Rising Waters

Bottled water is making a comeback. Just when tap water filtration systems and aluminum water bottles seemed like a safer bet for retailers, aggressive pricing brought the commoditized beverage back from the brink, with sales up 3.5% in 2010, according to Beverage Marketing Corp., New York. Just two years ago, unprecedented declines plagued all refreshment beverages. For the first time in decades,

Bottled water is making a comeback.

Just when tap water filtration systems and aluminum water bottles seemed like a safer bet for retailers, aggressive pricing brought the commoditized beverage back from the brink, with sales up 3.5% in 2010, according to Beverage Marketing Corp., New York.

Just two years ago, unprecedented declines plagued all refreshment beverages. For the first time in decades, overall consumption declined (it usually grows at least 1% with population increase), and especially hard hit was the beverage that could be obtained from one's own tap.

“We'd never seen that since we've been tracking consumption since the early '70s,” Gary Hemphill, managing director of Beverage Marketing Corp., told SN.

Indeed, a segment of shoppers grew accustomed to tap water, even treating it as a stand-in for nonessentials like ready-to-drink tea and sports drinks during the recession. But with the economy on the mend, many are considering bottled water, and even stocking up on cases when the price is right. Just consider some of the deals.

A 24-pack of 16.9-ounce Nestlé Pure Life water was on sale for $2.88, or 12 cents a bottle, at a Boston CVS/pharmacy last week, according to ECRM's Ad Comparisons tool. While in Sacramento, Calif., Raley's Supermarkets [4] shoppers made use of a coupon for a 24-pack of Aquafina for $2.99.

The prices are competitive, but appealing even more to shoppers are private labels since some are promoted for as low as 10 cents per bottle. That was true of cases sold two for $5 at Bashas [5]' in Scottsdale, Ariz., weeks ago, according to ECRM.

Deals like these helped contribute to a 4.4% store-brand increase during the 52 weeks ending Jan. 23, 2011, according to SymphonyIRI Group, Chicago. But they're also conditioning shoppers to expect and even wait for lower price, said Garima Goel Lal, senior consumer analyst at Mintel, Chicago.

“When beverages are not on sale they're sitting longer on the shelf,” she said.

Sustained promotional activity hardly seem feasible since dollar sale increases have been marginal at best. But marketers will continue to promote bottled water while protecting their profit margins, Hemphill predicts.

“Most producers in the industry are extremely efficient and can produce a case of water at a very good price so that even with aggressive pricing there is still money to be made,” he said. “Our expectation is that the category will grow.”

Take, for instance, Weis Markets [6]. On Jan. 2, the Sunbury, Pa.-based retailer locked in the price of its Weis Quality 24-pack of 20-ounce bottled water through April 2, at three for $10.

Bottled water sales are up across the board at the chain, but its private-brand water in particular is selling like gangbusters at four times the category rate, Bruno Garisto, director of private brands at Weis, told SN.

“Water is an opportunity category for us,” he said.

Weis supports increased demand for water, which Garisto attributes to renewed interest in health and fitness, with expanded sets where necessary.

“We've increased store space and when we remodel stores we try to make sure that the footprint represents the needs of the community,” Garisto said.

Recently, Weis differentiated its product by switching to a new bottle made with 100% recycled PET plastic. The chain claims to be the first in the nation to offer a bottle manufactured with recycled resin derived from baled post-consumer plastic purchased from municipal recycling plants.

Garisto did not say whether the bottle has led to increased penetration, but noted that it is helping category shoppers feel better about their choice.

Eco-friendly bottling options can only improve bottled water's reputation, agrees Goel Lal. But greener options won't likely win back shoppers who've sworn off the category, since they deem any type of container unnecessary waste.

Hemphill concurred, saying that for bottled water consumers — who tend to be a little younger, more educated and bring in a higher income — green options are nice to have, but the jury is still out about whether it's worth a premium to them.

“The question is, are consumers willing to pay more for greener packaging? That's not always the case,” he said.

At Weis, they actually may be paying less for it.

Given rising petroleum costs and Weis' independence from virgin plastic, the retailer and its supplier, Ice River Springs, are saving money.

“In the past month we've seen the largest increase in food prices in 30 years,” said Garisto. “We're using recycled plastic so we're not getting that pressure.”

On the other end of the price spectrum is Penta, a premium, ultra-purified brand that uses a 13-step, 11-hour filtration and purification process that involves spinning water under high speed and pressure.

Penta is the share leader in the natural channel, but due to its recent 20% reduction in price to wholesalers, it's making headway with mainstream shoppers too. Presently its half-liter bottle retails for $1.49 to $1.69 and the 1-liter for $2.69 to $2.89.

“We're starting to see a nice uptick,” said Michael Dunn, chief operating officer for the Colton, Calif.-based company.

The adjustment was made to keep Penta's pricing in line with the competition's since most shoppers view bottled water as a commodity and base purchasing decisions on price.

“We looked at pricing relative to national brands and decided that it was just too high,” said Dunn.

The decrease is funded in part by Penta's choice of railcars rather than trucks to ship products to its three distribution centers.

“We hope that this strategy will help keep our freight expense in line, for most, if not all of the summer months,” said Dunn. “Our goal is to maintain our new lower pricing structure.”

LIQUID MARKET

REFRESHMENT BEVERAGES ARE RECOVERING FROM A DRY SPELL

CATEGORY % CHANGE FROM

2009 TO 2010
RTD tea 12.5%
Sports drinks 9.4%
RTD coffee 8.1%
Energy drinks 5.4%
Bottled water 3.5%
Value-added water 0.2%
Fruit beverages -2.0%
Carbonated soft drinks -0.8%

SOURCE: Beverage Marketing Corporation