PRICING GETS SLIPPERY

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Coca-Cola Co. is engaged in a three-tier pricing strategy for its bottled water brands to drain share points from Nestle and PepsiCo in the gushing $8.6 billion category. Average volume growth for the top 10 brands in 2002 was 33.9% over the prior year.

Midprice Dasani remains Coke's No. 1 water priority and the market's second-largest brand by volume at 15.1%. Coke's high end is Evian; Dannon, which Coca-Cola just began marketing in 2002, holds the low-end.

Dannon's fortunes were spotty before Coca-Cola's marketing venture with Groupe Danone. The water brand dropped to 9% market share in 2002 from 12% in 2001, reports Beverage Digest. But Coca-Cola is giving the brand aggressive pricing and wider distribution. Industry observers are predicting substantial growth in the brand.

TAKING AIM

That growth can only pad Coca-Cola's 22.8% volume share of market and most likely gain share points from PepsiCo at 15.1% of market, up from 14.4% in 2001, and from Nestle, market volume king at 38% of market, up from 37.2% in 2001.

Coca-Cola's pressure has heightened competition, but in a market in which ad spending increased 23.6% to $87.6 million in 2002, Coca-Cola spending on Dasani did not keep pace with that of archrival Aquafina from PepsiCo. Dasani spending fell 22.6% to $20.4 million vs. Aquafina's 111% increase to $27.9 million, according to TNS Media Intelligence/CMR.

Nestle, meanwhile, backed seven brands among the industry's top 10 with $21.5 million in spending, up 85%. Nestle's lead brands are Poland Spring, Arrowhead and Aberfoyle. Its smaller Ice Mountain brand led the top 10 in volume growth of 68.2% in 2002.

The heavy infusion of ad dollars is a relatively recent phenomenon. The consistent double-digit growth in volume has stemmed largely from the U.S.' fixation on health and cool packaging, and the increased distribution accorded that fixation, rather than on marketing. Branding is feasible only when companies spend the time and money to support the category, says Gary Hemphill, senior VP at Beverage Marketing Corp.

Four Pricing tiers

"Brands will increase in importance as the industry continues to consolidate," he says. The top five brands already control more than half of the category. "Companies are really only in the very early stages of brand building," says Mr. Hemphill.

Bottled water is separated into four tiers, with Evian and Fiji Water's Fiji leading the pricing, followed by Aquafina and Dasani, then Coke-marketed Dannon, with private-label brands the least expensive. Most of the action is in the midtier as small regional brands increasingly find it hard to match the advertising of the category giants taking their shelf space. Although retail prices vary across the country, high-end brands can cost as much as double their private-label counterparts.

With continued growth in the market-up 26.2% by volume in 2002-little wonder bottled water attracts Coca-Cola and PepsiCo, primary players in the slow growth soft-drink market. And now Anheuser-Busch Cos. may be testing the water. It has trademarked the names 180 Sport for a water and H2AID for either a water or an enhanced water.

Accessibility at mass merchandisers and elsewhere remains pivotal. "Distribution is as important in the growth of beverages as location is in the real estate business," says John Sicher, Beverage Digest editor.

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