Category Focus: Treading water to stay on top
October 15, 2008
A profiteer of double-digit sales growth for the past several years, the convenience/still bottled water category recorded sales growth of 4.6 percent to $4.1 billion in food, drug and mass merchandise outlets (excluding Wal-Mart) for the year ending Aug. 10, according to Information Resources Inc. (IRI), Chicago. Bulk/still water and sparkling waters showed less favorable results. Bulk/still water’s sales sank nearly 5 percent to $712.8 million, and sparkling waters dipped more than 2 percent to $330.1 million.
While the total bottled water category grew slightly this year to approximately $5.2 billion, a shift has occurred and segmentation now divides the category. Profit increases in still bottled water are due mainly to the consumer push for healthier beverages. The upward sales pattern is a trend that Simon Maddrell, head of London-based Euromonitor International’s global non-alcohol drinks research, expects to continue over the short term. But within the bottled water category, functional waters are the products seeing real growth, he says.
Leading the functional charge is Glaceau’s Vitaminwater, which was purchased by The Coca-Cola Co. in May 2007. The flavored enhanced water brand generated more than $444.5 million in sales, which marks a nearly 50 percent increase in sales in major retail channels, according to IRI. Vitaminwater’s unit sales made gains of nearly 50 percent. Couple that with Glaceau’s Smartwater, which posted nearly $66.9 million and recorded a 75 percent increase in sales, and Coca-Cola’s $4.1 billion acquisition proved itself with favorable results.
The popularity of products such as Vitaminwater is not only attributed to health, but the added margins functional beverages provide for beverage-makers.
“Part of the problem in North America and the United States is that you’ve got slowing volume growth, obviously, because the population growth is beginning to slow,” Maddrell says. “So how many manufacturers are really looking at increasing their value market share is by providing added or more expensive unit price beverages by adding fortified and functional, especially into the bottled water category that is already healthy anyway. You’re adding these vitamins, whey protein and things like that to increase value for a category where you’ve got slowing volume growth.”
On the opposite end of the price spectrum, private label still bottled water again leads the category in sales with an 11.4 percent increase to nearly $688.3 million, IRI reports. Private label bottled water sales comprise 16.6 percent of the category, which is about the same market share it held last year. In addition, Nestlé Pure Life, a brand positioned at a lower price point, recorded sales increases of nearly 7 percent to reach $121.5 million.
“The trend of private label growth will still continue for a little while,” Maddrell says. He believes the credit crunch will continue to hit and beverages at a lower price point will be affected less than other beverages.
The slumping economy will not only shift consumers to private label bottled water, but also to bulk, he says. “They are going for larger packaging sizes and moving away from the more convenient like 500-ml. and 750-ml. packages,” Maddrell adds.
The rest of the Top 10 still bottled water brands reported sales decreases, excluding Poland Spring, which posted basically flat results in IRI’s measured channels. PepsiCo’s Aquafina, which ranks as the No. 1 branded non-flavored still water, fell hardest with its sales dropping nearly 12 percent, its dollar market share dipping 2 percent and its unit sales shrinking 13 percent in those outlets.
Globally the health and wellness trend in those outlets is the biggest trend helping bottled water grow, but segmentation within the bottled water category is continuing to drive it, Maddrell says. In 2007, bottled water became the largest volume category in the non-alcohol beverage segment, even overtaking carbonated soft drinks, he says. “Now, that obviously has begun to slow since it has hit this top spot,” Maddrell adds.
Category segmentation also plays out by country. Flavored bottled water is huge in South America, especially in Brazil, Colombia, Argentina and Venezuela, Maddrell says. Functional bottled water is driven by the U.S. market. “It’s the biggest market by quite a long way,” he says. Functional waters also do well in Japan, South Korea, the United Kingdom, France and Germany, which like the United States, have much more developed markets, and the higher unit prices of these goods are much more acceptable to consumers, Maddrell says.
In addition to the health and wellness trends, the mature U.S. market and the economy are all affecting bottled water sales, the backlash against bottled water for environmental reasons also is a contributing factor to slowing sales results for plain still bottled water during the first six months of the year, Maddrell says. Bottled water beverage companies have responded to environmental concerns by reducing the amount of PET in their bottles, using recycled PET content in their bottles and disclosing their carbon footprints.
“People possibly are turning away from bottled water, but it’s quite isolated at the moment,” he says. “… I think over the short term we won’t see a massive amount of change, but obviously if we do see a decline in volumes from the U.S. market, which is possible for still bottled water over the medium term, then obviously we’ll see packages and or manufacturers responding.”
Bottled water gains have been particularly strong during the past two years, Maddrell adds. “In off-trade volumes, we’ve got a category which is 23.9 billion liters in total volume terms, which is absolutely huge,” he says. “Even though you’ve got a decline in private label shares by like 1 percentage point over 2006 and 2007, you’ve still got an increase, which shows the category is still growing.”
“Still bottled water for the short term, I don’t think will be adversely affected by the volume shifting,” he adds.
Chicago-based Mintel International’s Global New Products Database (GNPD) reports that 269 bottled waters were launched from the beginning of the year to Aug. 31, which is already 10 percent more than the 243 that launched in 2007. Of the new releases this year, GNPD reported that 138 are categorized as truly “new products,” while 81 are line extensions, 41 are new packages and nine are new formulations or relaunches. Low-, no- or reduced-calorie; vitamin- or mineral-fortified; no additives or preservatives; and low-, no- or reduced-sugar are the top claims so far this year.
“I find it really interesting that one has to worry about calories when drinking water,” says Mintel International’s Marcia Mogelonsky, a senior research analyst based in Chicago. “To me, it’s a totally bizarre trend because it used to be in the old days that water was just water, and now we’re suddenly worried about low-, no- or reduced-calorie water because so many of them now are being flavored or enhanced or fortified.
“I also think that it’s interesting that half of the new products, well even more than half, had a claim of no additives or preservatives … It makes you really wonder what’s happened to water.”
Enhanced waters, such as Philadelphia-based Performance Teas TeaH2O All Natural Performance Water, which is made with green tea; Lucerne Foods’ Eating Right Kids Fruit Punch Fitness Water, which contains fruit juice and electrolytes; and Old Orchard Brands’ Old Orchard FruitSense, which contains fruit juice, help to blend categories, such as tea, sports drinks and juices, with water.
Blurring the line between categories, Old Orchard FruitSense, available in six flavors, is a vitamin water, sweetened with 5 percent fruit juice and organic agave nectar, and only packaged in light-weight, 64-ounce bottles. The multi-serve size, typically reserved for the fruit juice aisle of the grocery store, suggests that flavored waters are headed toward at-home consumption in what has traditionally been a single-serve on-the-go segment, the company says.
“FruitSense combines the best of all worlds: 5 percent real fruit juice, added vitamins, a low-calorie count, and an organic sweetener that’s friendly to a diabetic diet,” said Kevin Miller, vice president of marketing for Old Orchard Brands, in a release. “In addition, as a multi-serve product, we offer consumers a lower cost per ounce, in a more environmentally friendly package. We feel this gives our product a strong competitive edge.”
With water perceived as healthier for you, positioning juice drinks as juice waters now generates a healthier connotation. Juice drinks typically received a bad rap for being high in sugar and high fructose corn syrup and low in juice content.
“There is a thin line between water now and juice drinks,” Mogelonsky says. “It used to be, when you had kids, you were supposed to give them juice because juice was good for them and you were not supposed to give them juice drinks because they did not have enough juice in them and they had too much sugar. Now they have taken a step beyond juice drinks to even less stuff and called it water with juice. It’s kind of weird positioning because I look at the description and it’s a water; it’s classified as a water. It’s made with real fruit juice, but there wasn’t probably enough fruit juice in it to call it a juice, and it probably could have been called a juice drink, but that has a bad characterization, so they call it a vitamin water.”
Water is also a healthy beverage for children. Flavored and enhanced waters for kids, like Kraft Foods’ Kool-Aid Burstin’ Waters and CapriSun Roarin’ Waters Tropical Fruit Flavored Water Beverage, which launched this year, are more appealing to most kids than traditional waters.
“Kids don’t want to drink a lot of water,” Mogelonsky says. “ Parents are trying to get their kids away from drinking things that are bad for them … They have tried to find a medium where the kids are willing to drink the product, but it’s mostly a water product.”
For adults, the fruit flavor trend, especially superfruit flavors, continues its popularity in enhanced and flavored waters. Dr Pepper Snapple Group, Plano, Texas, launched a line of seven Snapple Antioxidant Waters inspired by “superfruits,” with the antioxidants, vitamins and electrolytes in each flavor offering one of four benefits such as Protect, Defy, Awaken and Restore. The Protect line offers Tropical Mango and Orange Starfruit flavors; the Defy line includes Raspberry Acerola and Grape Pomegranate flavors; the Awaken offerings contain Strawberry Acai and Dragonfruit flavors; and the Restore line consists of an Agave Melon flavor. Superfruit flavors appear in Glaceau’s line of 15 Vitaminwaters as well. The line includes flavors such as, Dragonfruit, Jackfruit-Guava and Acai-Blueberry-Pomegranate as well as more traditional fruit flavors. Bala Cynwyd, Pa.-based Skinny Nutritional Corp.’s line of functional Skinny Waters, with key ingredients Super CitriMax, ChromeMate and EGCG, features Raspberry Pomegranate, Passionfruit Lemonade, Goji Fruit Punch and Peach Mango Mandarin. PepsiCo’s relaunched SoBe Life Water, includes eight flavors such as Yuzu Black Currant, Blackberry Grape, Pomegranate Cherry, Agave Lemonade and Goji Melon.
This year’s bottled water additions added more flavor and function to the category. SoBe Life Water’s relaunch sparked a 147 percent increase in sales to nearly $58.2 million in IRI’s measured outlets. In addition, PepsiCo’s Aquafina’s FlavorSplash, in Raspberry, Citrus, Wild Berry and Grape, posted more than $46 million in sales. The company also relaunched its vitamin-fortified Aquafina Alive with Energize (Orange Lime flavored), Protect (Berry Pomegranate flavored) and Satisfy (Peach Mango flavored).
Enticing consumers with a packaging innovation, Rising Beverage Co., Los Angeles, released Activate, a line of functional waters that stores its vitamins and herbs as a powder in a moisture-resistant chamber inside the cap. When the cap is twisted, a small plastic blade cuts the seal and releases the ingredients into the water. As a result, all the active ingredients are stored separate from the water and kept fresh until they are released for maximum potency, the company says. New York Spring Water Inc., New York City, also released a bottled water with an innovative cap design. The company’s VBlast features an Infusions cap that, when twisted counterclockwise, releases liquid vitamins into the water. The liquid vitamins used in VBlast remain fresh for up to one year prior to mixing, the company says.
In addition, this year, Soma Beverage Co., San Francisco, expanded its line of six mint waters with Metromint Cherrymint Water. Dr Pepper Snapple Group also added Snapple LYTeWater that is enhanced with electrolytes and minerals.