Review of the Year 2010 - Water

Review of the Year 2010 - Water

As 2010 draws to a close, just-drinks once again launches its review of the global drinks industry. Made up of five parts, the review makes up December's management briefing for just-drinks subscribers. Coming up between now and Christmas, we'll look at how the last 12 months have treated the beer, soft drinks, spirits and wine sectors. To start, however, Ben Cooper takes a look at how the water industry fared in 2010.

The bottled water sector has faced its fair share of criticism from environmental campaigners in recent times so it is no surprise that the past year has seen the industry step up its efforts to present bottled water as a sustainable product.

In June, the International Bottled Water Association (IBWA) launched an initiative to promote recycling in the US. The IBWA said its 'Material Recovery Program' could serve as a blueprint for local communities across the country to increase recycling rates.

The IBWA, whose members include all of the major US bottled water producers, said the initiative would "assist in developing new, comprehensive solutions to help manage solid waste in communities in the US by having all consumer product companies work together with state and local governments to improve recycling and waste collection efforts". The organisation had also placed a video on its website in January to "correct misinformation about bottled water and set the facts straight".

With analysts suggesting that environmental criticisms of bottled water have contributed to a fall in demand in major markets such as the US and the UK, the European bottled water industry also moved to take the initiative on sustainability this year, with the publication in October of the first sustainability report by the European Federation of Bottled Water (EFBW).

The report aimed to do more than simply counter criticism but also show that the environmental footprint of bottled water is comparatively low in comparison with many other beverages and present bottled water companies as responsible stewards of their environments. The EFBW, which comprises 26 national trade associations representing more than 500 natural mineral and spring water producers, said the sector has "by far" the lowest water usage ratio of any packaged food and drinks, stating that it takes less than 2 litres of water to produce 1 litre of bottled water.

At the brand level, attempts to find more sustainable packaging solutions continued during the year. In September, Evian Volvic Worldwide announced plans to launch a more environmentally-friendly bottle in the UK. The company's 'Greener Bottle' is made partially from sugar-cane waste and is 100% recyclable. It will have a 38% lower packaging carbon footprint than the previous 50cl Volvic bottle. The Evian Volvic move follows the introduction of the similar 'plantbottle' by Coca-Cola in the US last year.

In December 2009, Nestlé Waters North America upgraded its eco-shaped bottle, originally introduced in 2007, reducing its weight further. The updated bottle weighs 9.3g on average and contains 60% less plastic than an equivalent bottle in the mid-1990s. In February, UK water brand Highland Spring launched an eco bottle which uses 9% less plastic.

The pressure from environmental campaigners is only likely to increase as international bottled water companies step up their activities in emerging markets. In August, Nestlé reported that a rise in half-year EBIT margin to 8.4% in its water division was partly attributable to faster growth in emerging markets. The following month, Danone said it had identified Latin America as a strong emerging market for bottled water and was seeking to gain a greater foothold in Brazil. It also said it was looking for acquisitions in China. Nestlé Waters had acquired a stake in Yunnan Dashan Drinks Co, the largest bottled water brand in the Chinese province of Yunnan, in February.

Acutely aware of the environmental concerns around water, Coca-Cola and PepsiCo both run global water initiatives. On World Water Day in March, PepsiCo announced a goal to provide access to 'safe water' to around 3m people in developing countries by 2015. Also on World Water Day, Coca-Cola said it had extended a joint investment with the US Agency for International Development(USAID) to support water programmes in developing countries. Coca-Cola said the US$12.7m investment would build on its existing global partnership, the Water and Development Alliance (WADA). It will support eight new multi-year programmes in Angola, Burundi, Ghana, Malawi, Mozambique, Senegal, South Africa and Tanzania.

In March, Danone launched the second phase of a campaign for its Polish water brand Zywiec Zdroj, designed to raise awareness of environmental sustainability. The 'My Strong Tree programme', which was launched in 2009, is aimed at increasing awareness of the importance of environmental sustainability, highlighting in particular the role of trees. In a similar vein, Nestlé Waters North America unveiled a sponsorship of the National Parks Conservation Association (NPCA) in May.

Whatever issues the water sector has to face on environmental grounds, bottled water brands know their products can score well in terms of health credentials. As brands seek to make the most of the link between water consumption and health, sports sponsorship has become an increasingly popular form of brand promotion and 2010 saw a number of new developments.

In September, Highland Spring agreed a four-year sponsorship of the Barclays ATP World Tour Finals. In February, the UK bottled water brand had added European Tour golfer Marc Warren to the list of prominent sportsmen that it sponsors. Staying with golf, the Ryder Cup being held in Wales this year represented a perfect sponsorship opportunity for Welsh water brand Ty Nant. In July, Buxton Mineral Water said it would be extending its sponsorship of the England and Wales Cricket Board for a further two years. And in October, Coca-Cola announced that it is to be the official tournament supplier of non-alcoholic beverages, including water brands such as BonAqua, Dasani and Glaceau Smartwater, to the Rugby World Cup 2011.

The last year had been a relatively quiet one in terms of acquisition activity in the water segment. However, that peace was shattered in November when rumours began to circulate that Danone, the second largest bottled water producer in the world, was in negotiations to sell its water business to a major Japanese drinks firm. Later in the month, Danone CEO Franck Riboud quashed the rumour, stating that the company was negotiating a new distribution agreement in Japan, and adding that Evian water was "part of Danone's DNA".