WATERPOWER!

SARAH MULHOLLAND

Water sales in supermarkets continue to rise in concert with a growing concern over the safety and quality of the water supply, as well as an increased awareness of water's role in a healthy diet. Manufacturers slake consumer demand with portability and innovation, making water as quick and convenient as a six-pack of soda.

Gary Hemphill, senior vice president of the New York-based Beverage Marketing Corp., told SN water is "the fastest growing major beverage category," and he believes health concerns are a principal force.

Statistics from ACNielsen, Schaumburg, Ill., bear witness to his claim. Numbers from the 52-week period ended Jan. 20 show total category sales of more than $3 billion, a 14.7% change for the food, drug, mass and convenience channels combined.

Mass is the growth leader, exhibiting a robust 20.7% change, followed by drug with 19.3%, convenience with 17.8% and food with 12.6%. However, the food channel still accounts for more than half of total dollars for the category, showing sales of more than $2 billion. According to Hemphill, the key to success in the food channel is a variety of package sizes, with an emphasis on multi-packs. As the category consolidates and matures, brands are concentrating on proprietary convenience and portability, using sports caps and packaging as a measure of distinction. In addition, private label water lines are becoming a formidable presence, and retailers should pay particular attention to this segment of the category.

"We are just now getting into an era where brand development is becoming critical to success in the water category," said Hemphill. "Private label has played a big role."

According to Doug Rodden, vice president of purchasing at Minyard's, Coppell, Texas, water sales are "booming," and the stores' Hy Top brand is the top seller. Rodden stressed price as the principal motivating force in the water category. "A lot of people think water's water," he said.

Mike O'Donnell, grocery purchasing manager for the Los Angeles-based distributor Unified Western Grocers, also saw strong numbers for Unifed's Springfield brand water line, reporting a 92.1% increase in case sales and a 50.8% increase in dollars for the year 2000.

"Private label does very well, mainly due to price, and the fact that private label has begun to expand into the same stockkeeping units that the national brands have," he said.

At Rodden's stores, gallon jugs are the best item for the category, unit-wise. However, he acknowledges the marginal pitfall. "You don't make much money off the gallon sizes," he noted. "But you can do very well with the liters, half-liters and six-packs."

While the category experiences a seasonal spike during the hot months, demand remains steady throughout the year. "It's unbelievable how much water we sell. It's been growing for several years and it continues to grow," said Rodden.

According to Rodden, his stores move an average of 6,000 cases of gallon jugs a week, all year long.

Still, dry summer months certainly expand promotional opportunities, said Rodden, and all his stores will allocate additional off-shelf space to satisfy demand.

"During the summer, we try to run water in every ad," he added.

While heat in summer is a fairly predictable phenomenon, retailers stand to profit from some of Mother Nature's more capricious whims, if they are prepared.

For example, a recent flood in Madison, Wis., sent consumers to the grocery stores in droves as they were advised to boil their water and opted for the convenience of jugs and bottles instead. But as a category manager for Copps Corp., Stevens Point, Wis., pointed out, the lack of prior knowledge posed significant logistical problems.

The representative from Copps shared Rodden's sentiments regarding the seasonality of water sales, saying that while summer is definitely a prime time, the retailer runs promotions on water year-round, and the entire category is growing.

He said the 12-pack half-liters have been doing very well, but that his store's best sellers are the 20-ounce loose bottles sold in coolers at the checkout stand. He attributes this success to the impulsive attraction of water.

"People are standing in line, and they see the water, and they want it." Although overall water sales are strong for his stores, the numbers for the larger sizes have not been quite as strong as those for the multi-packs and single serves.

While water is run mostly off the shelves, the retailer makes the most of the rising popularity of portable sizes with a five-deck cooler in the deli section next to the hot food, according to the source.

Indeed, off-shelf locations create a 35% increase in incremental water sales, according to Unified's O'Donnell. "We are always looking for additional places to put water," he said. O'Donnell also cites service delis, adjacent to the prepared foods, as an advantageous position for bottled water. In addition, his customers often include water in non-food summer displays alongside beach chairs and suntan lotion, or perhaps as a barbecue item.

Also popular with O'Donnell's customers are checkstand lane closures, a rollable cooler used in idle lanes.

According to O'Donnell, the category's steady growth is to a great extent being led by multi-packs and case packs in his area, adding that case packs in particular are doing a "tremendous" job. "A lot of case-pack promotions have exceeded the forecast," he said. O'Donnell believes the success of case packs has much to do with increasingly competitive prices and increased promotion and display. He also noted the rising incidence of "pantry loading." Whereas water used to be bought primarily on an impulse or need basis, consumers are now purchasing water on a larger scale, he explained.

Another factor contributing to the energetic support for case packs at retail is the product's appeal as a defense against encroaching alternative formats. O'Donnell feels the biggest threat to the food channel in his area is coming from the club stores, and case packs of water are a potential foil.

"We are trying to keep customers out of the clubs," he said. "They walk into a club and they don't buy a six-pack, they buy a case, and they're set for a week or two."

At Earth Fare, a natural food retailer based in Asheville, N.C., water follows the upward trend.

"We see it as a growing category and have increased our shelf allotment. We expect to see sales go up," said John Swann, purchasing director for the chain.

According to Swann, his stores are seeing a lot of movement in the value-added segment, with products such as Trinity Spring, offered to consumers as a natural dietary supplement, or the electrolyte-enhanced variety.

Other retailers SN spoke with have not had much luck with these types of products, but may yet realize an increased demand as concern over health and food purity issues expands beyond the traditional parameters of the wellness movement.

While the water category generally speaks well for itself, Swann maintains that when dealing with the value-added products, a retailer definitely has to "tell the story."

"We promote the features and benefits of these products," said Swann. "We do this with demos, point-of-sale materials, fliers, brochures."

For the most part water is sold off the shelves at Swann's stores, although the grab-and-go deli section generally features something along the lines of a 24-ounce sport bottle.

However, one exception would be the permanent case stacks of Gerolsteiner, a brand of naturally occurring sparkling water, at all of the chain's stores. According to Swann, the one-liter SKU is the seventh top-selling item in the grocery department.