Industry update: future looks bright for bottled water

As one of the fastest growing sectors within Australia’s beverage industry, the bottled water segment experienced a 12% revenue growth during 2006-07 totalling $627 million, approximately 5% of Australia’s total beverage manufacturing revenue.

Natural spring water and purified water have been the fastest growing segments in Australia.

Among factors contributing to the rising demand for bottled water are: consumers’ greater disposable incomes; lifestyle changes and a shift towards convenience purchasing; health concerns and a move away from high-sugar drinks; concerns about the quality of tap water (particularly in New South Wales); and the rise of the hospitality and entertainment industries, with some venues providing only bottled water, not tap water.

Product innovation has also impacted positively on industry growth.

The rapid introduction of new products such as functional waters and new packaging formats, including the increased availability of multipacks, has driven up demand from convenience stores and supermarkets.

The development and marketing of sports water and flavoured water has allowed the bottled water segment to obtain market share from high-sugar soft drinks, energy drinks and sports drinks, by appealing to consumers’ health concerns.

Manufacturers are increasingly realising the importance of bottle design as a basis of competition, with bottle size, shape and functionality not only fostering product differentiation, but allowing different brands to target certain demographics.

Coca-Cola Amatil’s introduction of the sparkling Mount Franklin glass bottle is an example of innovative packaging tailored to style-conscious consumers and the increasing number of people dining at restaurants as opposed to eating at home.

Niche and premium

While dominated by three major industry players, the bottled water segment has sought, and will continue to seek, growth through niche markets, making way for smaller producers to supply relatively small segments with specialist and/or premium products.

In particular, increased concern about the use of artificial colourings, flavourings and preservatives is expected to broaden the range of premium, health-focussed waters entering the market from small-scale, specialist operators.

IBISWorld has predicted that more organically certified waters will enter the premium end of the market in the future, resulting from improved consumer awareness of water quality.

In fact, the bottled water manufacturing industry is expected to double its revenue over the next five years, increasing at an average annual rate of 11%, fuelled by continued industry innovation and promotional spending.

This is despite rising PET resin costs and more intense price competition in the supermarket channel.

In response to a trend towards consuming bottled water based on functionality rather than brand loyalty, and as the market becomes more price competitive with a rise in supermarket house brands, manufacturers will need to increasingly focus on value-added products.

Industry at a glance

Industry revenue: $627 million (12% growth)

Export revenue: $35 million*

Import revenue: $40 million*

Major players: Coca-Cola Amatil, Cadbury Schweppes Australia, Frucor Beverages (Australia)

* Estimated figures source: IBISWorld

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