Two companies dominate the world market for branded bottled water: Groupe Danone, based in Paris, and Nestle, S.A., based in Vaud, Switzerland. The former markets Evian, Volvic, and others, including Dannon spring water. Nestle markets such majors as Perrier, Vittel, San Pellegrino, Poland Spring and Deer Park.

The other is approved potable municipal supplies. Companies that use the latter reprocess the water using methods such as distillation, reverse osmosis, de-ionization and filtration.

US law requires all drinking water to be treated so it doesn’t go bad in the bottle, Boyes explains. Since there isn’t a taste difference, all non-carbonated water is basically the same.

And that’s where branding comes in.

“Branding is extremely important for water,” says Chiranjeev Kohil, professor of marketing at California State University at Fullerton. “In a lot of categories, you can duplicate products and get an edge on quality or attributes, but that edge can be shaved off very quickly by competitors. In the water category, there is no technological superiority. The only thing that differentiates one water from the next is the brand.”

Marketing experts say that a commodity such as water can be branded effectively. The key is differentiation, but that’s also the challenge. After all, water is water.

“The source of the water provides a good foundation for differentiation,” says Rob Frankel, a branding consultant. “Evian is from the Alps, Arrowhead is from the mountains in California, etc. If you’re going to tap into the brand culture, so to speak, you start with the singularity of the source.”

Harvey Briggs of Lindsay Stone and Briggs recommends that marketers “grab the high ground” and focus on key benefits that consumers are looking for. “The people who grab, say, purity and own that with the brand are the ones who are going to succeed in the long term,” says Briggs, executive vice president of the brand innovation firm in Madison, Wisconsin.

If there weren’t any branding in the water category, the business would eventually go 100 percent to price and to private label, says Robert Lynn, executive vice president of sales and marketing for Global Beverage Systems, marketers of Le*Nature’s Beverages. For the time being, he believes that brand is more important than price.

“Price won’t become the major factor until growth stops,” he predicts. “When the growth stops, that’s when the war starts, and you fight the war on price. How do brands as strong as Coke and Pepsi fight their wars? On price. Two-liter soda for 69 cents. And those brands are stronger than any of the water brands.”

The US bottled water market has been reshaped in the last few years by the entry of Coke and Pepsi and their respective brands, Dasani and Aquifina, both filtered tap water.

“Each of these two marketers has introduced a single product that has been heavily promoted and enjoyed the support of the best distribution systems to be had in the beverage industry,” according to a report on the US bottled water market by MarketResearch.com.

Pepsi’s Aquafina, introduced in 1997, is now the number one branded non-carbonated bottled water in the US. Coke’s Dasani, launched a few months later, is second in the category. Both are likely to lead the market in the future.

“When you become a brand leader, it’s not only because you had a good, strong name,” says Kohil of California State. “It’s also because you had a very efficient distribution system in place. That’s the advantage that [Coke and Pepsi] have. They already have the relationships with the distributors and retailers.”

Meanwhile, the regional brands have to rely on local loyalty as they compete “against the big, faceless multinationals,” says Briggs of Lindsey Stone and Briggs. For example, consumers in New England may be inclined to buy local natural spring waters such as Hidden Spring or Twin Mountain from Vermont.

“The regionals will succeed through grass roots efforts,” Briggs says. “It’s the things they are going to do to get closer to their communities that are going to differentiate them.”

Frankel, the consultant, believes that store brands will account for most of the business because they ride the advertising coattails of the major marketers. Consumers will support the category but spend less because they’re buying private label.

The category will see its share of new products in the form of enhanced waters that provide energy, promote fitness or just taste better than plain drinking water. Recent entrants include: Propel, a purified water beverage with vitamins from Quaker Oats, the makers of Gatorade; Fluoride To Go, a fluorinated spring water from Dannon; and Fruit 2 Go, a naturally-flavored spring water beverage from Veryfine Products.

But the war will be in non-carbonated bottled water. Market analysts look for major consolidation among the plethora of brands in the next few years. Essentially, the large national marketers will buy local brands around the country and shut them down. Why? To reduce competition and, in some cases, to acquire other supply sources for spring water.

The battle between Coke and Pepsi and the larger European brands is the “high profile war that will be waged,” predicts Briggs, who adds that branding will remain a deciding factor for discerning consumers. “Quality and trust are going to be critical, so brands will be important.”

Marketers everywhere will certainly drink to that.    

[15-Apr-2002]