Buoyed by a growing number of Americans abandoning carbonated soft drinks for bottled water and a spate of innovation in the category, the bottled water market as a whole is projected to increase from $13.1 billion in retail sales to $17 billion in 2018—with the strongest numbers set to come from sparkling/mineral water.
The market research firm estimates that US retail sales of bottled still water experienced a healthy bump of 5.6% between 2011 and 2012 but slumped to negative growth territory in 2013, with cumulative growth of 9.4% and a CAGR of just 1.8% between 2008 and 2013. Although smaller in absolute terms, sparkling/mineral water has far outpaced still. Between 2008 and 2013 sparkling water retail sales more than doubled from $563 million to $1.3 billion, and are projected to reach $4.1 billion in 2018, at a CAGR of 25.6%.
The relatively low per-capita consumption of bottled water leaves substantial room for growth in the ensuing five years, according to Packaged Facts. Indeed, the recent trend toward bottled H20 has many beverage industry analysts and marketers convinced that the category will soon dominate non-alcoholic beverages—owing in part to health and wellness concerns, the fitness fad and the perennial struggle of many consumers with obesity and being overweight. An increasingly favorable public policy environment has also given bottled water a competitive advantage over high-calorie beverages deemed veritable menaces to public health by advocacy groups.
Flavoring and packaging innovations continue to drive interest to the category as well. While consumption of premium European sparkling water brands has long been a status symbol for urban elites, premium still water packaged in designer bottles has become more fashionable to Millennials and GenXers.
Double-digit growth for water consumption; double-digit tumble for carbonated soft drinks
Over the past decade American consumers have increasingly looked to bottled water as a substitute for carbonated soft drinks. During this period the number of adults who drank five or more glasses of bottled still water grew 22%. Meanwhile, the bottom fell out for carbonated soft drink manufacturers, as the number of adults drinking five or more glasses of diet cola, other carbonated diet drinks and regular cola fell by double-digit percentages.
Indeed, as more and more Americans embrace daily bottled water consumption, they are also drinking it in greater quantities. Between 2004 and 2013 the number of adults drinking at least one glass of bottled still water in the past seven days grew 15%, compared to a 21% increase in those drinking eight to 13 glasses and a 33% bump in the number of those drinking 14 or more glasses, the Simmons National Consumer Survey found.
The demographic profile of those drinking relatively large quantities of bottled water has also kept pace with overall changes in the makeup of the US population. For example, over the past 10 years the percentage of high-volume bottled water drinkers in the 55+ age group has grown from 19.7% to 25% and the proportion of those who are non-Hispanic white has dropped from 60.4% to 56.2%.
Supermarkets still lead bottled water sales
With 48% of total sales and dollar sales of $6.5 billion estimated in 2014, supermarkets are by far the largest retail channel for bottled water, according to aggregated multi-outlet sales figures from IRI.
Convenience stores play a key role in the competitive position of the bottled water marketed by major brands because they are a significant channel for sales of higher-profit, individual bottles. Packaged Facts estimates that in 2014, c-stores will be responsible for $3.3 billion in sales of bottled water, or 24% of the total.
Other major retail channels for bottled water in 2014 include mass supercenters with 15% of dollar sales totaling $2 billion, and drug stores and clubs, each with retail sales of $680 million representing 5% of the total. All other channels are expected to account for 3% of 2014 retail sales, or $408 million.
Major bottled water marketers still face a number of disruptive forces. As supermarkets stock their shelves with loss-leading cases of plain bottled water, simply competing on the basis of volume and price enough to marketers of major brands. Major players such as Coca-Cola Company and PepsiCo, Inc. have thus been forced to revisit their strategies in the face of increasingly fierce competition from branded premium products from upstart brands like Talking Rain Beverage Co. (which makes zero-calorie, Sparkling ICE), True Drinks (manufacturers of AquaBall flavored vitamin water for kids), and even low-priced commodity products from private label manufacturers.
Also threatening sales is the continued pushback by environmental activists against the use of PET water bottles, along with the increasing commoditization of bottled water, though Packaged Facts expects the positive trends to outweigh these potential setbacks.