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MarketScreener Homepage  >  Equities  >  Nyse  >  Dr Pepper Snapple Group    

DR PEPPER SNAPPLE GROUP

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Dr Pepper Snapple : Water, Water Everywhere--in Bottles

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08/26/2015 | 05:45am EST
By Mike Esterl 

Mary Clare Carley leaves home each morning with a gallon water jug and carries it wherever she goes to stay hydrated.

The 34-year-old teacher doesn't remember when she last drank water from a tap. Instead she buys Crystal Springs or Great Value distilled water at supermarkets for $1 or less. "If I don't have my gallon of water, I just feel incomplete," said Ms. Carley, seated at an Atlanta food court with her giant water bottle.

Despite obvious drawbacks--the plastic and the extra cost for something essentially free out of the tap--thirst for bottled water just keeps growing. U.S. bottled water volume rose 7% last year. That puts it on track to outsell soda by 2017, according to forecasts by industry tracker Beverage Marketing Corp. Nestlé SA, whose water brands include Pure Life and Poland Spring, sold more water than Dr Pepper Snapple Group Inc. sold soda last year, making Nestlé--not Dr Pepper--the No. 3 company in the U.S. for nonalcoholic beverages, according to Beverage Digest.

That is bad news for Coca-Cola Co. and chief rival PepsiCo Inc. which together control roughly two thirds of the higher-margin U.S. soda market. Between 2000 and 2014, per capita bottled-water consumption more than doubled to 34.02 gallons from 16.74 gallons while soda fell to 39.92 gallons from 53.17 gallons, according to Beverage Marketing. There are now hundreds of brands vying in a market that was non-existent not that long ago, leaving those hallway and playground drinking fountains in the dust.

Coke and Pepsi together do have about a fifth of the bottled-water market. Coke's main brand is Dasani; Pepsi's is Aquafina. But they would rather be selling soda. Over the past decade, according to Beverage Marketing, the wholesale price for a gallon of water has dropped to $1.23 from $1.63 while soda has risen to $4.05 from $3.05. With water, "The philosophy is stack it high and sell it low," said Bill Sipper, a beverage consultant at Cascadia Managing Brands. Retail sales of bottled water totaled $18.82 billion last year, estimates market researcher Euromonitor, compared with $36.87 billion for soda.

Environmental concerns dog the product in some quarters. At least 18 national parks, including Grand Canyon and Mount Rushmore, have prohibited the sale of bottled water. Bottled water is frowned upon on many college campuses, and in May, protesters demanded that Nestlé stop tapping California's water supplies during the state's drought. Starbucks Corp. stopped using California water for its Ethos brand, but Nestlé hasn't changed.

But water is so hot that most consumers buy it despite the environmental drawbacks.

Meanwhile, dozens of smaller, high-end specialty-water brands with names like Real Water, People Water and HappyWater have begun flooding the market. They are backed by investors of all types who are trying to create higher margins with new bottle designs, exotic minerals and elaborate tales of provenance. Eternal's label faces inward so shoppers view it through water, filtered by limestone, quartzite and sandstone from the Allegheny Mountains. Karma Wellness Water's cap injects seven vitamins when you're ready to drink. Other startups pitch birch water, maple water and cactus water.

Aquahydrate, headed by former Coke executive Hal Kravitz, is getting a publicity boost from its celebrity shareholders Mark Wahlberg and Sean "Diddy" Combs, who have recently featured the high pH, electrolyte-infused water in "Entourage," a film Mr. Wahlberg helped produce, and in a TV ad for Mr. Combs' Ciroc vodka.

Private-equity firms Castanea Partners, which sold Fuze Beverage to Coke in 2007, and First Beverage Ventures, a unit of Los Angeles-based First Beverage Group, took stakes last fall in Essentia, an alkaline water. Verlinvest, an investment fund of Anheuser-Busch InBev SA's main Belgian shareholders, has invested in Hint, a flavored water so popular on Google's Mountain View, Calif., campus that Hint stocks its own refrigerators there.

Water wars are heating up. Bottled water brands spent $84.5 million on advertising last year, much less than the $650.6 million spent advertising soda, estimates Kantar Media. But Fiji Water, owned by closely held Roll Global, alone plans to spend $30 million this year for its first U.S. television campaign, contrasting the pristine volcanic island that produces its water with grimy cityscapes.

Coke has a new ad campaign featuring actress Jennifer Aniston touting its vapor-distilled, electrolyte-enhanced Smartwater and PepsiCo this summer ran its first ad campaign for Aquafina since 2008. Detox Water, whose investors include Aloecorp and NBA player Mason Plumlee, has handed out thousands of free samples of its brand new aloe water in Manhattan this summer.

Some of this interest may have been stirred up by a 2013 industry-funded study attributing scores of illnesses to tap water. But a lot of it is being generated by a new consumer obsession: Hydration. In a December poll by Mintel, 29% of bottled water drinkers said they would "feel strange" not always having water with them. That helped Hidrate Inc., a start-up by University of Minnesota students, raise more than $600,000 on the crowdfunding site Kickstarter this year to finance a bottle that tracks how much water you're drinking and sends alerts to your smart phone.

Debra Ann Stokes recently stopped at Whole Foods in Atlanta to stock up on bottles of alkaline water, which has a high pH level that proponents say can neutralize acids and help the body absorb nutrients. "This goes down much different, smoother," said Ms. Stokes, a 64-year-old belly-dance instructor, grabbing six one-liter bottles of Alkalife Ten.

Some scientific studies indicate Americans may be going overboard. The Institute of Medicine estimates women and men need about 2.7 and 3.7 liters of water a day, respectively, but that includes water from other sources like soda or coffee and 20% from food. It says fluid intake prompted by thirst and drinking at meals is usually sufficient.

The Government Accountability Office also noted in a 2009 report that the Food and Drug Administration can't make bottlers use certified laboratories for water-quality tests or share their results. The Mayo Clinic, meanwhile, says the science on specialty waters like alkaline water is thin and that "for most people, plain water is best."

Write to Mike Esterl at mike.esterl@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
NESTLÉ S.A. -1.00% 104.78 Delayed Quote.4.05%
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Managers
NameTitle
Robert James Gamgort Executive Chairman, President & CEO
Ozan Dokmecioglu Chief Financial Officer
David J. Thomas Chief Research & Development Officer
Larry D. Young Director
Dirk van de Put Director
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