2008 has been something of a watershed year for the bottled water industry. The category that rode a wave of double-digit growth for more than a decade has found itself in the middle of a financial crisis that has consumers cutting back on spending, and in a battle against environmentalists in a bottle vs. tap debate. Beverage Industry recently talked to Nestle Waters North America President and Chief Executive Officer Kim Jeffery about where the industry is headed and how his company is answering the environmental challenge.
“I think the economy is going to make it very tough for all of us for the next few years,” he says. “I think there’s no question about it. I’m expecting the next two years to be very tough.”
But after 30 years in the bottled water business, Jeffery says the company is looking beyond the next few years to sources of future growth. It has engaged in more advertising, particularly for its fast-growing Nestle Pure Life brand. And it has developed a three-pronged approach to address bottled water’s detractors and play up the category’s strengths.
A slowdown in bottled water growth, in some ways, was inevitable as the category matured in the United States. While the segment is still growing, this year’s increases have been smaller than years past. At Nestle, regional spring water brands such as Poland Spring, Arrowhead and Deer Park have been hit by economic pressures. The company’s more moderately priced Nestle Pure Life brand, on the other hand, was up 23 percent as of mid-summer.
“Nestle Pure Life is performing extraordinarily well,” Jeffery says. The company has built the brand slowly during the past several years, and he says volumes are on track to surpass category leaders Aquafina and Dasani this year.
“The brand is really resonating,” he says. “It’s a great name, Pure Life. It’s got the Nestle trademark on it, and it sells at a very, very reasonable price. That’s why it is doing so well. It’s exceeding our expectations and it’s going to be a very big brand. It kind of snuck up on everybody.”
Pure Life gives Nestle Waters a product to compete in a lower price segment than its regional spring waters, and it offers a brand it can promote on a national basis. Much of the company’s upcoming advertising will go toward the Pure Life brand.
“Given the economic environment, it’s very nice to be positioned in both places here, where we’ve got an every-day-low-price, high-quality product to offer consumers, as well as our regional spring brands,” Jeffery says. “So we feel well positioned in that way.”
Advertising for Pure Life is focused on the “chief wellness officer of the household,” a.k.a. moms. English-language advertising plays up water’s healthful qualities for children, and several versions make comparisons to sugared beverages.
Hispanic advertising taps Univision’s popular talk show host Cristina Saralegui with a series of five Spanish-language advertisements in an interview-style format.
“She’s a very strong advocate for children and children’s health and wellness,” Jeffery says.
The company hopes the increased visibility from the advertising will give Pure Life an additional push as it moves into more retail channels. The brand has distribution in only 50 percent of supermarkets, and Jeffery says the company plans to “close the distribution gaps next year.”
“We’ve achieved the position we’re in today with no advertising spending,” Jeffery says. “So we think when we start doing some of this, it’s going to really make a difference.”
Along with increased advertising, Nestle Waters has found it necessary to become more vocal about its environmental record and the benefits of bottled water in general. The company always has considered itself environmentally minded, but for years did not see the need to publicize its sustainable practices. The recent backlash from environmental non-governmental organizations (NGOs), has caused the company to speak out.
“We’ve been environmentalists since we bought Poland Spring in 1980 and inherited 400 acres of watershed area with a spring on it that had been operating for 100 years,” Jeffery says. “So we became environmental stewards the year we bought our first piece of property. Today we own 14,000 acres of watershed area, which sits around our 50 or so spring sites. Eighty-seven percent of that land is held in open space so we can protect the watershed. If you go all the way down the line, we’ve been doing this stuff for a very long time. It’s been important for us to talk about it more publicly today.”
The company operates five plants with Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council, and has four more in the application phase. LEED certification takes into account sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. Assessments include everything from water-efficient landscaping to low-energy lighting and electrical systems, temperature control measures to reduce the need for heating and cooling, onsite recycling, carbon emissions, and the use of paints, adhesives and flooring materials that are low in volatile organic compounds.
This year, Nestle Waters also undertook its first greenhouse gas study to determine its companywide carbon footprint. In addition, it introduced the lightweight Eco-Shape bottle last year, which was perhaps its most public sustainability effort to date.
While the company had been lightweighting its bottles for some time, it used the Eco-Shape launch to tell its environmental story to consumers. During the past 15 years, the company has reduced its half-liter bottle weight from 21 grams to the current 12.5 grams. The latest reduction, from more than 14 grams, represents a savings of 65 million pounds of PET resin and 10 percent less energy to produce the bottle, the company says. Eco-Shape also reduced PET greenhouse gas intensity by 8 percent per liter.
“That’s a stunning improvement in greenhouse gas emissions from making one change like that,” Jeffery says.
Eco-Shape’s lighter weight feels significantly different in the hand, and required the company to communicate its benefits to consumers, who at first perceived the bottle as flimsy.
“Eco-Shape was an interesting project because when we went out and did consumer work on this thing, people thought that the bottle felt flimsy â€” and it does, and that’s good,” Jeffery says. “But people weren’t making the connection that it’s good to have less plastic at that point. We had to plan to get people to appreciate the fact that this is a good environmental move because they didn’t recognize it.”
The new bottle helped the company with its green goals, but lightweighting and more efficient packaging also have become essential for competing in a tight bottled water market.
“It’s very, very competitive,” Jeffery says. “Pricing is actually declining this year in bottled water, about 4.5 percent, during a time of high input costs.”
Nestle Waters operates vertically integrated manufacturing facilities where it makes its own bottle preforms and blows its own bottles. It worked with France’s Sidel to develop the Eco-Shape bottle and retrofit its production lines to accommodate its much lighter weight. The bottles required modifications to the company’s air conveyors, as well as new molds for every blowmolder in its 12 U.S. retail manufacturing facilities.
It was “a big investment,” Jeffery says. “But it saved us 65 million pounds of resin â€” that’s a hell of a lot of money.”
And the company is going to do it again in 2009, with what Jeffery jokingly refers to as “son of Eco-Shape.” Next year’s target could result in another 20 percent weight reduction.
“That would save us another 80 million pounds of resin. This could mean an additional 8 percent reduction in PET greenhouse gas intensity, the equivalent of talking 21,000 cars off the road,” he says.
The new bottle will hit its first markets next year with two of Nestle Water’s regional spring brands, and will be rolled out nationwide by the end of 2009 and early 2010.
The rule of three
Nestle Waters used package labels as the main form of communication on Eco-Shape, and added health and wellness and bottled water quality messaging in a three-pronged marketing approach. The three platforms are designed to communicate the benefits of bottled water and defend the category from its more vocal detractors.
“The people that would like to see us not be in business anymore are ignoring the health issues that we have in America, where the average teenager gets between 10 and 15 teaspoons of sugar a day from sweetened drinks and every third child born after 2000 will be diagnosed with diabetes, and 32 percent of us are obese today, Jeffery says. “Bottled water represents one of the antidotes to that, so why shouldn’t people have a choice if they want to?”
Nestle Pure Life television advertising tackles the health and wellness advantages of bottled water. In addition, on-pack messages, color-coded in yellow, highlight water’s contribution to wellness. Green-coded messages offer environmental information on recycling and other sustainability efforts, and blue messages discuss the taste and quality of bottled water.
A total of nine messages, three for each platform, can be found on bottle labels of Nestle Waters’ regional spring water brands.
In addition, Jeffery personally has taken on a more visible presence in the industry to combat the category’s naysayers.
“Do we have an environmental footprint? Yes, we have an environmental footprint, like every other beverage company in America,” he says. “We have the lightest one of all the major beverage companies in America, and we need to be talking about that as well.”
He points out that bottled water actually requires less water to produce than other products, the bottles often use less plastic than other beverages and the product inside is healthier than many other options.
“Contrary to our detractors, our company is a good environmental steward,” he says. “If our industry went away, you would have three one-hundredths of 1 percent less energy, you’d have two one-hundredths of 1 percent less water used and you’d have three to four one-hundredths of 1 percent less oil used,” he adds. “The entire sum of our industry from an energy standpoint is de minimus.”
Low U.S. recycling rates, however, are a critical issue that the beverage industry and local governments still need to contend with, Jeffery admits.
“I lose control of this bottle after I sell it, so I have a limited ability to get the thing back,” he says. “But here’s what I’d say about recycling. Recycled content, PET, is worth 30 cents a pound today. When are we going to stop throwing things of value into the earth, and why am I having to have discussions with the Conference of Mayors about banning my product for public purchase when the better discussion would be, ‘Do you have comprehensive curbside recycling in your city so we can get these bottles back?’ Because if we can get them back, we can use them forever.”
Jeffery has led a beverage industry task force to develop model legislation that would create comprehensive state-level recycling solutions. “The recycling issue is complicated in America,” he says. “It’s going to take a coalition of companies like mine and government and associations to come together and decide that we want to do something about this.”
In the meantime, Nestle Waters plans to engage with the NGOs with its first corporate responsibility report, published late this fall. The report outlines the company’s previous sustainability efforts, its current practices, and its future goals in the areas of water quality, processing, water rights, packaging, recycling, and health and wellness. The company plans to get copies of the report in the hands of critics, and actually sit down and speak with as many of them as possible.
“You know, some of these people simply aren’t going to agree with you, but you can hear what they have to say and give them something to think about,” Jeffery says. “I believe we’ve got a great story, and I believe this is a really good company and a company that cares about these issues. So we’re just going to tell our story to people.”
Despite those and the current economic challenges, Jeffery says he is optimistic about the future of bottled water.
“I believe the future is very good for our industry, and we’re going to continue to invest in it,” he says. “We recognize the next year or two are going to be tough, but I’ve had many tough years here over the 30 that I’ve been here. We’re going to keep our heads down and keep moving forward. We’ve got a great portfolio of products, a great corporate culture, a low-cost manufacturing model that’s very, very competitive, and I think we’re going to do well.”
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Beverage Industry’s February issue details the steps that beverage-makers are taking to foster a more sustainable future for beverage packaging. Also in this issue, the eMagazine highlights the distribution changes impacting the U.S. wine as well as what is driving the demand for probiotic beverages. Additional articles detail the ingredients supporting cognitive and energy beverage formulations, and the emerging domestic and exotic fruit flavors of tomorrow.