Tap water satisfies in a recession

When Jeff Keesee and Shawn Whitman grab for water, it’s not the prepackaged variety.

The Midtown couple uses tap water to fill reusable plastic and stainless steel containers. It costs less and cuts down on the environmental impact of producing, transporting and disposing plastic bottles, they said.

“Why would you buy water if you didn’t have to?” Keesee asked.

It’s a basic question, but one that more consumers are asking. Once a fast-growing segment for beverage firms, bottled water sales have slowed as the recession has deepened and environmental issues gained momentum.

The shift in the market has hit home at Atlanta-based Coca-Cola Co., which sells the Dasani, Smartwater and Aquarius Spring! water brands.

The dramatic increases may be over as the segment matures, but bottled water sales can grow again, said Brandon Leck, director of water brands for Coca-Cola North.

Coca-Cola and other major beverage firms continue to be targeted by advocacy groups, who say bottled water is a poor use of natural resources and creates unneeded plastic waste.

Coca-Cola, though, is rolling out new packaging, including a bottle partially made from plants, and has ramped up recycling initiatives that should address environmental concerns, Leck said. The company also believes its waters offer a consistent, clean taste that remains appealing to many consumers, he said.

“We assume that as the economy improves, and there’s more and more indication that it is heading back in the right direction, that we will see a recovery in bottled water sales,” Leck said.

Recession puts a dent in growth

Bottled water became a booming business in the late 1990s. From 1997 to 2007, U.S. bottled water consumption per person almost doubled to 22.5 gallons, putting it behind only soft drinks among beverage segments, according to figures from Beverage Digest.

Last year, though, bottled water consumption slipped to 21.4 gallons per person and growth was flat for most major brands. Nestle’s Pure Life brand leads the category with PepsiCo’s Aquafina and Coca-Cola’s Dasani a close second and third, respectively.

Still beverages, which include bottled water and other noncarbonated drinks such as teas and juices, represented 22 percent of Coca-Cola’s case volume in 2008, but they’re becoming a bigger part of the overall portfolio. Between 2008 and 2020 across the industry, Coca-Cola projects water to be the third-largest driver of global retail sales growth, behind carbonated soft-drinks and juices and juice drinks.

The recession has slowed growth in the United States, said John Sicher, editor and publisher of Beverage Digest. Many consumers also have switched to other beverages, including back to carbonated soft drinks, he said.

Those that continue to buy bottled water also have migrated to low-priced brands, particularly for large bundles sold at grocery stores, Sicher said. It’s becoming harder for Coca-Cola, PepsiCo and their bottlers to make profits on bulk sales, he said.

The segment likely won’t return to double-digit growth again, but sales should pick up as the economy recovers, Sicher said. “The portability and universal accessibility of bottled water is the strength of the category and will continue to keep it at a big scale,” Sicher said. “In New York City, try walking through Times Square on a hot summer day and finding a place to refill your water container.”

Prime target for activist groups

Many activist groups, though, are working to ensure the slowdown continues even when the economy recovers.

Corporate Accountability International, a Boston-based advocacy group, launched its “Think Outside the Bottle” campaign in 2006 aimed at reducing the use of bottled water.

The group says people would be better served if governments devoted more resources to upgrading public tap water systems. It’s pushed for greater transparency by beverage companies by putting the source of their bottled water on labels.

The movement has struck a chord with a range of groups, including colleges, faith-based organizations and local governments, said Patti Lynn, campaigns director for Corporate Accountability International.

Sixty cities and three states have cut spending on bottled water, according to the group. The U.S. Conference of Mayors also has adopted a resolution encouraging cities to phase out, where feasible, government spending on bottled water.

The recession has been a factor pushing consumers away from bottled water and back to tap water, Lynn said. It’s a shift, though, that should stick, she said.

“There’s really no good reason to be spending money on it in an economic downturn or not,” Lynn said.

New bottles, messages

Coca-Cola does not market its products directly against tap water, said Leck, head of Coca-Cola’s North American water brands. But the company believes its water has superior taste to tap water and other bottled waters. Dasani is purified water with a blend of minerals added.

“It’s designed into the product to have that consistent clean fresh taste no matter where you are on the East Coast, West Coast or anywhere in between,” Leck said.

Coca-Cola also has made significant progress on environmental issues, Leck said. Last year, Coca-Cola opened in Spartanburg, S.C., the world’s largest plastic bottle-to-bottle recycling plant.

Later this year, Coca-Cola will launch a new package for Dasani called PlantBottle that includes a blend of plastic and up to 30 percent plant-based material. Early next year, Dasani also will be rolling out a 1 liter plastic package that uses 23 percent less plastic.

Coca-Cola plans to step up communications of its environmental efforts through advertising, packaging and Web sites, Leck said. Dasani will be the face of many of its environmental messages, he said.

“We have a good story to tell and we will definitely take advantage of that,” Leck said.

Expanding the market

Aside from environmental issues, Coca-Cola also has a strategy that should have broad appeal to consumers, he said. The company is approaching the market with a three-tiered pricing strategy, Leck said.

Dasani remains the company’s mainstream, mid-priced bottled water. Aquarius Spring!, which was rebranded last year, will compete as lower-priced value brand, Leck said.

Smartwater, acquired in 2007 when Coca-Cola bought Glaceau, has provided a strong player in the premium brand segment, he said. Despite the recession, Smartwater continues to do well, Leck said.

“Smartwater is experiencing robust growth this year and last year, and we anticipate that to continue,” he said.

Coca-Cola also continues to explore ways to broaden the category. It launched this year Dasani Essence, a line of no-calorie waters lightly sweetened with all-natural fruit flavor.

Leck wouldn’t provide details on future line extensions for Dasani, but he said consumers are responding well to Essence. “We’ll continue to look at opportunities to drive growth for our Dasani trademark,” Leck said.

Reusable containers flow in

The slowdown in bottled water sales hasn’t been bad for all companies.

Sigg, a Swiss company that makes reusable aluminum containers with a special liner, saw sales double last year. Klean Kanteen, a California firm that makes stainless steel bottles, saw its sales jump seven-fold last year.

The orders were coming in so fast that Klean Kanteen could barely keep up, said Jeff Cresswell, the company’s chief awareness officer.

“It was crazy, man,” Cresswell said. “I’m surprised we’re still in business.”

These companies have benefited from a combination of factors. Initially, consumers started filling reusable containers with tap water to help the environment.

Others joined during the recession as a way to save money. Brand-name metal containers can cost $15 to $25 but cut down on costs for bottled water.

Last year, concerns about BPA, a compound used in many plastic containers, pushed consumers to metal containers, creating a spike in sales for companies such as Sigg and Klean Kanteen.

Steve Wasik, Sigg’s chief executive office, has been on both sides of the water business —- both bottled and tap. He was general manager of the Naya bottled water brand earlier in his career.

While last year’s sales increases might not be repeated, reusable containers have room for growth, Wasik said. Sigg recently began a distribution deal that puts its colorful bottles in Target stores.

More people are realizing that a using a refillable water container is an easy way to help the environment, Wasik said. It’s a lifestyle change that should last even after the recession ends, he said.

“The one comment we get from people is ‘I want to do more for the environment. I just don’t know what to do,’ ” Wasik said. “Buying a Sigg bottle is a smart and simple way to reduce plastic waste.”

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How we got the story

The AJC interviewed consumers, corporate watchdog groups, industry experts and the head of water brands for Coca-Cola to assess the U.S. bottled water industry. We looked at sales and per capita consumption trends for major beverage segments over the past decade.

We also talked with two leading makers of reusable water containers, Klean Kanteen and Sigg, to see if they were benefiting from a switch to tap water.