Drinksinfo's Ray Rowlands takes a look at the impact that the recession has had on the bottled water market and considers the future for the category.

Around 30 or 40 years ago, bottled water was largely unheard of outside areas of poor sanitation, or was merely an adornment for the affluent and fashion-conscious. It certainly was not the everyday beverage that it became prior to the recession. Now, it is the second largest soft drink category - after CSDs - on the global stage. In the UK alone, estimates put annual consumption levels at between 1bn and 2bn litres.

The world market for bottled water continues to grow - there will always be a demand for clean packaged water in certain parts of the world – but the onset of the recession certainly slowed the growth. Major suppliers cannot afford to see the market dry up and various mechanisms have come into play to maintain consumer interest.

Price has a huge influence on bottled water demand. It is often reported that a litre of packaged water can cost more than a litre of petrol, and that tap water comes at a mere fraction of the cost of bottled water. One strategy of producers, therefore, has been to improve the value proposition of their products. This has taken various forms, from actual price cuts, to promotional offers, multi-pack deals and packaging upsizing.

One advantage of reducing the price of branded water is, of course, that it keeps private label offerings at bay. Reports put the share of private label water in the US at well over 10%, so it presents a major threat in this particularly key market, for example. Lower branded prices can prevent private labels from gaining additional traction. Alternatively, of course, some budget-conscious consumers have preferred to trade down to less expensive brands, whilst not totally abstaining from buying bottled water. Often they are unaware of whether the product in question is spring, mineral or mere table water. Where price is concerned such considerations appear to take a low priority. Today, cheap water brands can be seen piled high in numerous discount stores and service stations. Unfortunately, this does nothing to enhance the category’s image. 

Promotional pricing and promotional deals (e.g. BOGOFs, three bottles for the price of two) is a good way to maintain interest in a brand, but there is the danger that if the promotions last too long or are too frequent, they will damage the brand’s integrity. The practice also cuts into profit margins and may deter additional supportive investment. Multi-packs are a useful alternative but have their limitations. Single-serve packs are often purchased on impulse for on-the-go consumption: Carrying three spare bottles around detracts from this convenience angle.

Package upsizing can improve on the per litre price offering for the consumer. It was not so long ago that the 33cl glass bottle was the standard single serve offering for Coca-Cola. Today it is the 50cl or even 60cl PET bottle. Following this progression, there is no reason why 75cl cannot be encouraged as the new accepted single serve water bottle. Indeed, it is already in use in certain markets. In Australia, Coca-Cola introduced this size, with sports cap for immediate consumption, for the 2002 launch of its Pump brand, which retains its position as a leading brand today.

Two major threats to the future progress of the bottled water market are water coolers and public water supplies, either dispensed directly from the tap (or faucet), or via a filtered point-of-use system. With businesses coming under pressure from rising costs and shrinking demand during the global financial crisis, cutbacks had to be made. One of these was often the discontinuation of water coolers located in factories and offices. However, these coolers generally offer a significant price advantage over bottled water. In the UK, the price per litre of water from a cooler is around half that of water in a bottle. With their mainstream institutional clientele under pressure, the residential market offers relatively unexploited opportunities for water cooler companies. Fortunately for bottled water producers, water coolers do not come without their disadvantages, a major one being the sheer size of the container (often around 19 litres). Residential storage and delivery times can also be a problem. 

Point of use water (POU) filtration/purification systems may pose more of a challenge for bottled water. Added benefits to the customer over water coolers include the absence of pre-ordering, a constant, low cost supply and the facility to obtain instant hot or even sparkling water, depending on the system employed. POU is also environmentally-friendly and has proved so successful that several water cooler companies have branched out in this direction. 

A major advantage that bottled water maintains is its convenience, especially in respect of the single-serve PET bottle. It is easy to carry. Obviously second hand bottles can be filled from water coolers, POU and the kitchen tap but, potential contaminant issues aside, there is nothing like the crisp taste of bottled water consumed direct from the chiller cabinet on a hot summer's day. Then, there is the packaging aspect. Attractive packages alone can make us feel that what we are drinking is beneficial. Many brands have a unique taste, dependent on the mineral content, and with the absence of the chlorine found in tap water. The bottled water industry needs to promote such features. 

Many consumers reverted back to the household tap when the recession began to bite. Whether they will all return to bottled water is questionable. It will take time for consumers to change the cost saving habits they have acquired during the economic downturn and there is still no guarantee that old habits will be fully picked up as consumer confidence returns. The bottled water market faces challenging times ahead.