Bottled Water Poised For Strong Growth

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Bottled Water Poised For Strong Growth

More than a decade after bottled water entered the marketplace, the category continues to surge in the convenience store channel. According to projections by New York-based Beverage Marketing Corp. (BMC), bottled water experienced a 19.5 percent volume gain in the first quarter of 2006 -- a heady figure for a category that, for all practical purposes, should be well into its maturation stage by now.

Perhaps the most optimistic aspect about the continuing growth in the bottled water category is that it's no longer driven by lack of confidence in municipal water supplies. Rather, bottled water -- single-serve PET water in particular -- has become part of the pop culture, and a regular beverage option among American consumers.

"The bottled water category is still emerging, and so is the consumer," explained Bill Sipper, a long-time beverage marketer and currently, a principal partner at Cascadia Consulting Group LLC in Ramsey, N.J.

The bottled water category, which has been fairly stable at the premium and value price points, is poised for strong growth in what Sipper calls the "LUXE" segment (i.e. above-premium deluxe waters).

"These are brands such as Voss and Fiji -- brands that have super-stylish packaging, high price and margin, and become a status symbol to consumers who buy them," said Sipper. "With margins continuing to thin out, look for new LUXE waters to add some spice to the category."

To increase margins in the bottled water category that -- with the exception of the "LUXE" brands -- has such a small point of differentiation between brands, retailers take a variety of approaches.

"You manage the mix," said Kent Raphael, vice president of merchandising for Indianapolis-based Village Pantry. "You certainly need a certain percentage of single-serve compared to warm multi-packs, but you probably won't get much growth with single-serves."

Volume growth, be it in bottled water or carbonated soft drinks (CSDs), needs to come from the sale of warm take-home, multi-serve packs, according to Raphael. "And there are benefits from the suppliers for showing growth," he noted. "You can sell the take-home at a very low margin if you have a good single-serve program and are able to pool your margins."

At Texarkana, Texas-based E-Z Mart Stores, the key to profitability in the category is managing the direct-store-delivery (DSD)/warehouse mix properly, by communicating and partnering with the DSD suppliers effectively.

"We're looking to do about 33 percent of our bottled water business through the warehouse and 67 percent via DSD," said Ron Gillion, the chain's category manager. "That will help increase sales while keeping the profit margins in line."

See the article "Water, Water Everywhere" in the August 28 issue of Convenience Store News for more on this topic.