Bottled-Water Price War Heats Up as Demand Falls

Wall Street Journal
Aug 31, 2009

Bottled-water makers have stepped up a months-long price war this summer to win back customers who have turned on the tap to save money and reduce environmental waste. This month, PepsiCo Inc.'s Aquafina brand sold at some grocery stores for as little as $2.99 for a 24-pack of half-liter bottles -- less than a penny an ounce and about half of its typical price. Still, that wasn't as cheap as the private-label brand at supermarket chain Kroger Co., on sale for $2.49. "It used to be $6.99 for a 24-pack, then $5.99," said Michael Bellas, chief executive of New York consulting firm Beverage Marketing Corp. "But $2.49? That's the lowest I've seen." In the first quarter of 2009, bottled-water brands sold for an average of $1.35 a gallon in the U.S., down more than 30% from $1.94 in 2001, according to the consulting firm. It isn't clear whether beverage and bottling companies make any money on bottled water at these prices, beverage analysts say. In recent years, water has given the companies a huge lift in their overall volumes sold, an indicator watched closely by Wall Street. But the beverage makers haven't seen a big jump in earnings, in part because of their sizable investment in the water business, said Bill Pecoriello, CEO of ConsumerEdge Research LLC. The price wars aggravate a continuing problem, Mr. Pecoriello said. The bottling companies rely on single-serve bottles sold in vending machines and coolers for much of their profit margin on bottled water, but with those sales down, they are also struggling to make water profitable, he said. Some analysts predict the price of bottled water could fall even further by next summer, as PepsiCo absorbs its two biggest bottlers and makes expected changes to lower its delivery costs. Pepsi declined to comment on its plans. Bottled-water makers caution that the low prices are promotional and average normal retail prices for their 24-packs haven't fallen as drastically. Bargains before holidays like Labor Day are common, they say. The price slashing comes as bottled-water sales are declining after more than a decade of blockbuster growth. For the year ended July 12, U.S. sales of bottled water dropped 6% to $7.6 billion, according to Chicago-based market-research firm Information Resources Inc., whose figures don't include sales from Wal-Mart Stores Inc. Sales of bottled water have suffered as environmentalists urged boycotts of the product. In 2007, environmental groups intensified campaigns to persuade consumers to reject bottled water as wasteful. Several city governments and restaurants stopped stocking it. Coca-Cola Co., Pepsi and Nestlé Waters North America Inc., a unit of Swiss food giant Nestlé SA and America's biggest bottled-water maker, have been reducing the amount of plastic in their bottles in response to public criticism. Pepsi's "Eco-Fina" half-liter bottle contains less than half the plastic of its 2002 half-liter bottle. Coke has promised to begin using a bottle made partly of plant-based materials late this year. Falling prices for plastic bottles have helped offset the price cuts by the beverage companies and other bottled-water suppliers, including Niagara Bottling LLC, which produces private-label brands. Coke and its bottlers are reluctant to slash prices for Dasani, but have sometimes done so for the Aquarius Spring water brand. Coke's refusal to lower Dasani prices has come at a cost: The brand's U.S. sales volume slid nearly 26% in grocery and other stores, excluding Wal-Mart, in the 12 weeks ended Aug. 8, according to a report by J.P. Morgan Chase & Co., which cited data from Nielsen Syndicate Market Data. Aquafina's sales fell a less-steep 13.8% over the same period, helped by a 5% price cut. Sales of Poland Spring, owned by Nestlé, fell 8.9% while its prices sank 11.3%. Brandon Leck, director of Coca-Cola North America's water brands, said the company expects bottled-water sales to improve with the economy. "As the economy recovers, we're confident that consumers' demand for value, convenience, and purity will prevail," said Pepsi spokesman Bart Casabona. Timothy F. Brown, head of retail operations for Nestlé, said his company remains bullish on bottled water. While Nestlé has been involved in cutting prices, he said much of the discount pricing was set by retailers eager to drive traffic to their stores.

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