HERE COME THE JUGS

RICHARD TURCSIK

Concerns over the quality of municipal water systems and trends toward healthier living are keeping supermarket sales of gallon jugs of water flowing. According to retailers, jug water sales continue to gush whether the water is on feature or not. Some retailers find sales to be so strong that they do not even see a need to advertise the category. And shoppers are buying national, regional and private-label brands with abandon.

"In gallon water we sell tremendous tonnage; multi-thousands of cases per week," said Dick Salmon, senior vice president of Melmarkets Inc., a Garden City, N.Y.-based operator of 18 Foodtown supermarkets.

"Health concerns about water have been driving the sales of the jug waters up. Our sales of gallon jugs of bottled water are up 12% in 1994 vs. 1993," said Mike Shultz, senior vice president of Hughes Family Markets, Irwindale, Calif.

Hellen Berry, vice president of Beverage Marketing Corp., a New York-based consulting and data resource for the beverage industry, said 1-gallon and 2-gallon bottles of water accounted for a volume of 780.5 million gallons out of a total industry volume of more than 2 billion gallons.

"Total industry volume of 1 and 2 gallons of water grew by 13.3% in 1994, against a market growth of 9.6%. The only water that grew more than that is the domestic premium retail PET 1.5-liter and smaller bottles, which grew by 32%," she said.

"Evian really has helped to spark the smaller PET bottles, and more and more domestic water companies are coming out with smaller, single-serve sizes," Berry added.

Sales data supports Berry's comments. According to Information Resources Inc., Chicago, supermarket sales of bottled, noncarbonated waters, including flavors, jumped by 12.1% to $608.3 million during the 52 weeks ended Feb. 26.

IRI data shows private label is the largest segment of the industry, with sales of $168 million, up 14.6%. Of the leading domestic brands, Arrowhead had sales of $63.9 million, up 3.9%; Poland Spring sales were $45.1 million, up 15.4%, and sales of Sparkletts reached $25.9 million, a 14.8% increase.

Buyers told SN that health concerns over local drinking water supplies are a key factor in water sales. They said strong water sales are being seen across the board, in cities with excellent water supplies, as well as in locales where "don't drink the water" is the rule.

"The worse the water quality is, the better the bottled water sales are going to be," said Mike Byrd, vice president of product management for frozen food and dairy at Byrd Food Stores, Burlington, N.C.

"In the Burlington area, our water quality is very good. We do have some stores on the North Carolina coast where the water quality is not very good, and those are very good water stores," he said.

"Gallon bottled water is a growing category for us. It has grown steadily for the last 10 years and it is continuing to grow for us, which is a little unusual because Birmingham is quite fortunate in that we have some of the best water in the United States," said Darwin Metcalf, director of store operations at Western Supermarkets, Birmingham, Ala.

Dale Green, a buyer at Houchens Industries, Bowling Green, Ky., said Houchens' operating area is "a pretty decent market for bottled water because we don't have the best water quality in the world around here." Houchens operates 43 Houchens supermarkets and about 70 Sav-A-Lot limited-assortment units in Kentucky and Tennessee. "We don't have much trouble with the municipal water in Bowling Green, but in some of our areas we do have problems with the water, and it is an area that has to have a lot of attention paid to it."

Peter Dudis, director of grocery operations at Big Y Foods, Springfield, Mass., finds local water quality is the deciding factor on the size of a store's individual water department.

"The space devoted to bottled water is allocated depending on each individual store's sales. Some communities have better water quality than others, and that has an impact on sales," he said.

On New York's Long Island, frequent news reports about a possible link between the island's water supply and breast cancer has helped spark bottled water sales at Melmarkets, according to Salmon.

"People just trust the idea that it is bottled water. On Long Island there have been tons of problems with our wells and ground water. There is always some Newsday newspaper write-up about something being wrong. With the high incidence of breast cancer on Long Island, I think that the women refuse to drink the water," he said.

"You're at a point now where in lots of restaurants they'll ask you if you want water on your table or not, or they'll serve you bottled water because people won't drink the local water around here. I happen to be one of those people," he added.

Even in New York City, where the municipal water is considered to be superior to most other areas, sales of bottled water continue to surge, according to Mary Moore, director of public affairs at D'Agostino Supermarkets, Larchmont, N.Y.

"New York City has always been a big water town, even though its municipal water is among the best in the world. It has always had some relationship to water problems in individual areas around the city. But even where the water quality is good, people are still buying bottled water," she said, adding that "New York City is one of the few cities where the water actually tastes good."

The category's strong sales are causing some retailers to ponder whether they should devote more space to bottled water.

"I think our section has doubled in the last three years. We could probably use a lot more selling space, but we try to overcome that with major endcap displays or putting palletized loads right out on the floor and selling it by the case," said Salmon at Melmarkets.

"We devote 28 feet to bottled water and we add additional space in our larger stores where it is available," said Shultz at Hughes.

Metcalf of Western Supermarkets said his chain has been giving water a greater emphasis.

"We recently started stocking 16-ounce and 11-ounce sizes, and we expanded the shelf space in probably 50% of our stores over the last year," he said.

"As far as merchandising, we basically just merchandise it on the shelf, but we do give a pretty good shelf allotment to it," said Byrd of Byrd Food Stores.

While upscale "water snob" consumers might not drink anything but Evian, retailers told SN that when it comes to gallon jugs, brand loyalty is practically nonexistent.

"Our customers are mainly concerned with the purity of the water," said Shultz of Hughes Markets.

"Private label is currently the No. 2 item in the category, and it continues to grow," he added.

"The brand of the water doesn't seem to be important," said Metcalf of Western Supermarkets. "The customers tend to trust the bottled water in that it is a good quality. It is kind of amazing. It almost doesn't matter what brand it is.

"We've even flip-flopped and sold some private label and some regional brands, too. Currently, we are carrying regional brands," he said.

"All of our water comes from within North Carolina," said Byrd of Byrd Food Stores. "We don't have a private label because the people we are currently dealing with are giving us as good a price as we could get if we did have a private label."

"Our consumers really don't care about the point of origin of the water. As long as it is in the jug, they assume that it is safe," said Green of Houchens.

"At one of our Manhattan stores, we devote 60 linear feet to water and stock four different brands of gallon jugs of water. One of our best sellers is our Foodtown private label. Our sales of President's Choice water have increased at this location, but it only comes in a 1.5-liter bottle," said Moore of D'Agostino.

Retailers said that even though the margins on water are low and it is often featured at a hot price, the sheer number of turns cause it to be a money maker.

"Gallon water is the type of item that if you ship it out of the warehouse, the warehouse doesn't make much money because the case costs are so low. But we have very good gross margins on it," said Byrd of Byrd Food Stores.

Salmon of Melmarkets Foodtown said a low price is a key to movement.

"Our gallon water sales are running way up because we have the cheapest and best price around. You can buy it anywhere from about 79 cents on up. Our fastest selling is Poland Spring, followed by Deer Park. We also sell a tremendous amount of Foodtown private label. It averages around 59 cents a gallon and flies out the window. We also do well with Wissahickon, which is also dirt cheap," he said.

Salmon said advertising also helps steer sales, and he advertises water more than most.

"There is a water feature every week of the year. We never have an ad without it," he said.

"We promote our gallon jugs of water about once a month," said Shultz of Hughes Markets.

But other retailers said water sells just fine without advertising.

"We rarely advertise bottled water. We have our average grocery markup in it, and the sales are increasing at a healthy growth," said Western's Metcalf.

Byrd of Byrd Food Stores also doesn't advertise his water.

"It just sells very well, and we don't see any need to advertise it," he said.

Dudis of Big Y said he likes to promote water during the peak summer season.

"We promote the category with at least one item per month, and we find that there is a slight increase in sales during vacation times," he said.

Most buyers said that while gallon water sales remain strong all year, they get an extra surge during the hot summer months.

"As the weather gets hotter, there is more need for water. As people travel more readily, they take gallons of water along with them in the car. Warm weather does pick up the sales of water, no doubt about it," said Salmon of Melmarkets.

"Sales are good all year, but they generally peak during July and August," said Shultz of Hughes.