Water Fall

JULIE GALLAGHER

Bottled water sales are on the decline in New York state where a revised bottle bill took effect late last year.

A refundable 5-cent deposit was added to bottles of water less than one gallon, inflating the cost of 24-packs by at least $1.20.

Although consumers can recoup the deposit by bringing the bottles back to the store for recycling, many are skipping the purchase altogether.

As the retail cost of a case of water including deposit approaches $7 in New York City, sales are down 28% since before the rule took effect in early November, Mitch Klein, vice president of retail services for grocery wholesaler Krasdale Food, White Plains, N.Y., told SN.

“If the intent of the state was to get people not to buy bottled water, it's been very successful,” he said.

Some New Yorkers are quenching their thirst with do-it-yourself options.

Sales of gallons of water not subject to the deposit are gaining momentum, along with tap water filtration systems like Brita pitchers and reusable aluminum water bottles.

“We can't keep them in stock,” Klein said.

The stores that Krasdale distributes to have adjusted shelf space accordingly. More room is being taken from bottled water and dedicated to water filter pitchers and filters that attach to the sink. Sales of these items have quadrupled, according to Klein.

“The space that was about 3 feet, has now doubled in size and will probably soon triple in size,” he said.

Aluminum bottles selling for between $4.99 and $15.99 are also fast movers.

A&P's The Food Emporium banner, operating 16 locations in NYC, has experienced a less dramatic drop in sales since November.

Although the deposit has made matters worse, sales of water bottles have been falling off for quite some time, said Michael Corsello, senior category manager for grocery, dairy, frozen, general merchandise, specialty foods and HBC.

People have been drinking less bottled water for a number of reasons, he said.

Among them is the taste of NYC tap water — which was named Best Tasting Drinking Water for a Metropolitan Region in 2009. The contest is a blind taste test judged by the public and sponsored by the New York Section of the American Water Works Association and supported by the New York State Department of Health.

The water is also high in quality, so for some cash-strapped consumers, turning to the tap is a no-brainer.

NYC is one of only five large cities in the U.S. that is not required by the Environmental Protection Agency to filter the majority of its drinking water.

It's so good, in fact, that it inspired the creation of Tap'd NY, purified NYC tap water in a bottle.

“I grew up in New York City and I didn't drink water out of a bottle until the last five years,” said Corsello. “It always came out of the tap.”

A segment of consumers is also trying to avoid contributing to water bottle waste, added Corsello.

Plastic bottles “are not good for the environment and I think people are sensitive to that,” he said.

Like all retailers of bottled water in the state, The Food Emporium is required to act as a collection center for recycled containers. But its shoppers don't make up the majority of those reclaiming deposits. Instead it is the homeless and indigent, who bring back the bulk of bottles and cans collected there.

The environment suffers when littered with unrecycled bottles, but in some ways, the state benefits.

As part of a requirement that took effect in August, suppliers of deposit beverages must now hand over 80% of unclaimed deposits to New York's General Fund.

Subject to the rule are makers of plain, flavored and nutritionally-enhanced waters free of sugar, beer, soda and wine coolers. Nine out of 10 beverages sold in New York state are included in its deposit program.

Although it's designed to encourage recycling of portable beverages, it is estimated that New York will collect about $115 million annually from unclaimed deposits.

The new rule marks a dramatic change for beverage manufacturers, who in the past kept 100% of all deposits unclaimed by consumers. The money was used to help pay for a 2-cent-per-container handling fee paid to retailers for redeeming bottles and cans.

What's more is that even though beverage makers have to relinquish 80% of unclaimed deposits, now they have to pay retailers a 75% higher handling fee, which has increased to 3.5 cents per container.

To help pay for these costs, they're passing on a price increase that is separate from the deposit and averages around 4 cents per bottle.

The cost that's billed to retailers as a “recycling fee” happens to amount to the price that manufacturers hand over to the state when one bottle's deposit is unclaimed, or 80% of the 5-cent deposit, noted Klein.

It works out to 96 cents extra per case of bottled water, or $2.16 extra per case when the new deposit is also factored in.

Unlike deposit costs, that are added at checkout instead of included in the advertised price, the “recycling fee” must either be absorbed by the retailer or added to the advertised price of water.

“Retailers call us continuously asking, ‘How do I charge the consumer for that recycling fee?’” said Klein. “I say, ‘You cannot add it separately at the register, otherwise it's a deceptive trade practice.’” Most every beverage in the deposit program is subject to the fee, according to Klein.

Meanwhile, retailers are doing their best to explain to shoppers how the inclusion of water bottles in the deposit program affects their price.

Many have communicated with shoppers by posting signs hung when the changes took effect. Still not everyone has gotten the message.

Consumers sometimes become upset at the register when tax and deposit fees are added to the promoted price — especially when it comes “three for …” deals, said Klein. In such instances, the cost climbs by $3.60 before tax.

“People say, ‘That's not right,’ and that's the last time you see them in the store,” said Klein. “I cannot tell you how many times this has happened.”

The scenario isn't one that plays out at The Food Emporium, where signs are posted, noted Corsello.

Retailers elsewhere in the state are reporting that water bottle sales are down, but not necessarily because of the deposit increase, according to Jim Rogers, president and chief executive officer of the Food Industry Alliance of New York State, Albany. When he spoke with members about the issue earlier this month, many said it was too soon to tell.

Before the deposit portion of the revised bottle bill took effect, retailers heavily discounted bottles of water to sell through existing inventories that did not bear the required 5-cent deposit mark. Among them was The Food Emporium, who called in brand manufacturers to manually apply a 5-cent deposit label to their products. To sell through private-label water, not bearing the mark, The Food Emporium discounted it by one-third.

FIANY members speculated that water bottle sales may be taking a hit now since consumers stocked up when prices were low.

“The retailers think that people may have come in and bought an extraordinary amount of water since it was so well-priced,” said Rogers.

The weather, which turned very cold in the Northeast shortly after the deposit took effect, may also have influenced sales, he added.

In Connecticut, bottles of water less than 3 liters were added to the state's deposit program last year. A new rule requires that 100% of unredeemed deposits be given to Connecticut's General Fund. The measure could provide more than $12 million in new revenue for the state every year.

So far, the deposit hasn't negatively affected sales of bottled water at six-store Highland Park Market, Glastonbury, which counts affluent consumers among its shopper base, according to grocery manager Tim Cummisky.

“We always do well with bottled water,” he said. “We didn't see any impact.”

The promotional price of 24-packs of Dasani, Aquafina and Poland Springs water ranges from about $3.99 to $5.99 at Highland Park Market, not including the cost of deposit, which is added at the checkout. Another option is 1-gallon jugs of Village Spring water, which come from a local bottler. Cummisky did not share the price.

“That always does well,” he said of the beverage not subject to the deposit.

Highland Park Market is so pleased with Village Spring it will soon bear the Highland Park Market private label.

The change comes at a time when store-brand bottles of water hold the largest portion of dollar share in the U.S. At nearly 20%, in food, drug and mass channels during the 52 weeks that ended Dec. 27, 2009, private labels possessed more than double the share held by the second most popular brand, Aquafina (9.91%), according to Information Resources Inc.

After reaching a high point at $5.2 billion in sales in 2007, according to Mintel, bottled water sales across channels dropped to $4.7 billion in 2009. Dollar sales were down 5.6% during the 52 weeks ending Dec. 27, 2009, according to IRI.

Environmental concerns and consumer budgets are partly to blame, but the popularity of store brands is also responsible.

“Bottled water drinkers are price sensitive and they became more so since private label emerged in a big way,” Garima Goel-lal, senior analyst at Mintel, told SN.

Since then, store-brand options have driven down the price of national brand waters.

The cost of a gallon of water, for instance, fell from $1.94 in 2001 to $1.35 in September 2009, according to Mintel. In certain areas, 24-packs of half-liter bottles of Aquafina are sold for as little as $2.99.

“Water is primarily sold on sale and promotion,” Goel-lal noted.

Indeed, beverage makers are mindful of consumers' sensitivity to price.

Since there is little differentiation in the category aside from marketing, close to half (49%) of bottled water consumers make their selection based on price, according to a Mintel poll.

Meanwhile, 33% say they have a favorite brand, while an equal number do not have a favorite brand. A smaller portion, 16%, pays no attention to the brands that they buy.

Water drinkers turn to plastic bottles rather than the tap since bottles provide anytime convenience (66%) bottled water tastes better than tap (48%), and it's healthier than tap (33%).

Many of these consumers recycle, according to Mintel.

Its poll found that half of bottled water users (50%) report recycling plastic water bottles, while 43% reuse their plastic bottle.

Consumers are doing so to save money and for convenience.

“They just fill it up with tap water whenever it gets empty,” said Goel-lal.

BOTTLE BETTER THAN TAP

Consumers who select bottled water over tap do so because bottled water:

SOURCE: Mintel

REDUCE, REUSE, RECYCLE

Even though they're still buying bottled water, a large portion of consumers are making earth-friendly choices by:

SOURCE: Mintel