Conventional wisdom says the bottled water market is flooded, but that may not be the case at the high end, according to Beverage Marketing, which reports that high-end brands like Iceland Spring and Iceland Glacial, Voss and Isbre appear eager to parlay an exotic source and upscale packaging into an above-premium business, much as Fiji did before them. The market share leaders continue to be popular brands such as Nestle Waters’ Poland Spring, Dasani and Aquafina.
The promise of the upscale sub-sector—and indeed of the bottled water industry as a whole—continues to ward off attacks concerning the carbon footprint of bottled water.
“We’re certainly concerned because bottled water sales are a big portion of our business,” said Open Pantry Senior Vice President Jim Fiene. “We hear a lot about government regulations being considered, but nothing has happened yet. It’s something we’re watching carefully.”
Fiene said his store personnel haven’t reported adverse reactions to plastic water bottles from customers, and added that Open Pantry keeps close tabs on the progressive recycling efforts of manufacturers like Nestle Waters.
Carbon and recycling issues aside, Dallas-based private equity firm HM Capital Partners LLC still sees plenty of opportunity for the private label water market. “Consumers are really starting to embrace private label as product that is as good and as convenient as their branded counterparts, but that delivers superior value,” said HM Capital partner Andrew Rosen. “You can’t get private label bottled water at every retailer because there’s just not enough supply. As the industry gets larger, you’re going to start seeing some consolidation.”
Fiene is looking very closely at private label offerings. “I have samples sitting on my desk today,” he said. “The significant piece for bottled water is distribution, which is our biggest hurdle at this point in time. We’d like to get our brand out there, but water distribution is very expensive.”
Fiene believes that distribution will become easier as consumer demand moves from single unit bottles and six-packs to 24-packs and cases. “We’re looking at having pallet packs delivered to our stores, which is much simpler than the case-by-case drop off we get from our wholesaler,” he said. “This is the first year in our marketplace that water suppliers are being competitive in case water, allowing us to really compete with big box and grocery channels, which tells me they see that trend toward case purchases as a significant growth area.”
Consumers are rapidly moving toward waters that provide specific benefits. “In bottled water it’s the ability to take a bottle of water and move it in a direction that’s more functional, creating energy elements, fortifying it with calcium or protein,” Rosen said.
Innovation is critical to the beverage industry. “We hear that people don’t consume enough protein, and Kellogg’s response is to come out with protein water,” Rosen noted. “Coke’s acquisition of VitaminWater speaks volumes for their strategic direction, where they’re trying to drive their company. Plus, they’re actually adding vitamins into cola, which is another interesting statement on how innovation is driving the market.”
Enhanced waters may well become the next generation of energy drinks, creating even more uncertainty in choosing which drinks to carry. “You want to stock the latest products, but you can’t make a lot of mistakes because cooler space is valuable and limited,” Fiene said.