Competition in Bottled Water Industry
Essay Preview: Competition in Bottled Water Industry
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But while water itself may be simple, the business of bottled water is not. It is big, complicated and competitive, having grown into an almost $ 9 billion a year business in the United States.
The business has been built in large part on savvy marketing, aimed at convincing consumers that not all water is created equal. The pitch seems to have worked.
In the last 30 years, bottled water has emerged from virtually nothing to become the No. 2 beverage in the United States, behind soft drinks. If its current growth patterns hold, bottled water will pass soft drinks in the next 10 to 15 years, said Gary A. Hemphill, spokesman for the Beverage Marketing Corp., a research and consulting firm.
While the bottled water industrys revenue has grown by almost 800 percent in the last 20 years, so has competition. Hundreds of brands large and small now fight for consumers loyalty and attention. The branding of bottled water has relied almost exclusively on the perception that it is purer and healthier than tap water. Brands such as Crystal Geyser and Arrowhead use images of snow-capped mountains to promote their products. A key part of Cokes marketing strategy for its Dasani water, the No. 2 bottled water in the country, was to create a recognizable brand by inventing a name that sounds refreshing and designing a stylish cool blue bottle.
Still, real questions remain about the difference between tap and bottled water. Some critics say there is no evidence that bottled water is any better than tap water and that regulations are actually more lax for the bottled water industry.
But its perceived purity alone doesnt sway consumers. Bottled water has also evolved into a status symbol, and there are plenty of brands designed to tap into consumers snob appeal, such as Voss and Fiji Water, which promise premium water at an equally premium price.
Snob appeal is what launched the bottled water industry, said Arthur von Wiesenberger, an industry consultant and author of four books on bottled water. In the mid-1970s, Perrier hit a nerve with yuppies, who decided that French sparkling water in a green glass bottle was a must-have beverage. For the first time, Perrier demonstrated that U.S. consumers in the United States would actually pay for water.
“It really became an image thing,” he said. “It was the birth of the bottled water boom.”
Perrier begat Evian, which became the must-have water of the late 80s and early 90s. Recognizing a growth industry, PepsiCo and Coke launched their own brands, Aquafina and Dasani, in the mid-1990s. The business also made sense to the large beverage companies, as industry analysts have estimated that bottled water businesses score profit margins of 25 percent to 30 percent. According to von Wiesenberger, profit margins can range from 15 percent to 100 percent, depending on the type of bottled water. Something that has to be shipped from Fiji has a lower profit margin than a product that is just purified tap water.
With the entrance of national brands, the highly fragmented and regional bottled water industry became mainstream, as did the perception that bottled water was significantly better than water from the kitchen sink. The relatively recent emphasis on health is what really has transformed the bottled water from a niche market to a mainstream product, especially in the individual bottle market, Hemphill said.
“Health and wellness has been a big driver for the bottled water business,” he said. “People perceive it as a more healthy choice.” Still, there are many skeptics of the benefits of bottled water. An examination by the National Resources Defense Council in 1999 found that bottled water is not necessarily cleaner or safer than tap water. While the Food and Drug Administration regulates bottled water, considering it a packaged product, the Environmental Protection Agency regulates tap water, or water that comes from a municipal sources. The NRDC found that the FDAs specific bottled water standards are in many ways weaker than EPA rules that apply to tap water. Eric Olson of the NRDC said that not much has changed since his organization first studied the bottled water industry.
“We still have a huge disparity between how tap water and bottled water are regulated,” he said. Whats more disturbing to Olson is that the FDA and the states dont put enough resources to enforce what regulations there are. For consumers who think they are paying a premium for purity, Olson said, they should think again.
“Just because you are pulling expensive water off the shelf, it does not mean that it is any safer or any purer,” he said, calling the publics perceptions about bottled water “clearly a triumph of marketing over facts.” Stephen Kay, spokesman for the International Bottled Water Association, disagreed, saying that bottled water is highly regulated and that consumers are paying for “quality, consistency and good value.” Kay derided the notion that bottled water is competing with tap water. The real competition, he said, is with other beverages, such as fruit juices, soft drinks and alcohol. He pointed to the area in which bottled water sales are growing: single-serve containers, where people are choosing between a can of Pepsi, Red Bull or a bottle of water.
“This industry does not exist to put tap water out of business,” he said. Not only does bottled water have to compete with other beverage products, it must also compete against itself. Because the product is essentially the same — water — companies must figure out ways to differentiate their brands. Hemphill said larger companies like Pepsico and Coke had an easier time creating brand awareness because of their size, leaving smaller companies to figure out their niche.
“Because smaller companies cant compete on price, they have to offer something different,” Hemphill said.
The newest trends in water are those that are infused with vitamins, non-caloric flavors and other additives. Some companies, such as Penta Water, based in Carlsbad, are trying to distinguish themselves by saying that they have come up with a different structure of water. Bill Holloway, Pentas founder, said his companys water can hydrate cells more effectively. The company has a patented process and other patents pending, which Penta says gives its water unique properties, such as smaller molecular clusters. To prove the benefits of its water, Penta says it has spent more than $ 1 million on research and scientific studies.
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