Emma Thomasson, PlanetArk 30 Oct 08;
ZURICH - The world's top sellers of bottled water are trying to stop western consumers turning back to the tap by addressing environmental issues and trumpeting health benefits, while expanding aggressively in emerging markets.
Nestle, the world's biggest bottler of water with brands like Perrier and Poland Spring, said last week the economic slowdown and environmental concerns were hurting sales in western Europe and North America.
PepsiCo saw double-digit declines in the third quarter in its water brands, which include Propel and Aquafina, while Danone, with brands like Evian and Volvic, said demand had contracted in France, Spain and Britain.
Organisations like conservation group WWF have campaigned against bottled water, saying resources are wasted in bottling and transporting water which may be no safer or healthier than tap water while selling for up to a thousand times the price.
"It is a problem area for the whole industry," said Sarasin analyst Patrick Hasenboehler, citing downtrading risks as well as concerns over transport, packaging and water sourcing.
"When you have clean water at home it's one of the easiest ways to save money. For certain people it's become a bit trendy to drink tap water rather than bottled water."
Nestle controls 19.2 percent of the world's bottled water market followed by Coca-Cola on 9.4 percent, Danone on 8.0 percent and Pepsi on 4.8 percent, according to a report by food and drink consultancy Zenith International.
TAP VERSUS BOTTLE?
John Harris, Nestle Waters executive vice president, said last week the firm had listened to environmental concerns, cutting energy used in bottling and lobbying for more recycling.
"We fundamentally believe that we can address the sustainability issues facing the brand and get growth going," he said, adding the amount of plastic used to bottle water has fallen by 22 percent since 2002.
Nestle is also promoting its bottled water as a healthy alternative to soft drinks and other high-calorie beverages that Harris said make up 21 percent of Americans' energy intake.
"Bottled water is not tap water. We have minerals and vitamins that are unique to the local community and we want to sell that," he said.
Coca-Cola said in a sustainability report this week it was working to make packaging lighter and was investing more than $80 million to build six plastic bottle recycling plants:
"With our water brands, as with all our beverages, we are committed to using resources responsibly, reducing our environmental footprint and protecting natural resources."
Sarasin's Hasenboehler said premium mineral and spring water brands -- like Nestle's San Pellegrino and Danone's Volvic -- would remain a growth area, even in developed markets.
But lower-cost brands that purify local water sources like Coca-Cola's Dasani and Pepsi's Aquafina -- launched to counter falling soft drink sales due to health concerns -- could have a tougher time as western consumers tighten their belts.
"It will not be so easy to promote these waters especially in Europe and the United States," he said. "But it's more a problem for PepsiCo and Coke compared to Nestle as they're more exposed to the US market."
Zenith said global consumption rose 6 percent to 206 billion litres in 2007, or 30.8 litres per person, with the United States the biggest market, followed by China and Mexico.
THIRSTY WORLD
Gary Roethenbaugh, Zenith head of market intelligence, said he was still upbeat for bottled water, predicting global consumption will rise 32 percent to 272 billion litres in 2012.
"Consumers want a refreshing, zero-calorie beverage and this underpins the bottled water industry," he said, adding he saw strong growth opportunities in "enhanced water", noting Pepsi and Coca-Cola had recently bought brands with added vitamins.
He said flavoured and "functional" waters should make up a third of value growth up to 2012, rising to almost 20 percent of market value from about 14 percent in 2007.
Meanwhile, all the big players are trying to stake a claim to fast-growing markets in developing countries.
Danone said last week that Asia and Latin America still had good growth in the third quarter, with sales particularly strong in Indonesia, Mexico and Argentina.
Although developing markets account for only 10 percent of Nestle water sales, the group said it had organic growth there above 20 percent in the first nine months and wants to further accelerate the growth of its Pure Life brand, launched in 1998.
Dubbed "Perrier for the Poor" by one Swiss daily, Pure Life has quickly become the world's top bottled water brand with sales up 16 percent in the first nine months.
"In the western world, we take tap water availability and quality for granted. In other markets, bottled water is much more of a vital lifeline," Zenith's Roethenbaugh said.
(With additional reporting by Laura MacInnis; Editing by David Cowell)
