After a brief, recession-related downturn, the bottled water category by now has firmly regained its footing. Volume rose nearly 6 percent for the 2012 calendar year, up from a little over 4 percent the year before and 3.5 percent before that. With the economy in the U.S. expected to continue to recover in 2014, you can see where things are heading.
“We anticipate that 2014 will be another strong year for the bottled water category,” says Gary Hemphill, managing director and chief operating officer, Information Services, Beverage Marketing Corp., who predicts total category volume growth is projected to be 5 percent, driven by the retail premium PET segment. “Domestic sparkling is also expected to continue on its strong growth trajectory from its relatively small base,” Hemphill adds, “while imports are likely to have strong growth as well. Retail bulk, direct delivered and vended segments are all projected to grow at modest rates.”
Water is where a beverage category should be today if it wants to maintain strong growth: Natural, low-calorie, and with a healthful halo.
Sure, there have been hiccups along the way. In fact, the decline of 2008-2009, when the category’s volume swung from grown of 5.8 percent in 2007, to a fall-off of nearly 4 percent by the end of 2009, is evidence of one of the category’s weaknesses. It’s one drink that consumers can obtain for nothing when times get tight.
At the same time, some of the stigmas that at one time threatened the category have, for the most part, lifted. Even so, potential trouble spots remain. At press time, San Francisco was considering banning bottled water on all government property and last year Concord, Mass. actually implemented such a ban. A second criticism, over wasteful packaging, has largely been quieted by the industry’s attention to lightweighting.
In fact, the main threat to the category these days seems to be more of a systemic one. As bottled water has become ubiquitous—almost commodity-like—around the globe, so too have pricing pressures grown at retail as private label and other low-cost bottled water offerings have become increasingly popular.
Nestlé Waters North America president and CEO Tim Brown describes the situation this way: “There has been increasing pressure on retail price points,” he says. “Retailers will determine the final equation. With the sustained growth of the bottled water category, retailers believe bottled water drives store traffic. From a base of 6 billion gallons in 2003, bottled water has had a 5 percent CAGR, with 2013 volume predicted to be about 10 billion gallons. Bottled water is the No.1 beverage in 15 major grocery markets. It is also the No. 1 beverage of choice among 13-24 year-olds. Looking forward, that group is moving into peak beverage consumption years. With that promise of growth, it would be expected that retailers are applying pricing pressure to the best-selling bottled water item, the 24-bottle half-liter case pack. Facing their own competitive pressures, retailers know the bottled water shopper has a higher basket ring than the average shopper. They are taking price declines to attract that shopper to their stores.”
So how can the category remain a profitable one while faced with these pricing pressures?
Keeping Costs Down
The water producers have been able to meet the needs of their retailer partners and distributors to keep prices low through a host of tools at their disposal. For Nestlé Waters North America (NWNA), these include:
• Lightweighting packaging. NWNA has reduced its half-liter bottled plastic content by 60 percent over the past 20 years saving not only on material costs, but also on costs of shipping. Lighter bottles mean less fuel.
• Having no grown ingredients lightens NWNA’s environmental footprint, but also gives bottled water a savings opportunity other beverages don’t have.
• Compared with other beverage sectors, NWNA has many long-established spring water sources, which it has selected and managed for long-term sustainability. This allows the company to be assured of a safe, reliable, high-quality supply within a predictable cost-structure.
• NWNA has high-production plants. Most of these largest PET plants were built less than 10 years ago. The company continues to drive out waste and operate efficiently.
• On-site warehousing at most of NWNA’s plants reduces the need for re-staging or costly transfers of product.
• Ten of NWNA’s facilities are LEED Certified; most have a silver or gold rating. This certification holds the company accountable to having environmentally responsible operations and reductions in energy, water and waste material diverted from landfills—all cost-saving measures.
• NWNA has a nimble, multi-faceted distribution system, giving retail customers and its consumers a choice of the most efficient, cost-effective means of delivery, which is a highly efficient system for NWNA.
• Direct delivery to residential and commercial accounts is a unique aspect of its business among most other beverage companies. NWNA has years of experience in delivering beverages direct to customers in a cost-efficient way.
Also helping to keep down costs of bottled water production have been continuous advancements in production equipment.
On July 9, 2013, Niagara Bottling celebrated the Grand Opening of its newest plant in Gahanna, Ohio. The facility features the two fastest and most technologically advanced bottled water production lines in the world supplied by Sidel. The Gahanna lines produce bottled water for Niagara at a rate of 108,000 bottles per hour (bph). The new lines provide Midwestern U.S. consumers with small format bottled water.
Niagara, which celebrated its 50th anniversary in 2013, is an example of a bottled water company that has enjoyed consistent sales growth, averaging 32 percent over the past five years. During this period, Sidel has supplied the company nine high-speed turnkey bottling lines, helping Niagara to achieve its current position as one of the industry’s lowest-cost producers.
Niagara invested in these latest lines to increase its annual production capability to more than 10 billion bottles in order to sustain its industry-leading position. To this end, Niagara chose Sidel Matrix—described by Sidel as “a radical, new modular generation of PET bottling equipment”—for its cost-effective, sustainable, environmentally friendly solutions, with the aim of lowering energy, material usage, and driving down total cost of ownership (TCO) .
Sidel collaborated with Niagara to develop the equipment for the new lines to achieve these TCO goals. Sidel engineered and optimized the layout of the lines resulting in a 108,000 bph line compressed into the floor space typically occupied by a 72,000 bph line. Each of the two new lines comprises a dual 24-cavity Sidel Matrix Combi; a single, high-speed VersaFilm packer capable of 90 packs per minute; three Sidel Matrix Rollfed labelers; new generation layer-formatting; a high-speed, upgraded palletizer, conveyors and line-automation to handle the record-breaking speeds.
Sidel’s commercial and project management teams worked with Niagara’s engineering group over several months to tailor the line solutions for the bottler. “We proposed the innovative approach of two Combis integrated into a single production line in order to achieve Niagara’s target of 100,000 bottles per hour,” says George Kotzeff, Sidel’s key account manager for Niagara. “The competitive TCO of Sidel Matrix gave us a significant advantage and ultimately won us the order. We also collaborated on a fast-track basis incorporating the new, lightweight bottle—developed after the order was taken.”
Sidel also continues to drive down production costs for bottled water makers through continuous introductions of lighter-weight bottles. Its latest is its new 0.5-liter PET bottle for still water called Rightweight. The company says it can result in significantly less weight while maintaining or increasing bottle line performance without compromising on product quality. The new bottle weighs just 7.95 grams yet offers top-load performance of 33 kilograms without nitrogen dosing, using standard 26/22 caps. The increased resistance of the Rightweight bottle helps eliminate the “over-squeeze” issue often experienced by end consumers when using ultra-light bottles, which can result in the spilling of contents unintentionally. In addition, the stronger resistance means the RightWeight bottle is more likely to travel across the supply chain and retain its original appearance when placed on shelf.
“Beverage producers are increasingly striving to unlock the value of a PET bottle across the entire supply chain, from concept to consumer,” says Christophe Bunel, head of Packaging Care & Development at Sidel. “To achieve this, a bottle must be lighter, of course, but also stay attractive, protect the beverage and ensure high consumer satisfaction. At Sidel we call this ‘rightweighting.’ It’s no longer about simply reducing the plastic content.” Compared with an average of 12 grams for commercial 0.5 liter water bottles available on the market today, the 7.95 gram bottle represents 34 percent less weight than the average commercial bottle. It also achieves 32 percent more top-load performance than the lightest commercial bottle, resulting in raw-material cost savings of up to EUR 1.75 million (US$2.4 million) per year, according to Sidel data. The blowing pressure for the bottle is also just 20 bars. In many cases the bottles can match the top-load performance of nitrogen-assisted ultra-lightweight bottles, however, without the use of nitrogen, leading to further cost and energy savings.
Another factor contributing to Niagara’s selection of the Sidel lines was the efficiency level achieved during the acceptance testing on two previous Sidel lines installed at Niagara’s Ontario, Calif. plant, which surpassed guaranteed line efficiency values by an average of 6.5 percent. Keith Boss, North America vice president for Sidel, says: “The success of this order was made possible by the team efforts executing the latest projects and supporting the existing lines. The line efficiencies achieved definitely helped Sidel’s case and proved the reliability of our equipment and expertise of our people.”
Last year, Beverage Marketing Corporation found that over the past 11 years the average weight of a 16.9 ounce (half-liter) single-serve PET bottled water container has dropped by nearly 47.8 percent, to 9.9 grams.
Less is More
The bottled water industry also is showing impressive results in other ways. This past November, Nestlé Waters Canada was honored with silver recognition in the manufacturing category of Canadian Occupational Safety magazine’s 2013 Canada’s Safest Employers Award program. The program recognizes employers across Canada for their outstanding achievements in workplace health and safety. The operation was recognized specifically for its commitment to OHSAS 18001, an international healthy and safety management system registration that requires a company to establish and maintain standards that control health and safety risks. The company has established annual targets ever since attaining certification in 2010 that have continuous improvement in safety measures.
On a broader front, the bottled water industry continues to prove it is adept at sustainable practices. Nestlé Waters North America last February announced its first wind energy project with the hosting of two wind turbines at its bottling plant in Cabazon, Calif. The turbines provide wind power for 30 percent of the facility where the company produces its Arrowhead and Nestlé Pure Life brand bottled waters.
Water use in bottled water production is, somewhat ironically, also low compared with other beverages. The International Bottled Water Association says that the amount of water used to produce bottled water products is less than all other types of packaged beverages. On average, only 1.39 liters of water is used to produce every one liter of finished bottled water. The study was produced by Antea Group, an independent third-party consultancy, which conducted the data collection process, verification, analysis and reporting In total, nine IBWA member companies and one industry peer contributed to the study, which represents 14.5 million liters of bottled water production—an impressive 43 percent of total 2011 U.S. bottled water consumption. The study also evaluated water use ratio trends among the three bottled water facility types and found small pack facilities had the lowest water use ratio with 1.36L/L, followed by mixed packaging facilities with 1.41 L/L and HOD with 1.63L/L. The study notes that differences in specific rates among the three facility types are largely process driven. For example, HOD facilities bottle finished product in refillable containers, resulting in additional water use for sanitation processes that do not exist for single-fill packaging. The study’s data also show that while on average total water production increased by about 3 percent, the water use ration remained relatively flat over the three-year study period. This trend reflects the adoption of measurable process efficiencies.
The study, which presents results in liters to align with other beverage marketplace studies (1 liter = 0.2641 U.S. gallons), also identified some of the significant process improvements the North American bottled water industry has made to reduce water use, including improved flow management to reduce product waste during changeovers; the optimization of cleaning/sanitizing units through automated timers; selection of cleaning chemicals, flow control; air rinsing, etc.; the recognition of production schedule efficiencies, and the reuse/reclamation of water for non-product contact or gray-water applications, such as on-site landscaping.
Efficiencies also are being gained through collaboration among business partners, as in the case of an announcement last month by Danone Waters of America (DWA) and Red Bull Distribution Company (RBDC). DWA imports premium water brands Evian, Badoit and Volvic and markets them in the U.S. and Canada. Recently, DWA announced a new route to market model for Evian. The new hybrid/direct sales and distribution model is designed to increase proximity to customers and broaden the brand footprint.
As part of the route-to-market transformation, DWA and RBDC will be testing a distribution partnership in two of Evian’s key markets, Southern California and Central/Southern Florida. In the test, RBDC will distribute evian in small format channels such as convenience, drug and select food service and specialty retail. “The partnership will leverage complementary brand strengths to enhance merchandising and promotion opportunities on a store-by-store basis,” the companies say.
And the IBWA also revealed data in 2013 from the National Association for PET Container Resources (NAPCOR) showing the bottled water industry continuing to reduce its environmental footprint through significant increases in recycling. According to NAPCOR, the recycling rate for single-serve PET bottled water has, in seven years, nearly doubled to about 39 percent.
More Room for Profits
With such advances, coupled with continuous growth in sales, it’s not hard to see why research firm Canadean predicts bottled water will overtake the carbonated soft drink category to become the liquid refreshment leader by 2015. “The main thrust behind this category re-positioning is coming from Asia,” Canadean says. “Volumes here were predicted to rise by around 16 percent in 2013 alone, which is more than twice the global rate increase. Yet, the region already absorbs one in every three liters of packaged water consumed around the world. But per capita intake remains well below the international average, especially in under-developed markets like Pakistan, the Phillippines and Vietnam where it is still less than ten liters per capita.”
So there is still enormous room for growth.
Meanwhile, back in the U.S. Nestlé Waters North America’s Brown says “there is a strong case to be made to keep value in this growing category.” He points out that bottled water is now 80 percent of CSDs in volume, with a 10-gallon shift from CSDs to bottled water in the past 10 years. “And there is lots more potential growth when you consider bottled water is only in 70 percent of U.S. households compared to 95 percent for CSDs.” In fact, when polled, Brown points out, consumers answered that $4/case, half-liter 24-pack would be a good deal.
But he then adds, “Despite this high performance of bottled water and its potential for growth, retail conditions are lagging trends. Evidence of this is the far greater amount of shelf space and features for CSDs than for bottled water.
“We believe the retailer has the opportunity to meet their shoppers’ expectations while keeping value in the bottled water category.”