Gushing Profits

On 30th November 2017 by good2us

Costing £80 a bottle, and containing water from Norwegian icebergs that are up to 4,000 years old, Svalbardi is one of hundreds of water brands exotically sourced and marketed as luxury products.

uswaterThe market for bottled water is gushing profits. The consulting firm Zenith Global claims the global market has grown by 9% annually in recent years and is worth $147bn. The main reason being changing lifestyles.

People are spending more time, and eating more of their meals, away from home and switching from soft drinks and alcohol to healthier beverages. As the chart shows, the consumption of bottled water overtook that of sugary soft drinks in America in 2016.

Basic brands, such as Aquafina from PepsiCo, compete on price and have slim margins. The costs arise with packaging, distribution and marketing as the raw material costs almost nothing.

“Premiumisation” operates at the other end of the scale. Customers being successfully persuaded to pay a lot despite the product not being significantly different form that freely and readily available from the nearest tap in most rich countries. But it works. Though only part of the American market, really high-cost bottled water (selling for more than $1.30 a litre) has been one of its fastest-growing areas.

There is nothing new in paying a premium price for water. The Perrier brand, owned by Nestlé, and Evian, owned by Danone, have long marketed the product on the basis of their natural source. New offerings take a different approach by promoting a lifestyle. Coca-Cola’s premium water brand is advertised by Jennifer Aniston, and marketed as “inspirational” water for successful people.

The same approach is taken by PepsiCo’s LIFEWTR, launched in America with a 30-second ad during last month’s Super Bowl. For dedicated followers of fashion, one range of Evian bottles features artwork from Christian Lacroix.

Adding flavour also sells. Stores stock fruit-flavoured waters and “plant” waters, e.g. coconut, maple or birch. Water ‘fortified’ with vitamins and minerals is a hit with exercise junkies. The market is small but profitable. Sales of flavoured water amount to only 4% of the volume of plain water sold but bring in 15% of the total revenue.

With this plethora of marketing hype it is only to be expected that conspicuous consumption, buying an expensive bottle of water is a way to signal status, occurs.   In expensive restaurants the precise origin of water is what matters; many eateries offer water lists along with the wine selection. For power-lunchers in health-conscious Los Angeles this becomes commonplace.

 

Environmentally this is costly. Transporting water from exotic places is costly and plastic bottles generally end up in landfill sites. Some firms, e.g. Nestlé, attract condemnation for monopolising water sources at the expense of local communities as during periods of drought in California. Nestlé counters by saying it monitors environmental conditions around its source springs and that it follows sustainable practices. Other brands address such concerns head-on. Svalbardi water is certified as carbon-neutral, for example; Coca-Cola funds drinking water projects in Africa.

In all probability the demand for up-market water will only deepen. As a status-conscious middle-class grows in poorer countries so will the desire to catch up with the developed world and as Westerners continue to reject unhealthy soft drinks so will the marketing hype and sales.

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