Whole lot of bottle – the global water market13 December 2016
Water has been the world’s favourite soft drink since 2015. Richard Corbett joins forces with market analyst Canadean to examine the trends that are shaping the media by which it is being distributed.
Water is the original soft drink. In the 18th century, it became the vogue in Europe to visit natural mineral springs, which were believed to have invigorating – and even medicinal – qualities when bathed in, or drunk. Beverage-sector pioneers bottled these liquids and sent them far and wide to exploit a growing audience, but this could never have happened without early packaging innovations.
Taste: the difference?
Progress in packaging is still critical to the success of bottled water. The variation in taste between brands across the price spectrum is only subtle, so product differentiation relies almost completely on packaging, which must exploit formats and sizes to the full. Water is consumed all the time, everywhere. Whether drinkers are on-the-go, at home, or even on an aeroplane, every occasion requires an appropriate delivery method.
Packaging can also enable operators to divide their markets into segments and establish brand identities. Volvic’s recent Star Wars range, for example, is a blatant attempt to appeal to children, while Danone’s Evian brand is geared emphatically towards women.
Packaging innovation is also an effective route into other lucrative fields. As Nestlé’s Vittel brand has shown, putting a certain sort of cap on a bottle, combined with the right marketing and sponsorship, effectively makes water a unisex sports drink.
Some companies have opted to ply exoticism – such as Himalayan or Fijian sources – while others have emphasised functional aspects, such as Bai antioxidant water, or OxRyd oxygenated water. In every case, packaging is critical to creating desired perceptions and setting appropriate prices.
Fizzy goes flat
It must be working, because centuries after the first visitors to Europe’s mineral springs, packaged waters are very much in fashion. According to beverage researcher Canadean, in 2015 plain packaged waters overtook carbonates to become the leading soft drink category. The annual global consumption of water averages out at 31L of packaged water per person, which equates to nearly 230 billion litres, or around 320 billion units.
Western Europeans are the world’s most voracious water drinkers, with per capita consumption reaching 115L in 2016, which is 8L more than North America, where the climate is warmer overall. Asian drinkers may only drink 21L a year, but the sheer number of people makes that continent far and away the leading market for packaged waters, accounting for two thirds of all bottled water sales.
Asia has indeed enjoyed a sustained period of growth over the last decade, and its market for packaged water has more than trebled. By contrast, the West European water market has risen by just 5% in the same period. This compares unfavourably with North America, which is up 36%, and Australasia which recorded a 52% increase. Asia is well ahead of other developing markets, including Africa (151%), the Middle East and North America (89%), Latin America (55%) and East Europe (36%).
Still waters run deep
When you compare the Asian and the West European water markets, one factor stands out. In Asia, still waters make up 98% of the market, but this dips to 60% in West Europe. Globally, the split is 84:64 in favour of plain still water, but as the Asian and other developing water markets with a still water bias grow, plain fizzy waters will be further squeezed out.
Demand is driven by different factors across continents. In Asia, sparkling water is mostly consumed by expats and tourists.
Canadean’s Indian consultant Badrinath Raghavendran points out that in India almost all sales of sparkling waters come from hotels bars and restaurants, with sales increasing when alcohol consumption goes up.
In developing markets, as disposable income has risen, consumers have spent their new-found wealth on clean drinking water. More affluent West European consumers, whose municipal waters are more likely to be pure, are buying packaged waters for reasons of lifestyle and convenience. These varying priorities call for different sorts of packaging.
No PETs, please
Developed markets are, by their very nature, more evolved. In Asia, non-PET plastics account for nearly a tenth of still water packaging; in West Europe this material is all but obsolete.
This reflects how fragmented the market is in Asia and other emerging economies and how future investment will need to be directed towards industry consolidation and updating bottling lines.
Packaged water is more expensive in Asia than in West Europe. According to Canadean, a litre of still water retails for an average price of €0.52 in Asia, but is just €0.35 in West Europe. It can be assumed, then, that the focus on packaging innovation in Asia will increasingly be on keeping costs down, whereas in West Europe, the goal will be to increase the average consumer spend.
Reducing weight is one way of reducing costs. The average weight of a PET bottle is falling year, and this is particularly important In India.
“Retail prices in India rise by 5–10% every year because the bottle material has to be imported,” observes Raghavendran.
A 50cl PET bottle of Coca-Cola’s Kinley brand now weighs as little as 24g in India. Lighter bottles are not only cheaper, but also tick the ‘green’ box in developed markets. Eco credentials add sheen to brands in the West.
Packaged waters in the US and Europe have come under significant consumer and official scrutiny in recent years; some governments have even gone so far as to ban the use of packaged waters in their institutions.
Environmental initiatives in the Netherlands, and to a lesser extent Denmark, have led to the use of recyclable cartons: nearly 40 million litres of water was packed in this way in 2015.
While legislation forced the adoption of this unexpected medium, Tetra Pak’s new ‘carton bottle’ has been driven by consumers.
Opaque and made from FSC-certified forests, it is claimed to be 40% lighter than traditional plastic bottles; the challenge will be to sell water in containers that do not allow potential buyers to see how clear it is.
If packaged water is to continue taking great strides in the future, sustainability and responsibility will be the major considerations shaping designs. These constitute an important plank of Danone’s strategy, as it admitted in its recent annual report. “As water shortages become more common, managing this vital resource is a privilege and a responsibility,” it said.
Canadean’s latest projections for packaged water are very upbeat. It predicts that in the next five years the market will jump by a third to 325 billion litres, or 41L per capita. Nearly four in every 10L of soft drink consumed around the world will be bottled water. “Water hasn’t stopped surprising people,” explains Danone Mexico’s Guillermo Mosig Garcia. “Hundreds of brands are proof of this. A slight emotional or functional benefit creates a new interest and legitimises the price and the bottle.”