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Bottled Water

Bottled Water

INDUSTRIAL CODES

NAICS: 31-2112 Bottled Water Manufacturing

SIC: 2086 Bottled and Canned Soft Drinks and Carbonated Waters

NAICS-Based Product Codes: 31-211201

PRODUCT OVERVIEW

The sale and consumption of water considered to be special in some way appears to be as old as civilization. In Europe under the Roman empire communities grew up around hot springs and mineral springs. These waters were considered to have healing powers and these sites developed into resorts frequented by the wealthy who bathed in the waters and also ingested mineral waters as drink. Centers of this nature have had continuous existence ever since they were settled and have carried names like water, bath, or spring—used in the singular or plural.

The oldest brands of bottled water illustrate the industry's origins. Probably the very oldest brand of bottled water, Evian, is produced on the southern shore of Lake Geneva, in France, near a place called Évian-les-Bains, literally Evian-the-Baths. Evian began to be sold in 1830 in earthenware jugs. Vittel Grand Source, which appeared in 1855, translates as Vittel Great Spring. Perrier is the name of a doctor who bought a mineral spring in France, but the name of the location is telling: it was then called Les Bouillens, literally meaning The Bubbling Forth, thus a spring. Perrier dates back to 1863, but its promoters don't fail to tells us that Hannibal, invading Europe from Carthage, stopped at Les Bouillens to enjoy its waters. Whether or not the elephants partook of what later came to be called Perrier is merely speculation. Contrexéville, the home of the Contrex brand, is a thermal spring and health resort the French began to visit in the 1760s to cure kidney stones. The top Italian brand, San Pellegrino, is bottled at the location of the same name, a famous bath and health resort. The oldest brand of American water, Poland Spring, began to be bottled in Poland Spring, Maine in 1845. The inn built near the spring had by then become a well-known health spa. By 1904 the water had won international prizes at the World's Columbian Expositions and the World's Fair. All brands of spring, mineral, and sparkling waters that predate the growth of bottled water as a major product category, pre-1980s, had very similar origins.

The initial motivation for paying money for water was people's perception of a unique health benefit available from certain waters occurring in special places. The taste of the water came to play a greater role later. The purity of specially processed waters became important in regions of hard and/or brackish waters, after the introduction of water chlorination, and eventually as a replacement for soft drinks filled with potentially fattening sugar.

Categories

The U.S. Environmental Protection Agency (EPA) regulates tap or municipal water under the National Primary Drinking Water Regulations (NPDWR). Under its authority to oversee food along with drugs, the U.S. Food and Drug Administration (FDA) regulates bottled water under Title 21 of the Code of Federal Regulations. FDA classifies bottled waters into five categories of which two have to do with the source and the other three with content or processing.

The two sources are Artesian and Spring water. Artesian water is obtained from deep-lying aquifers. The water is held in rock formations and moves very slowly—at fractions of an inch per year. It is reached by drilling deep wells into the bedrock. Spring water bubbles to the surface naturally. The FDA also implicitly recognizes that the source of most bottled water sold in the twenty-first century comes from ordinary tap water, but the agency handles such water under one of its processing definitions.

The other categories are Mineral, Sparkling, and Purified water. Mineral water, which must be from natural sources, must have a minerals contents of at least 250 parts per million in dissolved form; the processor may not add any minerals to the water. Sparkling water, again from artesian or spring sources, must naturally contain carbon dioxide, but if some of this natural carbonation is lost in extraction or processing, it may be replaced. The FDA's purified water category implicitly recognizes tap water as a source. Such water is defined as having undergone distillation, deionization, or reverse osmosis. Distilled water is boiled and the vapors are then liquefied by cooling; mineral contents are left behind. Deionization removes magnesium, calcium, and salt in a process similar to but more intense than water softening. Reverse osmosis is a water cleaning process using engineered semi-permeable membranes; water is forced through the membranes at very high pressure; only pure water passes the membranes leaving a mineral brine on the far side.

Using FDA's definitions, bottled water must either be purified in the strict sense or must be natural without additions of any sort. Only antimicrobial agents (e.g., chlorine) and fluoride may be present. If the processor adds anything at all, the bottled water or mineral water designation must be augmented by the processor who must identify the additive and provide its magnitude on the ingredients list required to be part of the label. FDA's regulations thus assume that EPA regulations on drinking water are already met. EPA's approach is to set maximal content in the water of a wide spectrum of microbes, radionuclides, inorganics, inorganic synthetics, volatile organics, and disinfectants.

Bottled Water In Perspective

The soft drink industry is fond of repeating that people drink in response to three motivational need states: simple refreshment, rehydration, and nutrition. The terminology is marketing deep think but provides a lens for looking at trends in beverages—and how these have changed over time. Changes between 1980 and 2005, as reported by the U.S. Department of Agriculture's (USDA's) Economic Research Service serve as the underpinning.

In 1980 the categories were soft drinks (25.1% of total beverages), milk (20.6%), coffee (20%), beer (18.1%), fruit and vegetable juices (5.7%), tea (5.5%), bottled water (2%), wine (1.6%), and spirits (1.5%). That year per capita availability of purchased liquids was 134 gallons, translating into 33.6 gallons per person of soft drinks and 27.6 gallons of milk. Milk is refreshing but usually classified as a food product. At the opposite extreme distilled liquor falls into the "refreshment" category. The other products exist somewhere between these polarities. Bottled water is the obvious leading candidate in the rehydration category.

In 2005 the same products, again shown in rank order, were soft drinks (27.7% up from 1980), fruit and vegetable juices (16.6% up), bottled water (13.7% up), coffee (13% down from 1980), beer (11.5% down), milk (11.3% down), tea (4.3% down), wine (1.3% down), and spirits (0.7% down). This reordering in shares signals a massive transformation of consumer behavior. Fifth-ranking fruit and vegetable juices moved up to second rank; seventh-ranking bottled water moved up to third place. Only three categories increased their share. Of these bottled water had the greatest gains over 1980, increasing its share by 11.7 points, fruit and vegetable juices by 10.9 points, soft drinks by 2.6 points. Leading the losers were milk, coffee, and beer, declining by 9.3, 7, and 6.7 points respectively.

By 2005 consumption had increased to 186 gallons per person. Tea and wine, although losing share, showed increases in absolute consumption. Fruit juices and vegetables scored the greatest gains in volume. They advanced from 7.6 to 30.8 gallons between 1980 and 2005, a net increase of 23.2 gallons per capita. Bottled water came in second. It increased from 2.7 to 25.4 gallons per person, up 22.8 gallons. Soft drinks were next, increasing by 17.9 gallons. Milk exhibited the largest decline, moving from 27.6 to 21 gallons per person, a net loss of 6.6 gallons. Advances in fruit and vegetables and bottled water together account for nearly 90 percent of the increase in total beverage consumption per capita in this 25-year period.

These data suggest that the need state definitions are malleable rather than laws of taste. The public appears to be redefining nutrition to exclude fats (fruits and vegetables thus win out over milk), is in the process of replacing sugar-sweetened beverages with water, and is consuming much more purchased water than in the past. Other factors are also at work. The population aged 15 and under is decreasing as a percent of all people; the elderly population is increasing; more people are obese; lifestyles are more hectic. These trends have had their most profound impact on the soft drink industry which, as will be dis-cussed below, is seeing its traditional product threatened by the rising sales of bottled waters and, to counter the consequences, has entered the bottled water market to forestall its own decline.

Energy and Sports Drinks

A discussion of bottled water would remain incomplete without special recognition of another growing category of beverages which occupy a place between carbonated soft drinks and bottled water. These are energy and sports drinks, sometimes also referred to as isotonics. This category had its start at the University of Florida in 1965 where Head Coach Ray Graves, working with professors at the university, stimulated the development of Gatorade to fight athletes' dehydration. Gatorade was initially produced for public distribution by Stokely Van-Camp, bought by Quaker Oats in 1987. PepsiCo acquired Quaker Oats in 2001 and has been selling Gatorade since. Coca-Cola's PowerAde is Gatorade's chief competitor. Other brands exist as well.

Sports drinks are beverages intended to replace salt lost in sweating. Salt (sodium chloride) contains positive and negative ions. Sodium and chloride, along with potassium, calcium, magnesium, bicarbonate, phosphate, and sulfate are important electrolytes in the body's chemistry. An electrolyte can be either a positively charged ion (a cation) or a negatively charged one (an anion). The body's cells use ions to generate electrical voltages to preserve their shapes and to signal required activities, as in sending nerve pulses. The loss of salt in muscle tissue leads to contractions and thus cramps for lack of electrolytes. Energy drinks are also called isotonics. The word means same tone or same tension. When the salt level outside the cells, thus in the blood or in the liquids between cells (the interstitial fluid) and in the cell are the same, a happy isotonic condition prevails—conditions are the same all over. But imbalances cause cell deformations. Drinking isotonics restores the balance. Sports drinks have a lot of salt. The trick in formulating them is to make them taste right despite this disadvantage. The drinks also carry proteins and sugars.

Energy drinks appeared in the United States in the late 1990s and are based principally on caffeine as a stimulant, sugar as the energizer, and popular hype as the mystique. The best-known brands are Red Bull (Red Bull Inc.), Monster Energy (Hansen Natural Inc.), Rockstar (Rockstar International), Full Throttle (Coca Cola Co.), and SoBe No Fear (PepsiCo Inc.). Red Bull's sugar content is less than that of Coca-Cola Classic and its caffeine content, at 80 mg per 250 ml, is actually less than that contained in ordinary liquid coffee. Based on data from the Coffee Science Information Center (CoSIC), the equivalent quantity of instant coffee has 100 mg of caffeine and roasted coffee has 142 mg. The CoSIC is an element of the British Institute for Scientific Information on Coffee (ISIC).

As viewed by the Census Bureau energy and sports drinks are reported as parts of the Soft Drink Manufacturing industry under the Noncarbonated Soft Drinks category. Bottled water has its own industrial code. Census data on neither category is very useful. The Bureau largely suppresses details on energy and sports drinks in order to avoid disclosing the revenues of specific companies. In the bottled water category, product subdivisions by type are simply not provided. The analyst must consult private research services.

MARKET

Commercial developments in the beverage industry are well tracked by a number of organizations specializing in retail trade research generally and in trends affecting the beverage industries in particular. For purposes of this essay, the shape of the bottled water market has been developed using data cited in the trade literature which, in turn, uses the work of the Beverage Marketing Corporation, a major research firm serving all aspects of beverage manufacturing and distribution. Data on the soft drink industry specifically are quoted from Beverage Digest's annual press releases on the industry's condition.

Based on these sources, the U.S. bottled water segment in 2005 had estimated retail sales of $10 billion. The industry grew at a heady rate of 14 percent a year from 1997 (sales of $3.5 billion in that year) whereas the traditional soft drink industry, dominated by carbonated beverages, advanced in the same period at a rate of 2.8 percent a year (from $54.7 to $68.1 billion).

These developments signal the ongoing transformation of the non-alcoholic beverage industries in the first decade of the new century. Carbonated soft drinks (CSDs) and bottled water combined were a $58.2 billion industry in 1997 with CSDs representing 94 percent of sales. Eight years later the combined industry was $78.1 billion but CSDs had slipped to a still dominant but contracted share of 87 percent of that. In the soft drink industry, which includes both CSDs and bottled water, the growth of the latter has been largely noted with gloom because water cuts into the growth of sweet sodas. Water's growth and the equally energetic growth of energy and sports drinks indicate the maturing of the traditional soda industry. It has slowing growth but retains a huge volume.

Consumption data over a 25-year period graphically illustrate the concerns of traditional carbonated beverage producers. Data show a flattening of per capita consumption of soft drinks beginning in the 1989–1993 period. A brief period of growth follows—then another flattening in the 1998–2005 period. Meanwhile bottled water consumption had an unwavering period of advance.

Beginning in 2005 and again in 2006, the weakness was not in absolute consumption of soft drinks but certainly in its growth translated in to actual decline in the volume of shipments of the two leaders in the soft drink category. In 2005 Coca Cola's CSD volume dipped 0.6 percent, PepsiCo's dropped 1.2 percent. In 2006 Coke had a downturn in carbonated soft drink volume of 1.2 percent and Pepsi, 1.3 percent. Both companies, however, are major participants in the bottled water and in the sports drinks categories so that losses in one category were compensated by gains in the other.

Comparing consumption and sales data for the 1997–2005 period, it is evident that bottled water is improving its profitability. In 1997, 3.6 billion gallons produced $3.5 billion in sales (96 cents per gallon on average). In 2005, 7.5 billion gallons produced $10 billion in sales ($1.33 per gallon on average). Some of the high-priced brands of bottled water cost more than gasoline per gallon; and tap water reaches the consumer at less than a penny a gallon.

Product Categories

Beverage Marketing Corporation divides bottled water into Nonsparkling, Sparkling, and Imported categories. In 2005 these represented 95.1, 2.5, and 2.4 percent of total consumption in gallons. Non-sparkling water was also dominant in 1997 but gained share slightly over the other two categories. This major category grew at the rate of 10 percent a year, 1997–2005, sparkling water at a rate of 2.3 and imports at a rate of 2.6 percent a year. More precise product differentiations into the categories FDA uses for regulating bottled water are not available.

A dollar-denominated look at these major categories gives some indication of price levels for each major category. Imports, the smallest volume category, represented 7.24 percent of dollar sales in 2005. Second-ranked sparkling water was 4.5 percent of the dollar market. The largest category, nonsparkling water, with 95 percent of physical volume, represented a smaller 88.2 percent of sales in dollars, indicating that this mass market for water was also lowest in price. Translating these numbers into per gallon indicators, Nonsparkling averaged $1.23, Sparkling $2.45, and Imported $3.97 per gallon. By way of comparison, carbonated soft drinks averaged $4.46 and beer $13.80 per gallon in 2005. Sports drinks cost about the same as CSDs, energy drinks cost at least a dollar more. Observers of the bottled water industry, particularly those critical of it for cultural reasons, tend to compare the costs of bottled water with that of tap water. But looking in the other direction, at bottled water's main competitors, water has a distinct price advantage.

Factors of Growth

Most industry observers explain rising consumption of bottled water by pointing to increasing interest in health issues by the public. Growing obesity and its accompanying increase in the less severe form of Type II diabetes are associated with fats and sugars. Milk and soft drinks are associated with one or the other. Behind this increasing concern with health, however, are broader demographic changes that, usually, underlie major shifts in public behavior. The demographic phenomenon of our times has been the very large population cohort called the baby boom (those born 1946 through 1964). In 2000 the youngest of this group was 36, the oldest 54. A second major development has been increased lifespan.

Changes in population structure between the last two census years, 1990 and 2000, are revealing. If we look at population in twenty age groups of five years, the greatest increases were in those aged 50-54 (up 54.9%), 45-49 (up 44.8%), and 90-94 (up 44.6%). Among all twenty age groups, nine of the older all had higher growth rates than the four groups 19 and younger. Those in the prime of life, 20-34, current and future parents, had actually declined in number. These numbers suggest that the population as a whole was getting older. Trends since 2000 have merely intensified this tendency. Consumption of soft drinks is associated with youth; in the first decade of the twenty-first century the young are a decreasing percentage of the population. An aging population, alerted to the potential dangers of sugar consumption, have shifted to diet drinks—of which the most obviously healthy variety is plain water.

KEY PRODUCERS/MANUFACTURERS

Nestlé Waters

The leading supplier of bottled water the world over is Nestlé Waters, an element of Nestlé S.A., the global food company. Nestlé is also the top-ranked producer of bottled water in the United States with a market share of 38.5 percent in 2006. The company has 72 brands worldwide and sales in the category of 9.6 billion CHF (Swiss Franks), approximately $8.5 billion (2006); Nestlé S.A. had total revenues of around $70 billion. Nestlé owns four of the five most famous brands around the globe—Aqua Panna, Contrex, Perrier, San Pellegrino, and Vittel. The company owns Poland Spring, the oldest U.S. brand and Nestlé's most popular consumer brand; other important brands in the United States are Ice Mountain, Deer Park, Ozarka, Arrowhead, Calistoga, and Zephyrhills. Nestlé Waters is also a dominant supplier of the bulk drinking water market in the United States with a 25.8 percent share. Office workers know this product as five-gallon jugs waiting, upside down, in coolers that dispense iced water into cups. This category is known in the business as "Home & Office Delivery" or HOD. Nestlé's HOD water brands are Ice Mountain, Zephyrhills, and Poland Spring. Nestlé has been in the water business since 1969 when it initially acquired a 30 percent share of Société Générale des Eaux Minérales de Vittel.

Groupe Danone

The French food company, Groupe Danone (best known in the United States for its yogurt brand, Dannon) owns the world's best-selling brand of bottled water, Evian. Danone's own origins and its acquisition of Evian coincided when two companies, BSN-Evian and Danone-Gervais merged in 1973 to create the company. Evian is sold in 125 countries around the world. Groupe Danone had total worldwide sales for all products of €13.7 billion in 2004 (around $18 billion). Evian distribution in the United States has been controlled by Coca-Cola Company since 2005 when Coke bought out Danone's interest in a joint venture.

PepsiCo Inc.

PepsiCo Inc, a leader in the soft drinks market, became involved in the bottled water market with its introduction of Aquafina in 1994. Since that time the brand has achieved top rank in the United States among bottled water brands although Pepsi remains in second position overall, behind Nestlé. Pepsi's other brands are Propel and Flavorsplash. PepsiCo had total revenues of $32.6 billion in 2006 of which 28 percent were in beverages, most of that volume in CSDs. PepsiCo is also the leading producer of sports drinks with its flagship brand, Gatorade, acquired in 2001.

Coca-Cola Company

Coca-Cola introduced the Dasani brand of bottled water in 1999. By 2006 Dasani was the second-ranking brand in the category and Coke the third-ranking seller of bottled water. As already noted, the company also sells Evian in North America. Earlier, in 1992, Coke began to bottle the sports drink, Powerade, a product that it had launched in 1990 as a fountain beverage. Coca-Cola had revenues of $24 billion in 2006.

Other Top Companies

Three other companies ranked among the top six producers in the United States by Beverage World magazine are DS Waters, Crystal Geyser, and Glacier Water Services Inc. DS Waters of America, Inc. began as a joint venture formed by Groupe Danone and Suntory International in 2003. The company assembled a number of regional bottled water companies with histories going much further back to form the company and also participates in bulk water sales. DS Waters brands, with their years of origin noted in parentheses, are Alhambra (1902), Belmont Springs (1900s), Crystal Springs (1920s), Hinckley Springs (1888), Kentwood Springs (1963), Sierra Springs (1950), and Sparkletts (1925). Danone eventually bought out Suntory's interest in the venture and sold the DS Waters to Kelso & Co., an investment firm.

Crystal Geyser Water Co. is a privately owned firm in business since 1997. The company specializes in spring waters acquired on Mount Shasta and Olancha Peak, both in California; in Benton, Tennessee; in Salem, South Carolina; and in Moultonborough, New Hampshire (in the Ossipee Mountain region). Crystal Geyser, with headquarters in San Francisco, also bottles juices and sells ready-to-drink tea.

Glacier Water Services Inc., an $87 million company in 2006, has a unique approach to the drinking water market: it sells pure water in 15,000 vending machines in 39 states. The company was founded in 1983 with headquarters in Vista, California.

While the discussion above captures leading producers and the better-known brands, more than one hundred companies participate in bottled water manufacturing in the United States. They operate 228 establishments, 78 of which had twenty or more employees. To the products of this industry must be added important brands much valued by their customers but sold in limited quantities. High-priced brands beyond Evian, Perrier, and Vittel, according to Sam Gugino, Wine Spectator's Taste columnist, are Chateldon (France), Solé and San Faustino (Italy), Alpenrose (Switzerland), Tynant (Wales), and Highland Spring (Scotland)—all sometimes offered in upscale restaurants. At the other end of the scale are private label bottled waters like Kroger, America's Choice, which is A&P's brand, and Kirkland, Costco's brand.

MATERIALS & SUPPLY CHAIN LOGISTICS

Depending on the kind of water in the bottle, the cost of transportation or cost of processing may be a higher percentage of its cost. Evian, coming from the French/Swiss alpine region, crosses the Atlantic and then begins its trip home to a location in the United States. The well known Fiji brand of bottled water comes from the island cluster of that name next door to Australia. Products labeled spring or mountain water have their origins in specific geographies and have to reach their markets by means of paid travel too. The two leading brands, Aquafina and Dasani, are labeled purified. Their source is the municipal water at the places where they are bottled. The principal purification process used by both brands is reverse osmosis combined with other methods. Other brands carry the distilled water label showing that their process of purification is by distillation. All types of water have the same basic packaging costs.

The introduction of polyethylene terephthalate (PET) in beverage packaging in the 1980s created the most popular packaging solution in bottled water. This clear, strong, and flexible plastic is readily recycled back into PET bottles and many other products. When incinerated it emits no chlorine by-products like the earlier polyvinyl chloride. PET is widely available from some sixteen different producers (DuPont, 3M, Honeywell, Eastman Chemical, and others) at twenty-nine production sites across the nation.

DISTRIBUTION CHANNEL

Bottled water reaches consumers by three distinctly different channels—home and office delivery in bulk containers (usually 5 gallon glass or plastic bottles), vending machines (a very small percent of total volume), and through retail channels in single bottles or in multi-bottle packages. The retail channel itself is divided by the industry into grocery, mass merchandising, drug store, and convenience and gas outlets. Overall, including all food and beverages sold, not just water, grocery stores represent about 55 percent; mass merchandisers, including warehouse clubs, about 18 percent; and convenience stores around 16 percent of volume. Bottled water distribution most likely follows this pattern as well.

Two- and three-tier distribution systems coexist. In the two-tier system major producers (like the soft drink giants) sell directly to large retail chains and these chains sell directly to the customer. Bottled water wholesalers operate to serve as a third link in three-tier systems between the producer and the retail outlet itself. Large chains prominently feature—and dedicate substantial shelf-space—to their own private label brands. The chains deal directly with the bottlers to obtain this product, typically a price-leader in each store, often sold in bulk (1 gallon) containers as well as smaller bottles or packs.

KEY USERS

Catherine Ferrier, in "Bottled Water: Understanding a Social Phenomenon," assembles research on motivations for buying bottled water in the United States and elsewhere. Consumers in the United States in 1997 appeared to be motivated principally by concerns over the safety of tap water and by a desire to displace other beverages with something better. French respondents, surveyed in 2000, were motivated principally by the superior taste of water and water hardness in regions where such conditions prevail. Bottled water consumption has significantly increased everywhere, in the United States as well as Europe, in the time since the studies cited by Ferrier took place suggesting that other rationales have played a role as well. The substitution motivation in the United States is promoted by concerns with growing obesity, highly publicized in the late 1990s, and word-of-mouth promotion. Other surveys indicate that adults, and principally women, are primarily responsible for the growth in the use of bottled water. Men have been behind the equally explosive growth of sports drinks and, most recently, youths for the dramatic increase in the consumption of energy drinks.

ADJACENT MARKETS

A well-established alternative to buying bottled water is the production of such water at home using tap water as the raw material and purchased filtering equipment as the purification route. This market, manifesting as purchases of filtering devices, is very small in comparison with bottled water sales themselves but has shown substantial growth in the same period. The leading producer of such equipment is Brita GMBH, a German company, founded in the 1960s and now a global supplier of such equipment. Brita is sold in the United States by Clorox Company (the $4.6 billion diversified concern known best for its bleach product). Clorox bought Brita's U.S. operation in 2003. A competitor to Brita is Procter & Gamble's PUR, a functionally very similar purification and dispensing system. Procter & Gamble is a diversified, $68.2 billion home products producer. Small water purifiers from these companies are available for under $50. They utilize replaceable carbon-filtration cartridges. In many homes across the country householders fill PET bottles originally obtained holding one of the brands of bottled water but now serving to hold filtered water brewed at home.

In the beverage industry itself sports drinks, energy drinks, fruit "ades," and vegetable juice drinks are viewed as adjacent markets. In the dairy industry leading producers are formulating and promoting milk-based beverages aimed at the same market. Non-alcoholic beer products are yet another manifestation of reaction by a traditional industry to the pressure applied by a major, new, and ultimately threatening, product category.

RESEARCH & DEVELOPMENT

Research and development efforts in the industry touch every aspect of the business, from water treatment at one end of the spectrum to packaging at the other. Development of more effective treatment systems is process development. This work is typically focused on requirements unique to specific sources of water. Part of such R&D is of an environmental nature and involves study of water tables and regional hydrology in response to environmental opposition (further delineated below). Water purity is a major interest in the industry, underlined by Coca-Cola's recall, in 2004, of 500,000 Dasani bottles in the United Kingdom after bromate levels were found to exceed legally permissible levels. Bromate occurs when water is disinfected using ozone and reacts with naturally occurring bromide in water. Bromate is suspected of being a carcinogen.

A trend in the industry is the introduction of flavored waters with subtle tastes and a faint touch of sweetness—achieved using artificial sweeteners. Considerable research effort is expended on finding so-called water white flavors, meaning flavor-providing substances that do not cause the water to cloud up. Oxygenation of the water is yet another enhancement sought by some bottlers on the theory that oxygen in the water will oxygenate the blood (accomplished naturally by breathing). It is difficult to force much oxygen into water and the health effects are not well-established, but work continues along these lines and super-oxygenated waters are already on the market. Providing health benefits to the elderly (bone health, joint protection) by dosing water with minerals is under investigation to develop new bottled water features. Finding the right acid-sweetener ratios is an aim of product development.

With rapidly growing volume, parts of the bottled water industry are coming to resemble the soft drinks industry. The latter is famously marketing-driven and the packaging is a very important aspect of the hype. An annual awards program offered by bottledwaterworld (Zenith International Publishing, of Bath, England) highlights packaging, labeling, and marketing concepts. Substantial materials research and development effort lies behind winning concepts in packaging. An example from the 2006 competition was Flavor Top, a screw cap closure that both stores and dispenses ingredients as the container is opened. Winners in the category of Best Cap were Innovation Fund and Nottingham Spirk. Innovation Fund is a technology development and licensing firm. Nottingham Spirk is a development company. The 2006 "Best Packaging Innovation" award was won by Nestlé Waters for a 3-liter PET bottle with interlocking features so that bottles can be joined into packs. Bottledwaterworld's 2007 competition is based on environmental themes—possibly in response to the environmental movement's less than warm embrace of growing bottled water sales.

CURRENT TRENDS

The dominant trend in the bottled water industry is strong growth now and more to come. The response to this welcome prospect takes somewhat divergent forms. Continued consolidation in the industry is likely as large companies continue to grow by acquiring small producers of spring and mountain waters. Not yet visible on supermarket shelves, crowded as they are with unflavored purified water brands and featuring two or three upscale brands (Evian, Perrier, Vittel, Fiji), is the growing category of so-called enhanced waters. These are flavored or nutritionally enriched products attempting on the one hand to resemble soft drinks and capture a market based on unique tastes and, on the other, attempting to capture shares of the energy and sports drinks markets. Product proliferation is likely—and likely also to be resisted by the retailers. Retailers prefer large volume achieved by a few popular brands to a forest of many competing flavors all vying for limited shelf space, already a feature of CSD and beer distribution. Trends in soft drinks and beer—will these product categories continue to decline?—will influence the shape of the market.

How to handle energy and sports drinks in this mix is also adding to the merchandising problems of the retail channel. As the first decade of the twenty-first century was drawing to a close, the two major soft drink giants were positioning their water products as healthy and pure beverages but aiming the product (at least as indicated by the imagery used) at the youth market. Bottled water, in actuality, is principally consumed by adults. Product development efforts by these companies were directed at enhanced waters thus enlarging the number of brands or choices within one brand. Others, Nestlé being the leading example, continued to concentrate on the high-priced end of the market with conspicuous corporate efforts made to communicate with environmental interests.

This last point is relevant because the rapid growth of bottled water as a category, and not least the growth of purified water—ultimately derived from municipal sources—has also generated a cultural reaction of a negative sort. This position is taken by environmental groups. These groups view drinking water regulations as not sufficiently rigorous and have problems with the health claims made for purified waters. They also worry about aquifers and future water supply. They anticipate problems if commercialization of water as a consumer commodity leads to lowering of water tables in specific areas.

TARGET MARKETS & SEGMENTATION

Bottled water has a prestige segment represented by leading imports and their American counterparts in traditional spring and mountain waters. The latter are sold both in the United States and overseas. These products are aimed at the discriminating palette. The other extreme is represented by purified waters sold in bulk under private label or in the Home & Office category. These products are aimed at the healthy-minded. The middle ground is occupied by regional spring and mountain brands, with loyal followings, and mass-market brands produced and promoted by the major soft drink companies as health-providing or recreational drinks.

RELATED ASSOCIATIONS & ORGANIZATIONS

American Beverage Association, http://www.ameribev.org/index.aspx

The Association of State Drinking Water Administrators, http://www.asdwa.org

Canadian Bottled Water Association, http://www.cbwa-bottledwater.org

International Bottled Water Association, http://www.bottledwater.org/public/statistics_main.htm

Water Quality Association, http://www.wqa.org

BIBLIOGRAPHY

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