Coca-Cola's US$4.1bn acquisition of Glacéau gives the company a presence in the growing enhanced waters sector where, writes Annette Farr, the soft drinks giant will be competing not only with smaller niche companies but also with its major rivals PepsiCo, Danone and Nestlé.

Coca-Cola's US$4.1bn purchase of Glacéau gives it a foothold in a niche yet buoyant sector, comprising 'water plus', 'functional water' and, in the case of Glacéau, 'enhanced waters'. Although the US was slow to embrace the health and hydration message implicit in drinking bottled water, the country has arguably led new product development when it comes to added-value water drinks.

Glacéau is one of the first companies to have recognised the potential. Formed in 1996 by J. Darius Bikoff, it is regarded as the pioneer of the enhanced water category. In August 2006, the Indian Tata Tea company paid GBP677m (US$1.34bn) for a 30% stake in the business previously held by TSG Consumer Partners. Tata introduced additional capital allowing the brand to strengthen its US presence and explore opportunities for global growth.

Glacéau now sells more than 5m bottles every day. The company claims to be the No 3 bottled water brand in the US, benefiting considerably from the backlash against carbonates and the accompanying revolution in healthy drinking.

The range comprises vitaminwater (nutrient enhanced) smartwater (electrolyte enhanced), and fruitwater (flavour enhanced). In April, the company launched vitamin energy, a variant which uses natural ingredients such as vitamins B and C and ribose to provide sustainable energy and what is described as 'purposeful levels' of natural caffeine.

Coca-Cola's successful bid for the business plugs a much-needed hole in its product portfolio. Although Coca-Cola has the Dasani bottled water range which includes flavoured waters, unlike Pepsi Co it does not have a functional water offering. PepsiCo's Propel Fitness water, sold under the Gatorade label, was first launched in 2004.

Nestlé Waters has also declared its intent to develop the functional water market. Speaking when the company reported its year-end figures in March, chairman and CEO Carlo Donati said: "2007 marks a new stage in the development of Nestlé Waters. To maintain profitable growth, which since 1992 has enabled us regularly to consolidate and secure our positions around the world, we will now expand our presence in the sector of 'water +' and more added value healthy beverages. In this way, we will contribute to the group policy of making Nestlé a major global player in nutrition, health and wellness. "

Danone too continues to innovate in the water-plus sector. In the UK, it is the attraction of a growing energy sector - 18% growth vs 8% for soft drinks (Nielsen) - that has spurred Danone to develop Volvic Revive. Launched this month, Revive offers what the Danone team describes as "stimulating hydration". Packaged in 50cl bottles, it is available in Berry Blast and Citrus Kick flavours. Volvic Revive contains plant extracts such as ginseng and guarana and will be marketed as an alternative to mainstream energy drinks.

Steve Flanagan, category strategy manager at Danone Waters, explains : "Our research reveals one of the growing concerns for Revive's core target market of 18-35 year-olds is tiredness. As Volvic Revive not only hydrates, but increases alertness, this makes it the perfect solution for those constantly on the go and looking for a quick and refreshing pick-me-up. We have high expectations for this product, especially over the summer months when bottled water sales are at their highest."

And when it comes to flavoured water Danone reports that this is the fastest growing segment in the UK bottled water market and its Touch of Fruit is the No 1 brand. This year, the company relaunched the brand adding a sugar-free variant to attract the low-calorie consumer.

Innocent may be the UK's largest smoothie marketer, but it too has realised the potential of water drinks. This month the company's rebranded 'juicy water', called 'this water', appears on UK shelves nationwide. The company is putting GBP1m behind the launch believing there to be substantial growth opportunities in the water-plus market.

Innocent is treating 'this water' as a distinct new category, not merely a new drink from innocent smoothies. The company could easily capitalise on innocent's well known logo, but instead simply states on the bottle (and not in very big print) that the drink 'comes from the Innocent people'.

Douglas Lamont, head of new opportunities at Innocent, said: "We are not using the logo because we do not want to create brand confusion between smoothies' fruit message and waters."

However, product integrity remains key. All the fruit used (the percentage ratio of fruit and water varies from flavour to flavour) is fresh and not from concentrate; the spring water is sourced in Yorkshire; the plastic bottle is made from recyclable materials and a small donation on every bottle sold goes to WaterAid.org.

It is taken as read that there are no preservatives, colourings and flavourings in any of the drinks. But there is "some sugar", the company says. Initially 'this water' comes in the same recipe flavours as 'juicy water' did, but Lamont says innocent will be looking to add new flavours, vitamins, botanicals and energy ingredients.

The water-plus/functional market looks set to become crowded and competitive whether the impetus comes from the smaller producers such as Extreme Drinks, which has just launched worldwide Aqua Vitamins (a drink comprising natural mineral water, vitamins and what is described as a natural 'fruit twist)', or from global giants such as Danone, Nestlé Waters …and now Coca-Cola.