Not so long ago, Jeff Weston "had to beg" retailers to advertise bottled water before a summer holiday.
America, Greenwich, Conn., notes that "every major retailer will have water on deal for July Fourth [and] Memorial Day. Ten years ago, we'd lose out an endcap to ketchup. Now, those endcaps are becoming ours."
The widely documented bottled-water phenomenon continues to astound even industry veterans like Weston. In 2003, Americans guzzled more bottled water than beer, more than coffee and more than milk, making water the second-largest commercial beverage category last year, according to the Beverage Marketing Corp. Also in 2003, bottled water accounted for nearly 12% of all liquid intake, up from 8% in 1998, according to the New York-based consulting firm. With consumers seeking healthy, calorie-free ways to slake their thirst, retailers and industry observers see the flood of demand for bottled water continuing in the next few years.
"We're experiencing double-digit growth in our [polyethylene terephthalate] category, and I expect that to continue throughout the rest of the summer," said Mike Koens, director of private label for Associated Grocers, Seattle, a wholesaler serving more than 300 independent stores in the Northwest.
The category has been a font of innovation, occurring mostly at the high-priced end -- think of Fiji Water's trendy square bottle and award-winning design, and the deep-blue bottle from Ty Nant Spring Water of Wales, U.K. For those who want more than plain old water, there are "enhanced" waters like Pepsi's fast-growing Propel, and Energy Brands' Vitaminwater. New imports are on the way from Europe and Asia.
The sheer number of brands boggles the mind. Arthur von Wiesenberger, a consultant to the bottled-water industry, has identified an eye-popping 800 or so varieties in the marketplace today. Then there are the numerous categories they fall into, such as artesian, spring and mineral. It's no wonder that consumers and category managers alike are confused.
"I think retailers are probably having trouble with bottled water because there are so many variations of it," von Wiesenberger said. "It's a very, very competitive market right now. That's the name of the game -- seeing how much of the aisle you can control."
Right now, control is consolidating into the hands of a few. The field of players has narrowed with the entry of soft-drink giants Coke and Pepsi, with Dasani and Aquafina, respectively, while store brands have created a third low-cost option. In 2000, the combined brands of Nestle Waters, Aquafina, Dasani, Dannon and private label made up 70% of the volume of water sold in plastic PET bottles. In 2003, those same brands constituted 82% of PET volume, based on figures cited by Nestle Waters from ACNielsen, Schaumburg, Ill.
"The consumer's getting more educated, the brands are getting fewer, and marketing support is getting better," Weston said.
For the past couple of years, Associated's retail customers have been promoting its Western Family private-label brand 24-pack year-round, Koens said. "It's a lead item now on a lot of ads. It's become more of a commodity."
That's just what worries people like Weston.
Even as volume continues to grow, that race for volume and share growth has spawned price promotions throughout the United States, eroding water's profitability.
Sixty percent of PET volume was sold on promotion in 2003, up from 43% in 2001, according to Nestle Waters. Manufacturers are working to prevent further erosion.
They have their work cut out for them since it's at the lower end that retailers and consultants see the most opportunity for growth. Cheaper brands seem to be moving the fastest; while all major brands enjoyed relatively robust growth in 2003, the low-cost brand Crystal Geyser stood out, gaining a whopping 24.1% in wholesale dollar sales, according to Beverage Marketing.
While premium water can run as high as $1.50 for a half-liter, von Wiesenberger has spotted half-liters selling for as little as a quarter at Trader Joe's. "There's just this bloodbath, where bottlers are pricing it as low as it can go," he said. "More and more, people are just going for the least expensive brand. That becomes a challenge for bottlers and retailers. Big brands like Evian are just not moving off the shelf as fast."
As for packaging, single-serve PET bottles of 1.5 liters and smaller -- now representing about 42% of the bottled-water market -- individually and in multipacks, are today's favorite choices, according to Beverage Marketing. While bottled water has become a year-round grocery list item, demand still charts a bigger rise during the warm-weather months. Forty percent of PET volume is sold from Memorial Day through Labor Day, according to Nestle Waters, referring to figures from ACNielsen. Retailers, especially those in warm climates, plan to pour more into their displays and promotions of single-serve and multipacks this summer.
Unified Western Grocers, a wholesale cooperative based in Commerce, Calif., features bottled water in all its mailed ads and coupon books, in keeping with retailers' demands, said Trina Guoz, category manager for the co-op.
"In Southern California, [water] is becoming more of a staple," she said.
Superior Super Warehouse plans to increase displays of individual bottles on pallets throughout its 18 Southern California stores and feature them in its circulars this summer, said Rick Fry, vice president of purchasing. Fry said Superior's water sales benefit from its mostly Hispanic shopper base.
"Most of our customers are first-generation, and come from a country where you can't drink the water," he said. Because they often are low earners, "they're not looking for Evian," instead opting for brands like Crystal Geyser, Niagara and Arrowhead, Fry said.
Minyard Food Stores, Coppell, Texas, is replacing gallon jugs on its shelves with 24-packs of easier-to-carry, half-liter bottles that are increasingly preferred by shoppers, said Joe Boyd, beverage category manager for the independent chain. "I think consumers are just buying it because it's convenient in the PET bottle, and because of health issues," Boyd said.
Further north, retailers also are preparing for demand for bottled water to spike as the temperature rises. Randy Miller, merchandise manager for Biggs, with 12 stores in the Cincinnati area, predicted double-digit increases in bottled water sales this summer.
"Stores are almost going through truckloads per week," he said. "We're getting good sales and good margins."
While water sells well during any month, Biggs' stores will have "massive displays" all summer, including secondary intercepts throughout the stores, primarily of the 16.9-ounce bottle 24-packs, Miller said. The 24-pack will be discounted and advertised in store circulars, he said.
Selection will be limited to strong sellers like Dannon, Dasani, Aquafina and Biggs' less-expensive private-label brand. "We're always conscious of [stockkeeping unit] rationalization, not only in water, but throughout the store," he said.
Retailers hoping to create excitement in the category will get help from manufacturers. In a promotion with Universal Studios, for example, Nestle Waters' brands will run contest entries on packages for a trip to Universal Studios, Weston said. San Pellegrino and Perrier recently became available in newer versions of PET bottles designed to keep the water fizzy longer than conventional containers, opening them up to more sales venues.
Can bottled water's growth rates be sustained? Beverage Marketing predicted the category will grow at a rate of about 8% compounded annually over the next five years, led by demand for PET single-serve and multipacks. That's down from about 10% per year for each of the past five. Gary A. Hemphill, a senior vice president at the firm, predicted that profitability will continue to be challenged as companies compete to grow volume and share.
"The category's very large at this point. It's still very strong growth, but it's starting to mature a little bit," Hemphill said. "We still believe that of the major beverage categories, it will be the fastest-growing."
Still, with 60% of the population now drinking bottled water, according to the consulting firm, there's plenty of room for new adherents.
"We're only starting to get close to the consumption levels of Europeans," added von Wiesenberger. "It fits in with a healthy lifestyle. I think water's here to stay."
As that growth continues, new opportunities will present themselves to retailers.
"If water is taking the place of soft drinks, [manufacturers are] going to give marketing dollars to it," said Manny Goldman, a Hillsborough, Calif.-based beverage consultant. "When they do, you're going to see more water promoted on July 4. Water's going to get better real estate" in the store.
Supermarkets could do more to promote water, said Bill Wyman, founder, Rockwell Consulting, Ridgefield, Conn., a sales and marketing agency serving manufacturers. He lamented that store category managers, pressured to hit their weekly sales goals, are loathe to share their display space with other departments. Yet out-of-the-box thinkers, instead of confining bottled water to the beverage aisle, for example, could promote it with other departments as part of a meal solution. The summer months are ripe for promotions that tie in water.
"It has the opportunity to be merchandised in so many different ways," Wyman said. "The entire cookout concept could be expanded to include the beverages that could go with it. No matter what you're merchandising in the store, you could add to it by including water. This is a great way to increase the market basket without adding a lot of cost to the system."