Water fight - US water market worthy prize as battle for market share escalates

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Packaged water is set to become the second largest category in the US soft drinks industry. And, such a fragmented market still offers a huge opportunity for international branding with traditional water and cola companies fighting for share.

The bottled water category is to become "the second pillar of the US beverage industry" while being the "envy of the rest of the drinks market", according to industry leaders at a recent soft drinks conference.

And, while sales of carbonated soft drinks (CSDs) are relatively flat, a new report by leading beverage industry consultants Canadean shows that US consumption of packaged water leapt by nearly 20% to 9.2bn litres in 1999. Furthermore over the last five years consumption has doubled while the single-serve PET segment of the market has "consistently delivered year-on-year volume rises of 30-35%", according to Canadean.

In view of this, therefore, it is hardly surprising to hear Doug Boyle, vice president non-carbonated brands at Pepsi Cola, describe bottled water, at this year's soft drinks trade fair Interbev, as "the star of the beverage industry in the last decade".

Boyle regularly referred to what he called the "sweet spot" of the drinks industry. That is the position a successful company adopts just ahead of where the market is heading. And, despite already having the leading brand in the US bottled water market with Aquafina, Pepsi clearly believes there is a lot more to come from this category.

Michael Bellas, chairman of the Beverage Marketing Corporation believes that in the next ten years the category will continue to grow strongly, although at a slightly slower rate. He said that between 2001 and 2005 the PET category would see 14-16% growth while between 2005 and 2010 it would still be registering 7-9% growth.

"As the US packaged water market continues to grow the cola giants are taking the spotlight"

The encouraging thing for the water market is that the trends that have driven its growth so far are still relevant now and will continue to be so well into the next decade. Most important of these is the change in consumer attitudes to what they are drinking.

Boyle described three prevailing consumer groups in the soft drinks market: those who drink to feel good; those who drink to look good; and those who drink to be good [to themselves]. While CSDs sit in the first group, populated by drinkers who are after a taste sensation, water sits in the third group.

There has been in the last decade a movement of a large number of consumers from the first through to the last group and not merely because the US society is ageing in general. There is also a much greater acceptance of the "be good" lifestyle among men over the age of 20, who now make up 35% of consumption, and the under 30s group in general, which makes up almost half of all consumption.

On top of this broadening demographic and change in attitude, the sector has benefited from its expanded retail availability - where penetration has tripled since 1994 - and the emergence of big brands to act as flagships.

None of these trends are flash in the pans, but it is the development of brands that offers the most interest in the future of the sector. Bellas believes that the PET sector is "consolidating at warp speed with the top five companies gaining 14 share points in the last two years".

Perrier has a 29% share of the PET market, Dannon (part of the Danone group) 21% and Pepsi (the fastest growing player on the market) has a 19% share. "There will be an increase in concentration to only four or five national players," said Bellas. "The winning companies will have strong brand building and good distribution and production infrastructures."

With the benefits of such growth at stake, the identity of these four or five companies assumes even more significance. Canadean's report, although admitting the role of the large water companies in the market, suggests the real winners will come from the traditional global beverage companies.

It said: "Nestle and Danone play a leading role in the US market. Yet neither company has managed to build a truly dominant position in the packaged segment. As the US packaged water market continues to grow it is the cola giants which are beginning to take the spotlight," - a view backed by Bellas.

Both Coca-Cola and PepsiCo have, unlike Pepsi's sports drink strategy, opted not to buy brands but build their own. Their strategy is also a departure from the traditional water companies on two fronts. Firstly both Pepsi and Coke's brands are made not from spring water but from purified water, and secondly they have priced the brands in the premium sector, above other domestic brands and alongside imported offerings.

The major advantage this strategy has over its rivals is that purified water can be produced anywhere in almost limitless volumes. Spring water sourced at a particular place has expensive shipping costs to contend with and runs the risk of limited volumes in hot weather and the threat of pollution.

"This is not to say Nestle and Danone will sit back as the cola companies run riot in the water sector"

This natural advantage coupled with Pepsi and Coke's massive distribution network should see them well placed to take full advantage of the water boom. Canadean said: "As the two companies begin to focus their considerable resources on building these brands there seems little to prevent them from becoming the dominant national packaged water brands within the next two to three years. Increased advertising expenditure and investment in building as yet under-developed channels, such as vending and food service, should pay handsome dividends."

This is of course not to say that Nestle and Danone will sit back and watch as the cola companies run riot in the water sector. "They will increase the level of marketing support for their national brands; reinforce their regional brand shares and focus on sales of the larger pack sizes (one and two gallon) which Coca-Cola are not really equipped to produce," said Canadean.

Indeed as the battle for market share hots up and the great marketing machines are put into gear, there promises to be an interesting fight over the processed versus natural question.

For further details on the Canadean USA Packaged Water Report please contact Ray Rowlands, Director of Strategic Studies on +44 (0)1256 394 200 or email


Source: Canadean Ltd


Source: Canadean Ltd

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