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Balmy summer boosts bottled water in Western Europe - Comment

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A decade ago, West Europe accounted for nearly four in every ten litres of packaged water sold globally, according to Canadean. By the end of last year, that had shrunk to little more than a fifth. While the global market for packaged water has jumped by 75%, the West European market has managed to creep up by just 4% in the last ten years and 2014's West European sales remain below that of their 2006 high water mark, when much of Europe basked in tropical weather conditions.

It is little wonder, then, that Nestlé Waters has opted to change its strategy and to focus on its glamorous international brand portfolio, rather than on its plethora of smaller, localised brands. Further evidence of this shift in tactics has come in recent months in Germany, with the company's decision to offload its one remaining regional operation in the country, Fürst Bismarck-Quelle. At the same time, Nestle Waters Germany will also be taking the rights to sell and market the premium Perrier water brand back in house.

The numbers suggest that opportunities in water in Western Europe have been drying up for a while now, and the only realistic way to make money in water is to add value. Results in 2015, however, are much more upbeat in volume terms.

I have had a sneak preview of Canadean's latest figures for bottled water sales in the region up until the end of October, and it looks like the dark clouds are lifting and the sun is coming out again for the water market. Packaged water sales volumes in the first three quarters of this year are up by a healthy 4% on last year. In the first three quarters, fizzy waters are up by a less spectacular 1%, but the still water segment is increasing by a stunning 6%.

On a quarterly basis, the results are even more buoyant, with still water sales up by almost double digits and sparkling waters rising 4%. Canadean is now even predicting that, by the end of the year, West Europeans will have drunk more bottled water than they did in 2006.

Drill down into the numbers and much of the credit can go to France, Italy and Spain who, between them, account for more than two thirds of the still water segment. In these markets, you can credit the jump in still water sales to good weather. In France, it was the second hottest summer since 2003, while Italy saw the highest temperatures in July since records began in 1800 and Spain saw a heatwave in July and early August. In France, in particular, if the weather is warm, then thirst levels rise and, because municipal waters often have a dubious reputation, drinkers generally switch to commercially-packaged waters. Meanwhile, the consumer mood in Spain is on the up as the economy recovers.

The influential German market too enjoyed above-average temperatures, although it is possible that the compassion the country has shown in welcoming in so many refugees will have contributed to its vibrant still water market. Many refugees were given access to bottled water during their journey and during the time they were being processed, and this may have played a part. In Germany, we are also seeing some cannibalisation between sparkling waters and still waters.

Although the UK had a scorching start to the summer, July gave way to a very damp and cool August and September. Despite this handicap, the UK still water market expanded in the year-to-date by double digits. The noise from the anti-sugar lobby has been deafening this year, with demands for a sugar tax the key focal point of the campaign. Soft drinks have been at the forefront of these discussions and this must inevitably be changing consumer behaviour. One of the largest players in the market, Highland Spring, must think so because it announced recently that it will spend GBP20m increasing its bottling capacity by around 50%.

In the region, only Denmark, Finland, Norway and Switzerland have seen their still water sales drop this year. In Denmark, Finland and Norway, a cooler summer contrasted with good weather in the comparable year, amplifying losses this year. Meanwhile Switzerland had favourable conditions, but consumers apparently opted for tap water - or even beer instead - during the fine weather.

2015 may well see West Europe set records for packaged water consumption, but it is still likely that Nestle's decision to focus on a few fashionable brands will be justified. Much of the gains seen in the region will again have been driven by ferocious price promotional activity and margins will have been squeezed again. The heat may have pushed up consumption levels in the region's water heartlands this year, but these levels are artificially high and will probably contract in less advantageous summer conditions. Markets like the UK are less price-sensitive than the established water strongholds and branding activity is more effective.

It is markets that do not have a long history of packaged water consumption, like the UK, where the potential for growth is most pronounced and the scope for branding is abundant. Nestle will be well paced to capitalise on such markets going forward.


Sectors: Soft drinks, Water

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