Bottled Water - Eau to Go - the growth in bottled water

In much the same way that oils ain't oils, it would appear that all waters are not created equal. However, whether they are still or sparkly, re-created from tapwater or pumped directly from Mother Earth, there is no doubt bottled water is the fastest growing beverage in your drinks fridge.

When it comes to basic H2O, it would appear ordinary tapwater is an endangered species. True-blue Aussies like to imbibe from bottles and the tendency is clearly evident in C-Stores.

The single-serve water category in convenience stores has grown an incredible 29.6 per cent over the last year with around 17 identifiable players (ACNeilsen C*Track) servicing the market and traditional spring and purified water dominating the segment.

While these types represent over 83 per cent of the non-carbonated packaged water segment, the 'pie' is growing, with the arrival of new players which can be defined as sportswaters, flavoured waters and functional waters.

"Currently these variants are all grouped in one segment. But, as consumers begin to understand the difference between the functions and formulations, and new entrants define specific benefits for specific consumer needs, we will see this segment break into more clearly defined segments," says Jane Toner, communications manager, Coca-Cola Australia.

The major players
As it is in the soft drink department, Coca-Cola is a major player in the water market. Its Mt Franklin brand - according to recent ACNeilsen figures - is number one in the convenience market with a share of nearly 41 per cent. Another of Coca-Cola's water brands is Pump, which ACNeilsen ranked as having a 12.4 per cent share as of September this year, making it number two.

Launched more than 12 years ago, Mt Franklin is, arguably, one of the most instantly recognisable of the brands. That launch, like so many others since, is in response to a growing community concern over the quality of our tapwater - and why the market continues to grow so strongly.

"As the quality of tapwater - the original, basic re-hydrator - was questioned, it began to be replaced by bottled and filtered water," says Karina O'Meara, corporate communication manager for Cadbury Schweppes. "And so the bottled water market - and that for home filters and water coolers - will continue to be driven in value and volume by that ongoing concern about the quality of tapwater."

While the first entrants to the Australian bottled water market, both still and sparkling, were imported European brands such as Evian, Perrier, San Pellegrino and Vittel, most of the later arrivals were 'home-grown', many of them from names synonymous with other types of beverages.

Cadbury Schweppes is one such major player, with brands such as Cool Ridge (still and single serve), Frantelle (bulk), Schweppes Mineral Water, Propel from Gatorade and Twist from its Spring Valley brand. Karina O'Meara says the company believes the market still has huge potential. "Australia's consumption of bottled water per head is low, at about 12-litres per person per year, as compared with other developed markets such as the US (40-litres) and France (120-litres).

Health perceptions drive growth
"The conscious and planned consumption of bottled water has transcended fashion to become a necessary component of health management in the lives of many consumers, given their heightened awareness of the necessity of hydration.

"Given our warm climate and the community's ongoing perception of the degradation of tap water, we expect the growth to continue," Ms O'Meara says.

If you're wondering how much growth is possible, consider that our experts say the bottled water market is worth around $525 million annually and expected to double in five years.

Proving the value of diversification, yet another name that has traditionally been associated with fizzy beverages is Gold Medal Drinks which has three types of still bottled water on offer: Gold Medal Spring Water, Arctic Ice Spring Water and the specially certified Snowy Mountains Organic Spring Water.

The company, which first offered a bottled water to the marketplace around 15 years ago - and into the route trade first - are also bringing out a new range (H-Plus) of organic spring water with natural flavouring and vitamin additives.

National marketing and export manager, Robert Lever, says the retailer can do well from selling bottled water, but should beware of buying in on price alone.

"Water is a big seller, and growing, but the consumer needs to know they are getting a quality product and the retailer needs to know they have a guaranteed supply and the support that goes with it.

"There are lots of small companies coming into the market who are undercutting prices. I don't know how they stay in business. They may be cheap but they probably can't guarantee supply or, perhaps more important, quality of supply," Mr Lever says.

Yet another big name entering the bottled water market, and perhaps not surprisingly, given its association with good health, is the Sanitarium Health Food Company. Its Water Plus range is genuine spring water with a choice of four different flavours and a selection of vitamins, minerals and anti-oxidants.

Sanitarium's brand strategy manager for Water Plus, David Chenu, talks of three segments in the bottled water market and says the Sanitarium range is in the middle: "You have the plain still bottled waters such as Mt Franklin and Pump at one end of the spectrum and sparkling energy drinks at the other end.

"In the middle are the sports waters, mineral waters with flavouring and fortification such as our range, Mizone and the sports water offerings from Powerade, Gatorade, Spring Valley and the like.

"There is room for all of them and more, because people jump between the segments depending on their needs during the day,'' Mr Chenu says.

The No.1 Functional/Sports water is Mizone. Mizone has a 74.6% share of the Functional Water Category, Water Plus 9.9%, Powerade Sports Water 13% and Gatorade Propel 2.5% (Source: ACNielsen C*Track Value Share P&C Channel MAT 6/7/03).

Mizone, a blend of purified water and fruit flavours with five vitamins - C, B3, B5, B6 and B12, was the first sports/functional water to be launched on the Australian market. There are four flavours in the range including Mandarin, Passionfruit, Lime and Lemon. Crisp Apple, an additional new flavour, was launched in mid-September.

The launch will drive incremental category value, says John Sawicki, Trade Marketing Manager at Frucor Beverages, the organisation behind Mizone and other products such as "V", "G-Force", "H2GO" and "Evian". "With additional commitment and very busy lifestyles, consumers are seeking beverages that deliver more than just "quenching a thirst" - they are after functional beverages that contain added benefits. This underlines the strong success of Mizone and also "V".

"The strong growth that is being experienced in the Still Water and Functional Water Categories is due to consumers seeking healthier life styles and with that comes healthier beverages - that is, beverages that do not contain the extremely high sugar content of traditional carbonated soft drinks," Mr Sawicki says.

Frucor Beverages is re-launching the H2GO brand in October '03 with a new squeezable bottle and pack graphics. Unlike some bottled water, H2GO is bottled at the source. In addition to the 750ml & 1.25L pure spring water variants, Frucor is also launching water with a splash of fun and flavour: Pineapple with a splash of Passionfruit and also Boysenberry with a splash of Lemon. Both variants are in a 750ml squeezable bottle. The launch is being supported by a $3.5M campaign.

The other water brand in the Frucor portfolio is Evian. Mr Sawicki says: "Evian is the number one water brand in the world. It is naturally filtered through the French Alps, emerges at the Cachat Spring located in the town of Evian-les-Bains, and is bottled at the source. Evian is a pioneer and icon in the bottled water category."

Rodney Jashar is sales manager for the Australian H2O Spring Water Company, a family-owned and operated business which produces its own spring water range and the H2Cool range of flavoured mineral waters. He agrees with Mr Chenu's take on the demand, but adds a note of caution.

"There is room for plain water, flavoured water and water with additives but I don't believe there's enough room in the market for every company to make lots of different flavours.

"There definitely will be growth in the market, but I think there will be fewer players than we have now. We'll see more of the big companies buying out the smaller ones, such as Coca-Cola has done with Peats Ridge, and you would have to think that would be a positive in terms of quality and service."

During the interview for this story, Mr Jashar raised an interesting point in terms of the contribution that bottled water can make to the profit line of a convenience store: "You're charging around $1 a litre for petrol, but customers will pay $2-plus for 600ml of water!"

One of the newest and smallest companies in the bottled water market is Refresh Pure Water, a company that has been bottling water in WA for six years, but is only now making the move to the east coast. Expect it to start appearing in route within the next six months.

Refresh Water is purified by a patented distillation method, and if health is a reason for consumer choice, it has a great claim to fame - it's the only bottled water endorsed by the Australian Kidney Foundation.

As proud as he is of that endorsement, managing director Henry Heng says health is not the main reason people drink bottled water: "According to a recent survey by Choice magazine, taste was first and convenience was second. Health is a reason but not the prime reason for people buying water, and when it is a health concern, for most people it is more in terms of avoiding the sugar in soft drinks."

It's an interesting thought, given that many experts do believe the push behind the growth of bottled water is the community's continued interest in good health. While an alarming number of Australians are battling obesity, there is still a huge and growing group that does monitor what they eat and drink in a bid to take more responsibility for their health.

Whether we actually manage it or not, most of us are aware of the need to consume around two litres of water a day. And, while opinions on the quality of tapwater may differ, there is no doubting that a bottle of water on the desk is almost a badge of honour, marking the consumer - rightly or wrongly - as someone who is on the ball with what their body demands.

From the consumer (and retailer) perspective, it's interesting to note in these days of heightened awareness of food safety, that bottled water is safe, whether it be natural spring water, or 'reprocessed', purified 'tap' water. It's strictly regulated by the Australian New Zealand Food Authority (FSANZ) Food Standards Code which ensure all bottled water sold here meets stringent standards.

Health safeguards
As part of that code, bottled water must now carry a use-by date. If the bottling process is not as thorough as it should be, bacteria can multiply in the bottle. However, it's important to note that available Australian records indicate that - so far - bottled water has never been responsible for an outbreak of water-borne illness.

If that's not enough to instill confidence, as an added safeguard, there is an even tougher set of standards to meet, should the bottler choose to submit to them. If they are committed to maintaining quality, they will apply to join the Australasian Bottled Water Institute, which currently represents around 85 per cent of the bottled water sold in Australia. The Institute's goal - and role - is to raise the standard of bottled water.

"Our members have to achieve certification under the code within 12 months to be eligible to display the 'certified bottler' logo and then submit to an annual third-party independent good manufacturing practice and safety audit of their product to maintain compliance," says Tony Gentile, executive director of the ABWI. The organisation is part of an international association controlling and licensing bottled water suppliers.

"Our standards are higher than the minimum set by government and if retailers are stocking products from certified bottlers, they are less likely to face problems with those products.

"People don't realise it, but water must be handled properly by the bottler to ensure the consumer gets what they are paying for. Bottled water is not soft drink where the acidity and carbonation kills the bugs.

"Our certified bottlers have their source water tested regularly. Consumers expect pure spring water or they would choose to drink tap water," Mr Gentile says. "If I was a retailer and I had a choice, I would pick a certified brand because I know it's a quality, safe product."

It's important to note that not all certified companies choose to use the ABWI logo. Interested retailers (and consumers) will find a full list of ABWI certified bottlers on the organisation's website: www.bottledwater.org.au

So what's ahead? More variation and more of the same. Our experts believe the bottled water 'pie' has infinite potential, which is quite staggering given water is already the fastest growing product in the food and beverage offering, in both grocery and route channels.

It would seem, at least for the moment, that we will see some more players entering the market and more variation in the products they're offering. Sanitarium's David Chenu says the market already is a bit of a 'scrum' because of the numbers on offer.

"There are some brands that are specific to certain regions but there is definitely a clutter out there. Before I came into this job, I would have recognised 20 brands. Now I think there are about 50.

"It's confusing for the retailer and it's confusing for the consumer, but the smart move for both would be to go with brands that have a name, an image, that already have a profile, because they're 'safe' in terms of quality and saleability," Mr Chenu says.

Frucor Beverages' John Sawicki says: "Shelf space and category management are key elements to long term sustainable growth in the category. Retailers need to evaluate the entire beverage category and ensure that they have the correct assortment and space for categories which are experiencing strong growth. Certain retailers are not maximising their sales potential from growing categories such as water (and energy drinks) for the simple reason that their space is still over-allocated to traditional carbonated soft drinks."

What about margins?
Mr Jashar warns retailers not to get too greedy with a product that offers extremely good margins.
"There doesn't really seem to be a price point. People will pay a premium price if they recognise and respect the product they're getting and know they can rely on its quality.

"Set your prices to make a reasonable profit, not an excessive one. Don't rip people off and you'll do well by virtue of the margin and the volume - water is by far the most profitable item in any fridge as it is."