HIGH WATERMARK

KAREN DeMASTERS

Bottled water is currently the best-performing beverage segment and one of the leaders in sales growth of all the Center Store categories, according to supermarket owners and beverage association officials who talked with SN.

Although the segment has grown steadily for many years since its widespread introduction in the mid-1980s, sales-growth figures are now jumping off the scale with double-digit increases being reported every year.

"This has been a steady builder over the years in this part of the country, but there have been dramatic increases in the past year," said Jeff VandenBerger, vice president of Forest Hills Foods in Grand Rapids, Mich.

"When people complain about the price of everything else, it is hard to imagine they are willing to pay for water, but they are."

The store uses bottled water in its print advertising about once every three weeks.

"The use of water in our advertising has picked up," VandenBerger said, "and we are up to about 24 feet of shelf space for water in the store. We only have a 45,000-square-foot store, so that is a lot of space for water."

Other stores report similar increases in sales, but Forest Hills Foods differs from most other stores, VandenBerger said, in that the sales increases for his store have been mostly in the larger, gallon containers. Category managers in other stores report the smaller, easy-to-carry bottles are the hottest selling.

"Bottled water sales are going crazy in the last year or so, maybe because people think tap water is poor quality," said Gary Meadows, grocery buyer for Ingles Markets, headquartered in Black Mountain, N.C. "There is also the convenience. The ones that are selling are the ones you can carry with you."

Ingles, which has approximately 200 stores in North Carolina, South Carolina, Tennessee, Georgia and Alabama, has had sales increases for plain water and for the new vitamin-enhanced and flavored waters. The amount of space devoted to the segment varies from store to store, but, on average, space has increased by about a third in most stores over the last couple of years, he said.

"We promote the new varieties as they come out," Meadows said. "All of the product is kept in displays on the shelf, not in the aisle."

The popularity of water cuts across all demographic lines, according to Ross Nixon, vice president of merchandising for Dahl's Food Markets, which has 11 stores in Des Moines, Iowa.

"There was a steady increase in sales for a while, but it has grown by leaps and bounds over the last two to three years as more and more players have been added to the field," Nixon said. "But the real growth has been in the plain water. Who would have thought people would go to a sporting event and pay $2 or $3 for a bottle of water?

"The increases in sales involve everyone: men, women, the middle-aged, kids. Ten years ago, we devoted 4 feet of shelf space to water; now we have 12 feet to 20 feet, depending on the store. Things have really changed," he said.

Dahl's uses special pallet displays in strategic locations periodically, and does in-store promotions with signage.

"Eventually, the segment will maximize itself and level off, but I don't see it happening in the near future," he predicted.

The rapid growth in supermarket sales of noncarbonated water is reflected in statistics gathered by market research firm ACNielsen, Schaumburg, Ill. Drinks classified as noncarbonated water (the Food and Drug Administration has strict definitions of what can be considered water and what has to be classified as soft drinks or fruit drinks) grew 15% from $1.5 billion for the 52-week period ended April 22, 2000, to $1.7 billion for the 52-week period ended April 21, 2001. Sales then jumped 20% to $2 billion for the 52-week period ended April 20, 2002.

Bottled water can be labeled "drinking water." It can be called artesian well water if it comes from a confined aquifer, and it can be called spring water or well water if it is taken from a spring or well, according to the FDA. It cannot be called mineral water unless it has 250 parts per million or more of naturally occurring minerals. No minerals can be added.

The FDA and the states also oversee the sanitary conditions and handling of water. All of which, according to the International Bottled Water Association, Alexandria, Va., assures buyers of a consistent quality and taste that tap water does not have. Most bottled water comes from underground aquifers and springs, while most tap water comes from rivers, lakes and reservoirs.

The IBWA also has quality standards that its members adhere to, and 80% of the water is sold by companies that are IBWA members, said Stephen Kay, vice president of communications for the association.

"This is a food success story and a great opportunity for supermarkets," Kay said. "Bottled water is the second-most consumed drink behind carbonated soft drinks, and it is growing. Some manufacturers add fruit flavors, but the plain water in the on-the-go bottles is still the most popular."

The FDA sets limits on the amount of fruit flavoring that can be added to water for it to still be classified as water rather than a fruit drink.

According to the IBWA, many Americans know the benefits of drinking water but still do not consume the recommended 64 ounces a day, although that is changing. Bottled water users are significantly more health-conscious than the population as a whole, according to an IBWA survey.

The consumption of bottled, noncarbonated water in either personal-sized containers or gallon containers grew from 369 million gallons in 1985 to 2.4 billion in 1999 -- the latest year for which IBWA has statistics -- and that growth is expected to continue.

The use of bottled water cuts across all demographics with 39% of adult women and 31% of adult men using bottled water. Use averages 30% to 40% for all age groups between 18 and 64 years old, according to the IBWA, and the numbers drop slightly for those over 64 years of age.

"Supermarkets are one of the key markets for single-service bottles for use in either home or office or during recreation. There are many opportunities for supermarkets to position themselves well for bottled water sales. In the supermarket industry, this is a great opportunity to be creative," Kay said. "People are also starting to use bottled water for cooking because of its consistent quality.

"Some manufacturers are putting flavors in the water, but plain water is still the leading seller," he added.

One of the newest products that will appear on supermarket shelves at the end of this month is Pulse, a water and nutrient supplement. Separate varieties are being produced that include nutrients to promote men's health, women's health and heart health, said a spokesman for Baxter International, the manufacturer.

Pulse is being aimed at baby boomers and is the first direct-to-consumer product made by the company in many decades. Baxter produces nutritional and health care products for hospitals.

The new drinks, which include antioxidants in the men's drink, soy products in the women's and soluble fibers in the heart health, as well as other nutrients, were launched in Phoenix last week and are slated for release in Chicago this week.

"People want to get away from caffeine and are interested in the healthy side of water," said a spokesman for Fiesta Mart, Houston, Texas. The company, which has 43 stores in Houston, Austin, Fort Worth and Dallas, will promote water throughout the summer and more space is being devoted to the segment in most stores.

"The six packs of half-liter bottles are most popular," the spokesman said.

Likewise, Laurel Grocery Co., which services more than 400 stores in most eastern states, has seen a growth in bottled water sales for several years, according to Nancy Nantz, replenishment buyer.

"The small bottles are the most popular, for convenience as well as quality," she added.

The Mitchell Grocery Group, based in Albertville, Ala., has had a similar experience.

"We have seen a large increase in sales in the past year," said Joel Childress, buyer for the company, which includes about 160 Foodland, Lewis Jones, Shop-Rite and Food Giant stores in Alabama, Tennessee, Georgia and Mississippi. "People perceive the water [as] healthier or cleaner."

The company has had to increase display space in most stores in recent months, and uses endcaps and in-aisle displays where possible.

"New types are being introduced, but it is the plain water that is driving the category right now," Childress concluded.