$7.7 billion industry: Water war bubbling among top brands

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This summer could prove pivotal for the $7.7 billion wholesale bottled-water industry. A price war is shaping up in the category, dominated by a handful of big brands and home to hundreds of regional names weathering consolidation. That puts pressure on top-tier players to persuade consumers to pay more than a buck for something that basically comes from a garden hose.

Americans are guzzling water, whether from the bottle, jug or office cooler. Wholesale sales are expected to reach $12 billion by 2007, and the category's growth far outpaces that of other beverages. According to Beverage Digest, volume for all top 10 water brands rose last year. If jug and bulk water were included, bottled water would leapfrog ahead of beer, milk and coffee to become the country's No. 2 beverage after soft drinks, said Gary Hemphill, senior VP at Beverage Marketing Corp., a research and consulting firm.

Fueling the thirst for water is the move toward a healthier lifestyle, availability of a product once scoffed at and package innovation. "Bottled-water growth over the last several years has been stunning, even shocking, and will continue for at least several more years at a rapid pace," said John Sicher, editor of Beverage Digest.

iffy brand loyalty

But while more than robust, the category is challenged by pricing and iffy brand loyalty. Observers predict prices will soften starting this summer, and they wonder whether marketers can persuade people to be brand loyal to a commodity. The challenges are not lost on the marketers.

"We sell water," said Nestle Waters' senior VP-global marketing and communications, Jeff Caso, "so we've got to be clever."

They also have to pony up the cash, since advertising spending in the category is relatively minimal compared with soft drinks. Last year, carbonated soft drinks received $617 million in advertising, while water spending reached only $93.8 million, according to Beverage Digest.

The category encompasses the premium end (Coca-Cola Co.-marketed Evian and Fiji Water's Fiji), midlevel (Pepsi-Cola Co.'s Aquafina and Coca-Cola Co.'s Dasani) and then Coke-marketed Dannon and Nestle Waters North America's Poland Spring, followed by private-label waters. The fastest growth is within the midlevel tier, largely because consumers see no reason to pay more for a higher-priced water, even if it does come from the French countryside. "In terms of brand imagery, it's just as cool-or even cooler-to walk down the street with a bottle of Aquafina, Dasani or Poland Spring as Evian," Mr. Sicher said.

Pepsi's Aquafina, the leading water, is in the midst of an "Aquafina. Purity Guaranteed" campaign from Omnicom Group's Element 79, Chicago, although the marketer is now talking to other Omnicom shops about the account. The latest ads, showing pure moments and pure experiences, broke in March during the Academy Awards. Its first ads, also based on purity, broke in 2000.

Meanwhile, No. 2 Dasani broke a sexy campaign via WPP Group's Berlin Cameron/Red Cell, New York, this month. It involves three TV ads as well as print and outdoor, and the marketer is increasing its outlay for the brand. "Can't live without Dasani" replaces the former tagline "Treat yourself well every day." The intent is to brand the water the way soft drinks are marketed rather than concentrating on wellness or health.

three-tier strategy

Dasani is part of Coke's three tier-pricing strategy-Evian at the top, followed by Dasani, then Dannon-so that if the marketer must compete, it competes against itself. Evian and Dannon are owned by Danone Waters of North America but are marketed and distributed by Coca-Cola.

Evian is continuing its four-year "L'Original" print and outdoor campaign, by Havas' Euro RSCG MVBMS Partners, New York, while Interpublic Group of Cos.' Foote, Cone & Belding Worldwide, Chicago, was awarded Dannon in March and is working on the account now. New ads are not expected to break this summer.

Cadbury Schweppes' Dr Pepper/Seven UP is taking its Deja Blue national, but without advertising. A spokesman said the company wants to give independent bottlers-those who do not bottle Coke or Pepsi products-a nationally distributed water.

While a price war may encourage brand-switching, it's not expected to slow the category. Pepsi, for one, believes bottled water will remain a key growth area simply because it's so portable. "People drink a lot of tap water, but they're not home to get it," said Dawn Hudson, president of Pepsi-Cola North America.

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