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As sales turn flat amid eco-concerns, water marketers are stepping up efforts to regain customers and are moving into pricey flavored waters
The once red-hot bottled water industry has lost its sparkle. The $12-billion-a-year business has gotten whacked in the past year by the weak economy, an environmental backlash against plastic bottles, and competition from trendy canteens, often filled with tap water. That has left water marketers taking drastic steps to win back consumers, including a 3D Super Bowl ad and investments in the Fijian rain forest.
U.S. consumers gulped 8.9 billion gallons of bottled water in 2008, a 2.3% increase from the previous year, according to the research firm Beverage Marketing. That's a sharp decline, though, from the 8% to 12% annual growth the business enjoyed earlier in the decade, when such celebrities as Paris Hilton posed with Evian bottles and consumers drove around with cases of bottled water in the backs of their cars and SUVs.
Some of the biggest players in the industry are now reporting disappointing results. Industry leader Nestlé, owner of the Perrier, Poland Spring, and Arrowhead brands, says its water sales were flat in the U.S. through the first nine months of 2008 and down 3% globally. At Coca-Cola (KO), volumes of "still" beverages remained flat in the third quarter, due largely to declines in its Dasani brand. PepsiCo (PEP) saw its noncarbonated beverage volume fall 5% in the same period. Sales of its No. 2-selling Aquafina brand fell by double digits. The faltering economy is of course the biggest problem, as companies and cash-strapped consumers cut back on everything from trips to the convenience store to deliveries of five-gallon jugs. That has prompted a price war, with 24-bottle cases selling for as little as three-for-$10 in supermarkets.
Too Much Plastic
The environmental issue is close behind. Green activists have been agitating for years that all those billions of plastic bottles were an eco-disaster. Recently, their complaints have gotten heard. Cities such as Seattle and San Francisco have told their municipal offices to stop buying water in small plastic bottles. And high-end restaurants in New York and Los Angeles that used to fatten up customers' checks by pushing "sparkling or tap" have stopped for fear of being seen as environmentally incorrect.
Don't blame us, says Joseph Doss, president of the International Bottled Water Assn., a trade group. He's quick with stats that say plastic water bottles represent just 0.3% of the waste in landfills, and points to recycling programs such as one in Hartford, Conn., where residents get store coupons for returning used bottles. He notes that plenty of other refreshments get served in plastic. "It's just unfortunate people are turning it into a tap-water-vs.-bottled-water issue," Doss says. "Consumers are making other beverage choices, including teas, soft drinks, and juices."
That's a position Nestlé is also taking, putting messages on its bottles reminding customers that a typical 12-oz. soda contains 10 tablespoons of sugar and that substituting a bottle of water every day would eliminate 3,560 tablespoons of sugar a year. Nestlé has also been a leader in reducing the amount of plastic used in its bottles from 15 grams two years ago to 12.5 grams now. Later this year it will release a new version of its "eco-shape" bottle that will contain only 10 grams, even though the lighter bottles strike some consumers as easy to spill. "We had to teach people, flimsy is good," says Kim Jeffery, chief executive of Nestlé Waters North America.
Here Come Refillable Bottles
Other companies are also brushing up their eco-credentials. Groupe Danone, maker of Evian, is transporting its bottles by train in Europe to lessen the use of exhaust-spewing trucks. Fiji Water—which had to lay off 40% of its staff in December due to a weakened sales outlook—launched an educational Web site called Fijigreen.com and is contributing funds to reduce logging on the South Sea islands where its water is sourced. This month, Coke opened a bottle-to-bottle recycling plant in Spartanburg, S.C., that will use old bottles to produce enough plastic for nearly 2 billion new 20-oz. bottles every year.
Coke and Pepsi, meanwhile, have substantially cut back advertising for their Dasani and Aquafina brands, according to market researcher TNS Media Intelligence. Instead, the beverage behemoths are cranking up spending on flavored waters, for which they can charge higher prices. Coke paid a staggering $4.1 billion for Glaceau, maker of the Vitaminwater brand, in 2007. Since then it is heavily promoting the brand as a sports drink, with spots featuring athletes airing on the ESPN (DIS) cable networks. Pepsi, meanwhile, is featuring its SoBe Lifewater in a 60-second, 3D ad during the Super Bowl on Feb. 1.
When it comes to what's cool, though, the bottled water business must now compete with a hot new product: refillable bottles made by such companies as Sigg, CamelBak, and Kleen Kanteen. And for now, at least, the tap-water crowd has the high ground in the battle over who is greenest. "The bottled water business hasn't figured out a way to address the fundamental fact that municipal pipes are the most environmentally friendly way to distribute water," says Paul Shustak. His company, KOR Ideas, sells a reusable plastic "hydration vessel" made, in case you're curious, without any hormone-disrupting Bisphenol A.