The economy, the environment and the weather. All three are impacting the sale of bottled water this year.
From 1997 until 2007, consumers were thirsty for bottles of clear, refreshing water. Between 2003 and 2008, bottled water sales grew 59% to $5.1 billion, making it one of the fastest-growing drinks on the market. Consumers believed the product to be pure, healthy and superior to tap water. Plus, bottled water is convenient, portable and doesn’t need to be consumed hot or cold like many beverages.
For more than a decade, downing bottled water has been a lifestyle choice for U.S. consumers, but now the category is taking hits from several outside factors.
According to the International Bottled Water Association, total U.S. bottled water consumption for 2008 was 8.6 billion gallons, a 1% drop compared to 2007. Many blame the current economy for causing consumers to rethink the purchase of water, which can sell for the equivalent of $12 per gallon.
In July’s PepsiCo earnings conference call, Indra Nooyi, PepsiCo CEO, noted that the company is losing business, not among core customers, but among casual beverage consumers. “The casual drinker is saying, ‘I want to switch out to tap water because I just don’t have the money now’,” Nooyi said.
Consumers also are becoming more discerning about the waters they buy. “They want better values and healthier products,” said Mark Herron, senior director of the vault for 7-Eleven stores in Dallas. Shoppers, he added, are saying “no thanks” to high-priced purified waters and flavored or vitamin-infused waters with high fructose corn syrup or sugar substitutes, such as aspartame.
“We have narrowed our flavored waters and still waters quite a bit,” said Heron, adding that 7-Eleven is moving away from purified water products, often originating from a municipal water supply, and focusing more on bottled spring water, which consumers believe is a better value.
“Purified waters have been more expensive, and the value just wasn’t there,” Heron said. “The biggest thing we’re seeing is value around case water. Customers will buy cases of bottled water for $3.99 or $4.99.”
7-Eleven also is promoting its private label bottled water, 7-Select, over other selections in the vault. “The quality is every bit as good as branded water,” said Herron. “The price is less for consumers and the margin is greater for 7-Eleven franchisees.”
In Southern California, United Oil convenience stores have been selling full cases of bottled water to value-conscious shoppers. “Nestlé has done a lot of deep discounting,” said Bobby Valiatti, director of category development for United Oil, a Gardena, Calif.-based chain with 115 locations. “Crystal Geyser has been pretty aggressive too.”
When it comes to flavored waters, Californians pass them by in favor of isotonics or vitamin waters. “Flavored waters have never taken off out here,” Valiatti said.
More than 25.5 billion plastic bottles of water are sold in the U.S each year, and 17 million barrels of oil are used in the production of those bottles, not including the fuel required to transport them. These and similar facts publicized by the Pacific Institute, a non-profit research organization in Oakland, Calif., have caused consumers to rethink the convenience of bottled water, despite aggressive consumer campaigns by Nestlé, Coke and Pepsi to set the record straight. Many now see the disposable bottles as a wasteful byproduct of a mass-consumption society.
According to a survey by William Pecoriello, Morgan Stanley beverage analyst, 16% of consumers are cutting back on bottled water purchases because of concerns about the environment. Among that group, 34% reuse their plastic water bottles, refilling them with tap water.
Several top-tier restaurants stopped selling bottled water, and city officials in Vancouver, B.C., asked restaurants to put tap water on their menus as part of that city’s effort to reduce bottled water sales 20% by 2010. Students at Boston College and Vermont’s Middlebury College persuaded school administrators to cancel contracts with bottled water companies, while the municipal governments of Los Angeles, San Francisco, and several other cities, along with the state of Illinois, banned the use of public funds to purchase bottled water for city and state functions.
Water producers have responded to the outcry to help c-store owners preserve water sales. Nestlé’s Poland Spring water has introduced a more “green” container that uses 30% less plastic than the average bottle. Aquamantra Natural Spring Water now comes in bottles that use a type of plastic that will biodegrade in five years or less. State of Mind water is available in plastic bottles infused with an additive that helps the bottle biodegrade when exposed to light. PepsiCo’s Aquafina bottle is produced with 50% less plastic.
Temperature, such as hot Florida summers, also can drive sales. “If you open the door, the heat hits you in the face,” said Ali Molavi, operator of Short Stop convenience stores in Sarasota, Fla. “We’re selling tons of water.”
Molavi’s customers are buying Dasani, Zephyrhills and Vitamin Water products in an effort to beat the heat. “Customers are looking for more of a bargain,” he said. “Voss water and Fiji have definitely lost sales.”
New York experienced moderate summer weather this year, with only a few days in the 90s. “The weather has been a hindrance,” said Terry Messmer, merchandising manager for NOCO Express, 30-store chain in Western New York State. “And that affects all our single-serve products.”
While the stores’ single-serve water sales are down, “take-home is up,” Messmer said. “We’re making a concerted effort to promote take-home water at prices comparable to supermarkets.”
The Midwest’s mild climate is not the only reason bottle water sales are down at Bucky’s Express, a 30-store chain based in Omaha, Neb. Last summer was a better water-selling season thanks to construction in the region.
“We had a lot more construction work going on last year,” said Rick Seidl, beverage category manager, Bucky’s Express. “Construction workers are big customers. They bought water by the case to take to the job site.”
Consumers continue buying water, Seidl noted, but they are moving from Ice Mountain Water to Pure Life, because of pricing. “Spring water is priced higher,” he said. “When consumers buy a single unit, they typically buy better water, but when they buy a case, they move down.”
With 13 locations across Indiana and Illinois, Atlas Oil stores have seen a lift in most categories this summer. But customers are definitely seeking more bang for every buck they spend, according to Ron Mudrick, director of retail operations. “Those pinched by the economy are looking for value,” he said. “They are trading down to a better price point.”
As for plastic bottles, that is not a current issue in the area. “It’s on everyone’s mind, but I don’t have consumers asking when we’re switching away from plastic,” said Mudrick, noting almost every product in a c-store is made of or wrapped in some form of plastic. “We’re seeing a times-are-tough mentality, and it all comes down to price.”
Despite current challenges facing bottled water, time-pressed consumers still want it, and many need it. Despite the economy, the environment and weather, water is not a product that will soon disappear from retailers’ vaults. “People aren’t going to stop drinking bottled water,” Valiatti said. “It’s an affordable luxury.” CSD