The three Fs behind the growth of the bottled water industry – Fashion, Flavour and Function – are revealed by business information analysts IBISWorld.
This financial year, it is expected that the bottled water manufacturing industry will grow in revenue by 9.1% to $460.6 million, on the back of rising health consciousness, strong disposable income and warm weather.
Natural spring water and purified water have been the fastest growing beverage types in Australia, increasing by an average of 10.1% year on year for the past six years. Mt Franklin is the dominant Australian brand in the natural spring water market, while Pump leads the purified water sector. Both are manufactured by Coca Cola Amatil.
Designer drops
There is, however, more to the industry’s strong performance than meets the eye, according to IBISWorld Australia’s general manager, Robert Bryant.
“Because of the homogenous nature of the product, producers need to invest substantially in branding, advertising and promotional activity to differentiate their offering, and to attract and retain consumers who would otherwise substitute readily between waters,” said Bryant.
“As a result, we’re seeing growth in the so-called ‘premium’ section of the industry, with some manufacturers promoting their water as superior in an attempt to extract higher margins.
“Furthermore, manufacturers have recognised the importance of bottle design as a basis of competition, and innovation in this area has helped target style-conscious customers with products such as market leader Coca Cola Amatil’s new Sparkling Mt Franklin in a small blue-tinted glass bottle.
This café-targeted product will compete with established European brands such as Perrier and San Pellegrino and CCA is banking on image-conscious café clientele being willing to pay a premium price for a more appealing-looking product.”
Bryant explained that following on from trends abroad, bottled water had the potential to become as much a fashion accessory as a beverage, predicting savvy producers will establish niche operations supplying limited market segments with specialist and top of the line products.
“Females between the age of 14 and 35 are the biggest consumers of bottled water and both the media support behind a brand, the bottle design and the label play a part. Women are also more diligent than men at drinking the recommended eight glasses of water a day, as well as being, on the whole, more health conscious.”
Function over fashion
Alongside premium waters, Bryant said ‘functional’ water was another area driving industry revenue, with products making unique health claims targeting consumers who switch drinks during the day depending upon their immediate needs.
“The creation and promotion of sports waters and other near waters has helped bottled water to win market share from high-sugar soft drinks, energy drinks and sports drinks, a trend we anticipate will continue.”
Growth will come from a low base, however, with traditional bottled water currently holding 51% of the market, followed by bulk packaged water (14%); mineral water (14%); purified water (12%); sports water (8%); and other functional waters with just 1%.
Functional waters – encompassing sports, flavoured, near and enhanced waters – compete as substitutes for soft drinks, as they are flavoured but do not have a high sugar content like soft drinks. As the industry matures and consumers become more informed, these sub-segments should become more clearly defined in the market.
“The rapid introduction of new products, and new packaging, make this an extremely dynamic industry, and Australia’s low level of bottled water consumption compared to many developed nations suggests the market still has potential for a high rate of sales growth before reaching saturation,” Bryant added.
Thirsty Italians
Australians consume approximately 12 litres of bottled water annually per person, compared to world-leaders Italy with 183.6 litres per capita.
“While our consumption is much lower than many developed nations, and we expect it to rise rapidly, it’s unlikely Australian bottled water consumption will ever reach these heady levels since many countries with particularly high consumption patterns either have less reliable public water or much higher real incomes,” explained Bryant.
As for where we drink it, South Australia has the highest reliance on bottled water for drinking with 13% of households using it as the main source. New South Wales is next with 8.8%. With desalination plants in the pipeline in both New South Wales and Victoria, these consumption patterns may change in the future with concerns – particularly from Victorians – about the impact of desalination on the quality of their famed tap water.
But for most people, Bryant said, drinking bottled water is about convenience, health consciousness and higher disposable incomes.
Water to go
The bottled water industry has gained from the increasingly frantic pace of life. With people trying to accomplish more each day, with less time for rest, and the rising preference for convenient snacks, dining out and takeaway meals, bottled waters are becoming an important source of revival and a convenient fact of life. As people spend more time away from home, they need to purchase water when tap water is unavailable.
Although a number of brands of bottled water have been tested and shown to have no health benefits above those of tap water, many consumers won’t be convinced.
Tougher times ahead?
Looking ahead though, Bryant said there would be some significant challenges facing the industry, mostly in the form of competition from private labels, dental care, environmental concerns, imports and mounting packaging costs.
“Supermarkets’ push into private labels will start to hurt the industry as more ‘home brand’ waters come onto the market, and retailers achieve gross profit margins of up to 60% on private label bottled water,” predicted Bryant.
“As consumption of bottled water by children increases, so too will concerns about the impact on their teeth – with tap water currently providing their main source of fluoride.
“Increasing environmental awareness, and concerns about the effects of manufacturing bottled water will also place pressure on the industry – with studies showing that it can take up to seven litres of water and a litre of crude oil to produce one litre of bottled water.
“In addition, over the next few years packaging costs, particularly for PET resin, will rise, putting pressure on profit margins. This is another reason manufacturers will ramp up investment in developing higher priced premium spring waters and functional waters (in order) to partially offset cost pressures,” Bryant added.
While historically import competition has come from New Zealand, recent products brought in from Fiji suggest that competition is likely to become more fierce in coming years.
“The number of competitive producers in the Pacific region is rising, and competition will follow suit given the relatively low transport costs and abundance of quality water sources in the region,” said Bryant.
Yet on the flip side, given the success of Wattle Spring in the UK, IBISWorld believes there are further opportunities for Australian bottled water manufacturers to exploit our national brand equity in export markets, although only the top end of the market, because of the limiting costs of exporting water.