The View from A Farr – Coke looks to dodge water hazards

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Coca-Cola could be about to acquire the Highland Spring brand to revive its presence in the UK bottled water market. And, writes Annette Farr, Highland Spring's recent decision to change its classification from 'natural mineral water' to 'spring water' will be welcomed by Coke, not least because it means a potentially controversial hurdle has already been negotiated.

Coca-Cola could be set to put its somewhat chequered history in the UK bottled water market firmly behind it with a move for the Highland Spring brand.

An acquisition of Highland Spring would certainly make sense for the soft drinks giant. After it was forced to withdraw its Dasani brand in 2004, following a media-fuelled furore over it being purified mains water and the discovery of higher than permitted levels of bromate, Coke was left only with Malvern, a brand it had inherited as part of the Schweppes portfolio. Although a natural mineral water, the Malvern source does not supply water in the volumes that Coca-Cola needs.

But it says something about the nature of the water market that the acquisition of Highland Spring could bring further controversy. The Dasani episode certainly underlined the tendency of the water category to attract negative publicity. Consumption levels of bottled water are rising, yet climate change and drought worries have led to environmental concerns over excess usage and waste, be it from a dripping tap or beverage production plants.

All of which brings us back to Highland Spring. Malvern may not have the quantities that Coke requires, but Highland Spring certainly does.

And recently, Highland Spring - historically a fierce promoter of the natural mineral water image - has quietly downgraded from natural mineral water status to that of spring water, which will allow it to increase production. The move came into effect on 1 April and makes the speculated acquisition viable. It enables Highland Spring to bottle water without interruption regardless of which brand it is filling.

As one industry insider put it: "I was quite shocked that the company had deregistered. But I can see that doing so will make things easier for them as they don't now need to change anything in the bottling plant when they switch from one brand to another. Only one brand can be called Highland Spring as only one spring water can come from a single source; but they can produce any number of 'table' waters using the same water or a mix."

In a statement released by Highland Spring concerning the deregulation, Joe Beeston, chief executive, says: "Highland Spring currently bottles less than 2% of the water that falls on our catchment area and the company is proud of this gentle, sustainable level of abstraction. However, demand for the company's popular brands continues to grow by 10% a year and to facilitate this progress, Highland Spring will be reclassified as a 'spring water'.

"This gives the company access to at least another 100m litres of water a year which will enable the business to meet its growth targets for several years to come. In addition, some GBP3m (US$5.92m) is being invested in additional production facilities to help meet future demand and upgrade existing bottling lines.

"The new designation does not affect the quality of the water in any way as there is no difference to the water in the bottle. Highland Spring remains pure and natural water bottled at source from organic land. Interestingly most people already think Highland Spring is a spring water."

So from a business point of view, the move appears very sound. But the decision has been criticised in some quarters. It is argued that consumers will be confused over the reclassification.

"Highland Spring has substituted the phrase 'spring water' for the former 'natural mineral water' as the legally-required descriptor on the front of the label," says a spokesperson for the British Bottled Water Producers. "However, as they are also using the phrase 'natural' elsewhere on the bottle (100% Natural Scottish Spring Water), most consumers will be massively confused. You have to be pretty well informed to differentiate between an informal description - Natural Scottish Spring Water - and a legal description - 'Natural Mineral Water'."

It is strange that Highland Spring, which used to be such an advocate of natural mineral water, should now be open to charges of misleading consumers over the status of its water.

Nevertheless, the move has opened up access to significant quantities of water a year giving Highland Spring powerful flexibility. The water is drawn from an organic catchment area; the brand is market leader in children's bottled water under its Loony Tunes label; and the company exports to some 80 countries.

No wonder Coca-Cola is after Highland Spring - a company which has positioned itself for substantial growth - to plug the gap in its European bottled water portfolio. And after the Dasani episode, the fact that a rather controversial change has been made ahead of any possible takeover is particularly welcome.

Sectors: Soft drinks, Water

Companies: Coke

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