What’s in Store for the Water Industry in 2006?
Industry professionals provide their outlooks on the state of the water treatment industry
Foreign Markets to Reach Significant Milestones
By Tom Bruursema
Over the past 20 years, I have come to learn there are fewer surprises each year that are of lasting significance. Perhaps that means I’m getting better at predictions, or perhaps that simply means I’m getting too old to be surprised. If by chance it comes from better predictions, I attribute this largely to a better appreciation of trends and the timing of milestones. As I look to 2006, the trends all point to critical milestones in many key foreign markets. Having been engaged with various committees and stakeholder meetings and discussions in Europe and Asia for a number of years, I can state with confidence that 2006 will be a year of global significance for the POU/POE drinking water treatment market.
Many of you are well aware of this market through past communications from NSF. It is one of the gems of the East, as they made the decision to adopt NSF/ANSI Standards as the basis for Taiwan’s Chinese National Standards (CNS) following a thorough review of available standards. NSF signed an agreement with the Taiwan government on June 12, 2001 authorizing their use and adoption of NSF/ANSI Standards 42, 44, 53, 55, 58, 61 and 62 as Taiwan’s CNS. Almost five years later, the first of these has been reviewed extensively by their expert committee and will be adopted as CNS/NSF-42.
The wording is nearly identical to NSF/ANSI-42. The next review has already begun, this time turning to NSF/ANSI-58. I don’t expect Standard 58 to require another five years, but I also would not expect it to be completed in 2006. That will likely be material for future predictions.
While the milestone of interest at this time is adoption of the CNS/NSF-42, I predict it will be followed closely by one of even greater significance i.e., government issuance of the local CNS mark for products complying with the new standard. The Taiwan market has always been a significant one for the POU industry. Many are familiar with those that export products to the U.S., but there are many more who operate in the local market. This new standard will give them the opportunity to demonstrate their products’ performance and safety to the Taiwan public, as well as to surrounding countries, and do so with a standard they can claim as their own. To serve this need, NSF announced in late 2005 the opening of a new testing facility in Taiwan.
Another market that NSF has been active in for many years is Japan, having operated an office there for more than 10 years. As we have reported several times in the recent past, the Japanese Water Purifier Association (JWPA) has worked closely with NSF to develop new performance standards in Japan. This effort has spanned several years and many detailed discussions. Considering both the U.S. and Japan have existing national standards, we have spent a lot of time understanding the rationale of one another’s standards. That analysis concluded at a recent meeting of NSF staff and JWPA members in Tokushima, Japan. A timeline was established for the drafting of a new and more comprehensive Japanese standard, with a target completion of late 2006. The standard will ultimately become a new Japan Industrial Standard (JIS), likely replacing the existing JIS 3201. That process of formal adoption will take further time to complete and will likely trail into 2007. Nonetheless, critical efforts and key milestones will be reached in 2006.
South Korea is near adoption of a new standard, or more appropriately stated, new regulation and transition of product evaluation away from the current private sector process and into a government function. All this is expected to reach completion in 2006. As with Taiwan and Japan, NSF has been engaged with South Korea’s industry and government bodies for several years. And like Taiwan and Japan, there is an interest to adopt standards that are more comprehensive and global than what exists today.
Many companies see the China market for manufacturing value, but others see it for sales potential. The government appreciates the significance of both, and I predict they will begin to take steps forward to enhance their standards and regulations for treatment devices. This prediction comes with good information in hand, as in the last month NSF has received visits from the China EPA, the China Ministry of Health and the Chinese Center for Disease Control and Prevention, all with interest in our standards, testing and certification. Those familiar with the market know these are the three players that hold all the cards on drinking water treatment product testing and approval in China. I won’t predict the exact milestones, but I fully expect critical ones will be reached in 2006, and NSF will be there to support and help guide their direction.
Many are aware of the milestones that were reached in Europe during 2005, and those that will come in 2006. The milestones are new European Norms that in many ways mirror the NSF/ANSI Standards in terms of treatment technologies and fundamental performance test methods and criteria. These are key, as they simplify requirements across the region. As many who operate in the global market know, “simplify” is a relative term. In this case, however, it is significant. The impact of these norms on the market in terms of voluntary or mandatory certifications is more difficult to predict, as it happens on a country-by-country basis. Large markets with existing standards and regulations will move the quickest, but those are quite limited in number. Far more have requirements today for material safety rather than performance, and these new norms only address the latter. New norms alone will not spur market growth, but consumer awareness of drinking water quality and related concerns are as important in Europe as they are around the world. Growth in this large market will come, and these new norms will help simplify the process.
The above predictions are not great leaps, as NSF has been working in these markets for many years. The significance for 2006 is the parallel activities taking place in so many key markets and the timing of their predicted completion. This year will bring many of these important markets to significant milestones, and all will impact the market much more than in years past and set the stage for even greater change in years to come.
2006 Affords New Opportunities
By Peter Censky
We’ve reached that time when some of us make predictions for the coming year. I’m no more of an expert than you are, so this will obviously be my best guess.
I read a newsletter today by Diane Swonk, chief economist and senior managing director for Mesirow Financial. She titled the article “A Holiday for the Rich” and went on to make the point that high-end retailers will be at the top of the heap, as she puts it, and discounters and warehouse clubs will be next in line for retail sales this season. Traditional department stores will continue to be squeezed with more mergers and acquisitions expected in the coming months.
What does this mean for the water quality industry? I think there are some parallels. The majority (91%) of taxpayers earn less than $100,000 per year, and according to Swonk, a good portion will have to make trade-offs this season and in the future. Energy costs are directly impacting this group and indirectly affecting them through higher price tags for nearly everything they buy. Meanwhile, the 9% who make more than $100,000 per year account for a whopping 40% of discretionary spending in our economy, and they aren’t curtailing their spending one bit.
So, if you are fighting with the discount retailers for that bottom end of the market, good luck. Our customers could be those who have the discretionary money to spend, or those who make buying decisions based on environmental issues, regardless of their income level. People with less to spend who are concerned with their personal environment have shown a propensity to put off buying higher-cost items until they are more confident in the economy. And those at the high end have expectations that strongly distinguish them from lower wage earners.
My point is this: If you are reading this, then you are likely somewhere in the dealer-to-market channel—you are either a dealer, work for one or supply one. If your customer is strongly inclined to buy from discounters or warehouse clubs, there is only one way you can compete—by giving away your profit to try to meet the discounter’s price. That’s a losing game.
But there is something you have that no discounter can match, and that’s knowledge and expertise. Granted, the customer who looks only for a low-cost deal won’t be interested in paying for your expertise, but remember, 9% of the individuals in this country account for 40% of discretionary sales, and they are not discount shoppers for the most part. They are not stupid either. Your “value-added” lies in your expertise and your ability to sell that expertise. You can’t just charge more for the same old product; you have to sell a continuing service package.
Where are these customers? They aren’t necessarily in the usual upscale neighborhoods anymore. They’ve moved out to the country, where land is cheap and water is dirty. These are people who grew up on municipal water and now are often on wells. This is an enormous opportunity for our industry—but we can’t go after it with the same old tactics. These customers are willing to pay for transparent service. By that, I mean you must first convince them that you have the expertise to do the job, and then you have to convince them that they will hardly notice your service people—you’ll get the job done and be transparent in the process. It’s a whole new way of doing business, but one that will be well worth the effort.
IBWA Looks Ahead into 2006
By Joseph K. Doss
Bottled water continues to be the second most consumed packaged beverage in the U.S. With the latest market data reflecting total bottled water consumption of nearly 6.8 billion gal, per capita consumption level of 23.8 gal and nearly $9.2 million in wholesales, it is clear that the growth of this beverage is unparalleled, and that consumer demand is here to stay.
The increased popularity of bottled water brings with it many opportunities and challenges. To meet these demands, IBWA will continue to address issues that affect bottlers, suppliers and distributors, while building upon our successes in previous years.
One of the larger challenges in 2006, which has long been a priority for IBWA, is the harmonization of state and federal laws for bottled water. IBWA supports the U.S. Food and Drug Administration (FDA) regulation of bottled water, which includes standards of quality, good manufacturing practices and standards of identity that must be as protective of public health as EPA regulations for tap water. However, each year, many state legislatures and agencies seek to adopt requirements that are different and sometimes inconsistent with federal standards. We have thus far been successful in defeating these proposals. Enactment of many differing state and local requirements would confuse consumers and make it costly and inefficient for bottlers to comply with the wide variety of requirements.
In 2005, several states introduced legislation that would have required labeling and safety requirements for bottled water. To address this ongoing challenge, the food industry, including IBWA, formed the National Coalition for Food Uniformity to seek federal legislation that would prohibit states from adopting laws that are different from, or in addition to, federal law. More work is expected in this area in 2006.
Bottled water safety and security is also a chief concern to IBWA. The industry remains committed to consumer safety by developing bottled water-specific security plans for protection against terrorist attacks. IBWA has worked extensively with FDA, the Federal Bureau of Investigations and the Department of Homeland Security to implement tools for all bottlers to use for security preparedness and response.
In addition to participating in the federal legislative arena, IBWA also provides effective representation in the states by educating state legislators and regulators about key issues that affect the bottled water industry. One trend that is certain to continue within state legislatures is the discussion of bottled water taxes and bottled bill expansion. In 2005, 10 states considered taxes on bottled water, either on the finished product or on water source withdrawals. To combat this, IBWA will help focus attention on the important role bottled water plays in states’ economies, and how the proposed taxes would harm businesses and consumers with increased bottled water costs.
As in years past, the bottled water industry will face opportunities and challenges in the area of groundwater management. Despite data from the Drinking Water Research Foundation (DWRF) that demonstrates bottled water producers use only a fraction of the groundwater withdrawn, (2/100 of 1%), many states and environmental groups are determined to enact unfair regulation on this much needed, high-demand bottled beverage. IBWA will continue to meet this challenge in 2006 by calling for the use of sound science, equitable treatment and consideration of all users of groundwater, as well a multi-jurisdictional approach to the development of water management policies that actually work.
These and many other issues will surface in 2006. IBWA remains committed to the continued success of the bottled water industry and will seek opportunities to ensure its continued growth.
Dr. Leff’s 2006 Crystal Ball (new batteries used)
By Dr. Alan Leff
My perspective has changed. I have a new job that allows me to roam the U.S. I no longer have the opportunity to view the water world from atop Mt. Everest. Therefore, my vision is more myopic.
Nonetheless, a major national and international issue is still water rights. Annexe 2001 is moving along. The U.S. governors of the Great Lakes states have prepared an agreement for proposal to their Canadian counterparts. Passing of this agreement in Canada may be delayed until the new government is formed and stabilized. By the end of 2006, I feel that a proposal will be put forth to both federal governments for ratification. It should pass.
The WHO is under pressure from countries that produce demineralized municipal drinking water to investigate any adverse health issues associated with long-term consumption of purified water. There is very little hard evidence to support the contention that purified water is bad. The basis of the contention is an epidemiological study that shows a correlation between reduced cardiovascular diseases where the public drinks hard water. Could it be that the same public is also drinking more hard alcohol? The WHO has planned an expert meeting in the first quarter of 2006 to discuss the issue. It is better to provide and drink more water that meets the WHO Guideline for Drinking Water Quality than to be picky about the water’s mineral content.
Consolidation. Bottled water company consolidation continued through 2005. It will continue. Danone has backed out of the U.S. market to focus on its growing businesses in Asia. The small pack business (bottles of less than 2 gal) is a commodity. The HOD business continues to consolidate to fill manufacturers’ bottling capacity at the expense of fewer operators. The three majors will eat up the small pack business. Only regionally recognized brands will survive alongside the three majors on retail store shelves. Who knows if there will be any surprises in the next year? Surprises have been few and far between for many years. I bet on consolidation.
Water-taking taxation. State governments are still looking at trying to build or sustain their coffers by taxing water takers. The good news is that the bottled water industry has done a good job in educating regulators on where the groundwater is going. Bottled water companies are not the significant takers of groundwater. If water-taking taxation succeeds, bottled water companies are more likely to pay a fair share.
The Top Picks of 2006
By Jeff Roseman
Looking ahead into the future is always a guess, but based on the past, good things are coming for the water treatment industry. The WQA/Aquatech connection was a great success last year in Las Vegas, and this year’s show in Chicago should be even better. The weather might not be as warm in the Windy City, but it is closer to many of the markets served by the water industry. This allows less expensive travel and a centralized venue for the heavily populated Midwest and East Coast markets, plus we did have a World Series winner. I am still a Cub’s fan, but hey, someone brought Chicago the title, and we will take it.
The market is changing, and more media exposure is putting water treatment in the headlines. Water scarcity is one of the biggest issues, and water reclamation is always in the news, especially in drought areas and countries that don’t receive the rainfall we enjoy in the U.S. Water becomes a much-needed commodity when it comes to disasters, since we cannot live without water for a very long period of time. Last year’s hurricane season was a wake up call for disaster planning. Continued problems and tighter regulations on contaminants, such as MTBE, perchlorate and arsenic will provide markets for refined removal technology. Membrane technology continues to make great strides in bacteria and virus control, not only for drinking water, but also in wastewater applications. Ozone and UV systems are gaining wider acceptance as more consumers and dealers use these systems and are having great success in many different arenas.
Educating the consumer, whether it is about residential, commercial or industrial installations, is how proper water treatment should be addressed. WQA’s educational program and the new formation of an Industrial Water Specialist certification program should be promoted within the industry and to the consumer. Continued education teaches dealers to solve problems and not just sell products. When on a sales call, remember you are there to solve a water quality issue. You were not called to sell the customer something, but to provide a solution. Water treatment systems need to be designed and sized on good, sound, science and math, and not based on budgets or free soap. Closing a deal doesn’t count if the system fails to perform as promised. wqp