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Fast-Growing Segment Becomes Second Only to Soft Drinks
Bottled water now ranks as the second largest commercial beverage category in the United States on a volume basis. It has surpassed such venerable beverages as beer, coffee and milk to become one of America's favorite drinks, and it did so very quickly. Beverage Marketing Corporation, the leading research, consulting and financial services firm dedicated to the global beverage industry, analyzes these developments in the forthcoming edition of Bottled Water in the U.S.
In 2003, total U.S. category volume approached 6.4 billion gallons, a 7.5% advance over 2002's volume level. While bottled water's 2003 volume growth was markedly slower than the 10.8% increase recorded one year earlier, it nevertheless remains the fastest growing major beverage segment in the U.S. During the five-year period from 1998 to 2003, bottled water volume increased by an unrivaled CAGR of 9.1%. The categories of comparable size - beer, coffee and milk - have all contracted or remained steady lately. The surging popularity of bottled water can be explained by consumers' desire to choose water as a thirst-quencher. Americans increasingly appreciate the convenience, taste and calorie-free benefits of bottled water.
The U.S. bottled water market reached new highs not only in volume but also in wholesale dollar sales, which surpassed $8.3 billion in 2003. However, not only did sales growth slow compared with the previous year, as was also the case with volume; sales also grew at a lower rate than volume for the first time in nearly a decade. This reflects the impact of price promotions. Pricing has been the biggest issue across the board. Price promotions, once a primarily west coast marketing practice, are now common throughout the U.S.
Per capita bottled water consumption reached 22.6 gallons in 2003, up from 21.2 in 2002. U.S. residents now drink more bottled water annually than any other beverage other than carbonated soft drinks (CSDs). While CSDs still have volume and average intake levels more than twice as high as bottled water, the soft drink market has been stagnant lately, in no small part due to competition from bottled water. Per capita consumption of bottled water has been growing by at least one gallon annually, thereby more than doubling in a decade. Average intake of CSDs has dipped slightly for several consecutive years.
Domestic non-sparkling water, especially the retail premium PET segment, is the star of the U.S. packaged water industry, consistently outperforming other segments. Indeed, it is primarily the single-serve segment that is driving overall category enlargement.
Leading companies have forged new distribution arrangements in order to thrive in the growing PET segment while also attempting to revive other segments. These new alignments have altered the industry make-up, as one of the biggest companies has essentially turned to others for distribution of its various brands. Coca-Cola's pact with Danone Waters of North America (DWNA), dubbed CCDA Waters and, more recently, the creation of DS Waters Enterprises, exemplify this development. Coca-Cola now carries Danone's PET brands, while DS Waters took on its home and office delivery business.
In 2003, the top three bottled water companies in the U.S. - Nestle Waters of North America (NWNA), Coca-Cola and Pepsi-Cola - accounted for 59% of total wholesale dollar sales. NWNA remained the largest bottled water company in the country, with nearly $2.7 billion in sales. Thus, NWNA claimed approximately one-third of total bottled water sales in 2003. Coca-Cola's water sales, newly augmented by Danone's PET brands, approached $1.3 billion in 2003. If it were measured by its Dasani brand only, which had sales of $834 million in 2003, the company would have ranked third behind Pepsi. Marketing just one brand, Pepsi-Cola accounted for 11.3% of the market in 2003. With sales of $936 million, Pepsi's Aquafina was the top-selling bottled water brand in 2003.
Although NWNA, with its extensive portfolio of brands, ranks number-one with the highest overall company sales, Pepsi's Aquafina and Coke's Dasani rank as the respective number-one and number-two best-selling brands. NWNA has three of the five top selling bottled water brands (Poland Spring, Arrowhead and Deer Park). Its Ozarka, Zephyrhills and Ice Mountain brands also ranked among the top 10. Evian, which is now distributed by Coca-Cola, ranked as the number-10 brand in 2003.
A detailed analysis of the 2003 bottled water market by Beverage Marketing's editorial director, John Rodwan, will appear in the April/May edition of Bottled Water Reporter, a publication of the International Bottled Water Association (IBWA).