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Now a US$175 billion global industry, bottled water remains a giant, yet in many markets the eye-popping growth figures of yesteryear have evaporated, seemingly for good. In both Western Europe and North America, manufacturers continue to fight an on-going process of commoditization, with private-label offerings accounting for an ever-larger portion of demand. What’s more, the category remains under scrutiny in both regions amidst consumer concerns about water quality, environmental impact, and cost relative to tap water.
While the picture elsewhere remains far brighter, competition for emerging market consumers grows more cutthroat by the day, with strong local players leveraging well-developed distribution capabilities. That said, the future clearly lies in markets such as China and India, which together are expected to account for nearly half of global volume expansion over the next five years. For the largest global players, 2013 promises to be another challenging year, as the quest to slash costs, grow distribution, and (above all) find the right value proposition goes on.
In mature developed markets success remains a matter of finding the right value proposition. This does not necessarily mean the lowest price—while private label continues to gain share in the US, for instance, it has actually declined in France and elsewhere, squeezed by tap water on the low end and more premium/functional products on the high end. Instead, growth is now very much a matter of effective messaging. The most successful products going forward will be those able to tell a story—of added functionality, of unique sources, of environmental responsibility—in a way which resonates with increasingly sophisticated consumers. Manufacturers can be expected to double down on explaining exactly what benefits their products provide, while also pursuing an ever more-segmented product strategy.
European mineral water brands have proven particularly aggressive in this regard, explicitly promoting specific health benefits, such as daily allowances of calcium, magnesium, and other nutrients per serving. What’s more, they have worked to promote their local sourcing whenever possible, often working with local authorities to ensure a pristine local environment. These twin narratives of functionality and heritage, specific benefits and a more nebulous concept of consumer trust, are expected to remain the driving forces behind nearly every successful strategy in key markets in North America, East Asia, and Western Europe, with private label and tap water both remaining potent adversaries at the low end.
While no such slowdown is underway in markets like China, India, Brazil, or Mexico, competition grows fiercer by the day. Though rising incomes and questionable municipal water supplies will continue to drive growing demand, a growing portion of this demand is being met by smaller, low-cost producers providing bulk water supplies (in containers of 10L or more) to a relatively small local area. This is especially true in markets like Mexico and Brazil where direct delivery remains the primary mode of distribution, particularly among lower-income consumers. The difficulty of constructing a truly national distribution network in this segment, particularly to more rural areas, continues to hamper efforts by the largest global players to grow share, particularly as sales of more value-added products such as flavoured or functional water often remain limited. That said, demand for branded products remains high, particularly those brands able to secure certified natural sources of water—in China, for instance, a number of local brands have moved quickly to secure rights to natural springs, and are expected to continue to take share over the next 2-3 years.
Nor are the largest players taking the rise of local bulk water players lying down, with massive investments in direct distribution and even direct retail expected to continue. In India, for instance, leading player Bisleri Group has announced plans to expand its pilot programme of “Bisleri Shoppes” exclusively selling Bisleri-branded products, both as a means of combating direct delivery as well as a way to secure retail space against rivals offering ever-higher margins to local retailers. This type of hands-on marketing and retail activity is expected to gain steam in 2013, with consumer education still a massively important element in generating the consumer trust which remains the coin of the realm among many emerging market consumers.
For any truly global or even regional player, the key risk in 2013 remains commoditisation, with the aforementioned private label and small bulk water players and ever-present threat to margins and branding. In both emerging and developed markets alike, a compelling narrative will continue to drive expansion, with consumers in every market still highly receptive to ideas of safety, quality, and specific functionality. Among lower-income emerging market consumers, there is still ample room for education regarding the benefits and safety of bottled water, with retail concepts like the Bisleri Shoppe expected to take this process further and further into suburban and rural areas. Meanwhile, the path to a premium brand in more-developed market remains a story of unique, age-old purity, whether it involves artesian wells in Fiji or water taken from 800 metres under the ocean. That said, value still matters—while branded products still retain real pricing power relative to private label and smaller bulk producers, consumers will not long tolerate a dramatic pricing gap, though a push for added functionality will help to shore up value perceptions for major brands. Indeed, over the next five years, this could prove the most important trend of all, as bottled water moves ever closer to other soft drinks categories in terms of the occasions and consumers it serves. Vitamins, minerals, energy, and flavour—all of these have a place in bottled water, particularly when tied to a well-crafted message of purity which few other soft drinks categories can match.