The Bottled Water Rebound

Some readers of this column might recall that I’ve long beaten the drum for a revived bottled-water sector, certainly at the high end. But just to show I don’t know everything, I’ll confess to being surprised at the rapidly escalating degree of activity we’re now witnessing. We have new categories getting started, counters to those new categories, and established brands starting to really flex. It all makes for an intriguing moment in beverages. Really surprising, however, has been that PepsiCo has seemed so little motivated to play in this flourishing and rewarding segment. But it may have just showed its hand.

Some background: Bottled water once was a premium category across the board, in those days when Nestle Waters was the only significant multinational player and shared the segment with a lot of regional brands sourced from quaint sources like protected aquifers. It only deteriorated once Coke and Pepsi muscled into the business in the early 1990s with Dasani and Aquafina, respectively, tap water brands that turned bottled water into yet another front of the cola wars, with beggar-thy-neighbor pricing that saw 24-unit cases descend to retail prices of $4 and below. But Nestle Waters was resilient enough to hold its own in this three-way slugfest, and the two soda powerhouses have backed off a bit, reducing their brands to direct-ship entities and reassuring investors that they’re through beating their heads against a wall. So that’s where we stand with mainstream water: boring loss leaders, with even Nestle increasingly tilting toward its PureLife tap-water brand, too, among consumers who don’t seem to care much about whether the water actually sprang from a spring.

Through that first act, the high end flourished, thanks mainly to imports from Europe and then Fiji. But that came to a stop with a one-two punch: the 2008/2009 financial meltdown caused shell-shocked consumers cut back their purchases at precisely the time that the category suffered an environmental backlash from those pondering the carbon and landfill footprint of an everyday product that can be dispensed right out of the tap at home.

In recent years, though, it’s been a different story. No longer do we hear accounts of high-end restaurants throwing out their lucrative glass-bottle brands in favor of self-dispensed carafes. Bottled water brands have all developed carbon-neutral stories of greater or less credibility, the recycling stream has gotten more robust, and many policymakers have recognized the futility of penalizing a beverage that meets a separate priority – weaning consumers from sugar-sweetened beverages.

So established bottled waters have rebounded. Lately, brands such as Fiji and Icelandic Glacial have ramped up marketing that plays up their protected source – a reaction, I’m guessing, to the days when they stopped talking about their faraway origins because of the carbon-footprint issue. It’s a healthy development, reminding consumers that not all bottled waters are alike, that there may be value in the particular matrix of minerals, bubbles and other qualities that defines a particular brand. Certainly, it can make for powerful marketing based on something other than lifestyle.

Still other cylinders are banging away in the category. Seltzers have continued to boom, bringing in new entrants like Canada Dry and prompting geographical expansions by regional brands like Polar. After all, the segment offers a bit of flavor and fizz to a category that most consumers feel they need to consume more frequently. This may also prove a key year for essence waters such as Hint, in both its still and carbonated versions. And Pellegrino continues to perform well with its flavor iterations.

Meanwhile, a pair of alkaline waters are making a concerted landgrab, Essentia building from a base in natural foods and Aquahydrate building on Hollywood appeal that comes of harnessing investors Diddy and Mark Wahlberg. That sector poses a bit of a conundrum: some brands may be making claims beyond what they can verify,, and some scientists question whether heavy consumption of alkaline water truly is good for you. Other brands seem to be riffing off that by offering waters that claim to be perfectly balanced – say, Core, from Fuze and Body Armor creator Lance Collins. I expect the market, if not the feds, will sort out all those claims.

Meanwhile, some wholesalers are taking on several of those brands simultaneously. That might seem counterintuitive – after all, who wouldn’t prefer to ensconce their product in the hands of a distributor devoted only to that brand? But in the earlier stages of a new segment’s development, that can be a surprisingly effective strategy, allowing that distributor to act as a de facto category captain in setting up coherent retail displays that leave the impression of an established segment. That seemed to be the case in the early days of coconut water. So maybe everybody wins in those early stages. The time for rivals to start tearing one another’s POP materials down and reversing the bottle labels on store shelves can wait for later.

Not least there’s that now-venerable category of electrolyte waters, which seem to have taken a bite out of sports drinks. For a while, offering an electrolyte water offered an easy revenue lift to brands in other categories, from Metromint to Function to Activate, but through the churn Coca-Cola’s Smartwater has retained its hegemony. That’s a bit of a surprise, in view of how Coke hasn’t proved the most stalwart steward of Smartwater’s sibling, Vitaminwater, but there’s no question that Coke has kept Smartwater smartly premium in price and readily available in a variety of channels.

Which brings me back to Pepsi: though most of those smaller wannabes I mentioned have fallen off, there’s a new player that may pose a more meaningful challenge: Propel Electrolyte Water. It’s packed in a similar straight-wall bottle with similar blue label highlights, carrying its imprimatur as a sibling of the powerful Gatorade brand. Particularly in New York, where a transition from a motivated independent distributor to Coke’s sclerotic Coca-Cola Refreshments unit could leave Smartwater vulnerable to a challenge, it could make for an entertaining spectacle if Pepsi decides to move aggressively. Regardless, it should do its part to elevate the profile of this lucrative, fertile category.

Longtime beverage-watcher Gerry Khermouch
is executive editor of Beverage Business Insights,
a twice-weekly e-newsletter covering the
nonalcoholic beverage sector.