest to have multiple competitors and give these distributors that we use a shot and a chance,” said Hal Kravitz, CEO of electrolyte-enhanced alkaline water brand AQUAHydrate and a former executive at The Coca-Cola Company. Kravitz, who worked on the Smartwater line, notes that the decline in carbonated soft drink (CSD) sales is helping motivate retailers to make more shelf space for premium water. “The more they can carry, as long as they can maintain focus across multiple brands, I think the better off we all are.”
And that means that brands will have stablemates.
“We are seeing an increasing trend towards distributors looking at premium water as a portfolio of offerings,” said Neil Kimberley, VP of strategy and brand innovation for Essentia, which markets ionized alkaline water with a pH of 9.5 or higher – and is frequently put on trucks alongside other brands as they grow. “In most distribution houses, we participate alongside multiple other premium waters and we think it overall benefits the distributor and the retailer to make sure that they have that portfolio in place.”
As the CEO of Big Geyser, the largest independent beverage distributor in the New York City metro area, Jerry Reda has seen the growth of the premium water category up close. In 2015, Big Geyser stopped carrying Glaceau products, including Smartwater, and added Essentia and CORE Natural to its portfolio. In an interview with BevNET, Reda said the explosive triple-digit growth of those brands, which he called “super premium,” within the Big Geyser portfolio has begun to create separation in both sales and customer base from the historicallly established premium brands like Evian, Volvic and Fiji. One thing that may be helping – they’re marketed as being more functional than gourmet.
“It’s almost like comparing a flip phone to a smart phone,” Reda said.
While noting that “there’s plenty of runway available” for the amount of brands pushing into the premium category, Reda predicted that the category would eventually slim down to around four to six players that will drive growth. He said that premium waters with better-for-you call-outs, like high pH or electrolytes, were not only drawing customers away from commodity and premium sourced waters but also from carbonated soft drinks and sugar-sweetened iced teas. Part of shifting consumer preferences, he suggested, was simply a desire for something new.
“Look at something like the iPhone and Apple,” Reda said. “They are changing their packaging, they are changing the technology. If you look at what CORE has done, they have created probably the most beautiful vessel that anyone has ever created. People are picking it up first because of the bottle, and then afterwards they understand the point of difference.”
SCIENCE AND PERFORMANCE
Some premium water brands are offering consumers a straightforward message about why they should choose their brand: it simply works better.
AQUAHydrate is one example of that approach. Although the company boasts a high profile investor and endorser team including actor Mark Wahlberg, artist/mogul Sean “Puffy” Combs and fitness guru Jillian Michaels, Kravitz told BevNET that the company’s eventual success is rooted in the belief that consumers are willing to pay more for a higher quality, better tasting bottle of water.
“If you don’t bring good taste, I’m not sure the rest of it is really going to matter,” Kravitz said.
Ericka Pittman, who recently joined AQUAHydrate as the company’s first-ever chief marketing officer, explained that the next step for the brand would be to transcend from a performance-oriented product to become a part of consumers’ everyday lifestyle.
“Sports drinks in years prior perhaps focused specifically on performance enthusiasts or athletes, but sort of evolved over the decade to be go-to solutions for consumers that are looking to fortify their bodies or create recovery or everyday hydration solutions,” said Pittman. “We want to target our audience in a way that speaks to their premium preferences in water, but also their key lifestyle moments.”
Essentia offers a similar message about its health benefits and functionality, but with an important distinction – peer-reviewed scientific validation. The brand recently released the results of a new study published in the Journal of the International Society of Sports Nutrition that showed that Essentia was almost twice as effective as regular bottled water at rehydrating adults who consumed it after a period of exercise-induced dehydration.
While the brand hasn’t heavily promoted the results in their marketing materials as of yet, Kimberley explained that the study allowed the company to establish a strong link between the science of hydration and the positive physiological reaction consumers may have when drinking Essentia.
“Our understanding of consumers is that they want to have visibility into what makes products different and better,” Kimberley said. “Something we wanted to do was come up with the real reason why you felt different when you drank Essentia.”
Having the study allows Essentia to back up its functional and health claims, but Kimberley noted that science was only one part of the company’s strategy towards building a broad “lifestyle brand” that encompasses both its benefits as an athletic performance drink and an all-occasion water.
“We like to have a broad palette to choose colors from,” Kimberley said. “Some of which is about being a mainstream consumer brand where we are able to leverage the imagery of being a lifestyle brand into our product. On the other hand, we want to make sure there is meaningful product differentiation there as well. So we kind of blend the two as to where we think the sweet spot is in the marketplace.”
THE SPACE IN BETWEEN
Seeking to expand a category that has an existing presence in Asia, Kona Deep is the first deep ocean water available in North America. The company’s unique source – melted glacial waters found over 3,000 ft. below the surface in ocean currents near the Big Island of Hawaii – is naturally rich in electrolytes and can hydrate faster than regular bottled water, according to a study by the University of Arizona published in the Journal of the International Society of Sports Nutrition.
CEO Pat Turpin, who previously founded snack company Popchips (a company that, ironically, grew behind a sales and marketing team sourced largely from Glaceau alums), got involved with the brand when he partnered with local Hawaiian businessmen who had discovered the source and built a desalination facility on-site, with business mainly focused on exporting to markets in Asia. Sensing an opportunity to break into the U.S. market, the brand launched last year and is available in 500 mL and 1L bottles at Sprouts Farmers Market locations nationwide, as well as select retailers in Hawaii, California and the Southwest.
“The marketing approach for deep ocean water is that the consumer doesn’t have to choose between purity and performance,” said Turpin. “There’s a trend in food and beverage that’s been going on for a long time of people wanting their good stuff naturally. This ties into that, which is why we found the water source so unique.”
Turpin explained that the dual appeal of a unique natural source and some functional value allows the brand to compete favorably within the premium water set, but also with coconut waters and sports drinks.
“What we’re kind of watching is how much will Kona Deep pull from other water brands versus pulling from other kinds of electrolyte beverages like a coconut water or something like a Gatorade, where it has electrolytes but it has a bunch of other artificial things in it too,” Turpin said.
In the case of those types of electrolyte-rich drinks, Turpin argued, “A lot of consumers aren’t drinking that beverage because it tastes good. Most coconut water drinkers don’t love the taste – they tolerate the taste.”
Yet while Turpin said retailers are open to new categories, such as deep ocean water, to broaden their premium water offerings, Kona Deep still has fit somewhere within existing retail sets for the time being.
“The starting point in retail is in the premium water set,” he said. “Some of the retailers that get the differentiation will often put us in cold box location closer to other healthy beverages, not just waters. In that case, premium water that is retailing at $2.49 doesn’t look so premium next to price point of kombucha.”
OUTSIDE THE BOTTLE
After watching Coke-owned Smartwater soak up market share in the category, PepsiCo is belatedly entering the premium water stakes this year with the introduction of LIFEWTR, a line of purified, pH balanced water with electrolytes added for taste. Available in 700 mL sport cap and 1 L bottle sizes, LIFEWTR launched at retailers nationwide in February, marking its arrival with a television advertisement that ran during the Super Bowl LI broadcast featuring a version of John Legend’s hit song “Love Me Now” with new lyrics.
In marketing materials, however, the brand does not feature some of the product call-outs, such as references to purity or health benefits, seen on many other waters. Instead, LIFEWTR had positioned itself as a lifestyle drink for young urban consumers by focusing on what’s outside the bottle – the label – rather than in it.
Released in a series of three that changes several times per year, each label design is commissioned from a different young artist; the first series, for example, features work from Jason Woodside, MOMO and Craig & Karl. Each is intended to “serve as a spark of creativity and dose of inspiration and creative uplift.”
“We believe the biggest equity of this brand is the label,” said Seth Kaufman, CMO of PepsiCo North America, in a press release. “LIFEWTR has a beautiful piece of art on it. We think it’ll connect with consumers in a more inspirational way.”
The Super Bowl ad, which featured drops of LIFE WTR brightening a bland cityscape with bold colors, fits into Kaufman’s stated desire to build an authentic connection with the art, fashion and design worlds. Pairing with an artist like Legend is part of that overall marketing strategy; in an interview with AOL.com, the singer explained that he was working with LIFE WTR because “they celebrate artists and creativity.”
Brands are also looking to connect with consumers in ways that have little to do with the product itself. As Millennials gravitate towards companies with mission-driven values and a sense of corporate responsibility, donating revenue from sales to charities and engaging in community outreach programs, particularly in health and environmental causes, has become an important part of premium water brands’ marketing strategy. With that parade of cause-oriented waters in the game, too, it could be a long time before Reda’s prediction is ultimately fulfilled – and the ultimate outcome is anything but clear.