Alan Mitchell: Multinationals tap into the bottled water market

In the quest to corner the lucrative bottled water market, companies are torn between a global approach or a multi-brand strategy.

Marketers have long said there’s no such thing as a commodity, only those products that marketers allow to be commoditised. For evidence, just look at what’s happening with the ultimate commodity of them all: water.

Take a few straws in the wind. One is a London Underground ad from Thames Water. At less than a penny a litre, tap water is “the cheapest health regime we know”, it declares. As little as one per cent of all tap water is actually drunk. But the other 99 per cent still has to be treated to drinkable standards, to make sure this one per cent is safe. So it’s pretty galling for water companies if consumers start paying 100, even 1000, times more for a bottled alternative.

Or take the recent spat between the National Dairy Council and Danone over Danone’s claims about the calcium content of its mineral water brand Danone Activ. Danone’s claims for its product were misleading, said the NDC. The Advertising Standards Authority agreed. Expect more such spats as water marketers, desperate to find a profitable point of differentiation, play the health card as hard as they can.

Then there’s the acrimonious row between the World Wildlife Fund and the massed ranks of the bottled water industry, over WWF’s attack on the value-generating and environmental credentials of bottled water. Once again, expect more where this came from. Bottled water may have started out as a pampered western consumer affectation but global giants such as Nestlé are salivating at the global opportunities, especially in developing countries where safe tap water is often an oxymoron. Here’s a chance for the packaged goods industry to go back to its roots: building megabrands on the back of a good old-fashioned promise of unadulterated wholesomeness. Bottled water may already be a $14bn (£10bn) global mass market. But if the likes of Nestlé are right, that’s just the beginning.

The fact is, marketers have discovered many rich seams of added value in bottled water, and as a result the biggest and best of the global packaged goods industry, including Coca-Cola, Danone, Nestlé, PepsiCo and Procter & Gamble are scrambling to seize control of this market. The selling-points include: portability. Drinking on the move, having my refreshment where I want it, is preferable to having to go in search of a tap. Then there’s refrigeration, and added sparkle. And design: those beautiful blue bottles with teardrop shapes for the dinner party table. And the taste of minerals. And health and safety, and the modern consumer’s doomed quest for authentic, pure and natural.

But adding value like this, charging the right price and achieving a sustainable margin, while building strong, viable brands is still a challenge. Different players are approaching the market in different ways, each way with its own opportunities and pitfalls.

Water percolated through mountains from famous sources is lucrative: it’s a tremendous plus for a brand to have its own, special story about its origins and provenance. But no one source is big enough to meet all demand.

The result is brand proliferation and consumer confusion. Danone, which owns mega-brands including Evian and Volvic, is busy buying as many local source-based brands as it can. Water accounts for a quarter of Danone’s group sales and is now one of the group’s three core activities.

Nestlé, the world’s bottled water market leader, had 68 water brands (including Perrier, Vittel and San Pellegrino) at the last count. But that’s rising almost daily, as Nestlé too scours the world for new sources. Intriguingly, however, Nestlé seems most excited by Nestlé Pure Life, a lower-cost purified tap water with added good-for-you minerals that’s already selling extremely well in Pakistan and Brazil on a basic wholesomeness platform, and has huge potential elsewhere.

Technology-minded P&G hopes to recast the value equation with Pur – home water filters that offer consumers the purity of bottled water at a much lower price.

Superbrand-obsessed fizz kings Coke and Pepsi are taking yet another tack. Consumers’ quest for health has already given Coke a massive boost. Not only was Diet Coke a hugely successful brand extension, it also generated higher margins than the original, because it replaced the most expensive ingredient – sugar – with a cheaper substitute. If Diet Coke’s core market of young women forsake sweet fizzy stuff altogether in favour of more “natural” water, that could make a big hole in its bottom line.

But it’s not easy for companies to attack this market. They’re used to focusing their efforts on one or two high-margin mega-brands. They can’t get their heads, their marketing budgets or their margins around a market structured around a multitude of relatively small, local source-based brands.

So they’re taking a much cheaper route. They’re using tap water, which they then purify in order to add a bit of value and justify a brand and a margin. PepsiCo led the way with Aquafina, removing stuff (chlorine and fluorine) that consumers don’t like the sound of. Coke’s reply is Dasani, which has added good-for-you minerals.

Thus begins a new health claims war. One piece of research claims that “pure” water is actually bad for you, because it leaches essential minerals out of your body. Another US research project reveals that 22 per cent of bottled waters are contaminated beyond legal levels. “There is no assurance that bottled water is any cleaner or safer than water from the tap,” concludes the Natural Resources Defense Council. The mineral water industry replies with a spine-chilling list of the diseases and ailments known to have been carried by tap water. The pressure groups pile in with concerns about the environmental implications of bottled water packaging. And so on.

Refreshment, convenience, lifestyle. Consumers have always wanted them and the cola wars raged over them. Consumers still want them. But they also want health, “authenticity” and reassurance about the environment and globalisation. If the cola wars were the zenith of packaged goods marketing in the Seventies and Eighties, perhaps water wars are set to replace them.

Alan Mitchell’s book Right Side Up: Building Brands in the Age of the Organised Consumer is available from HarperCollins Publishers, at the special price of £16.99 (rrp £19.99) including postage and packaging. Telephone 0870 900 2050 and ask for department 832D

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