Nearly one third of all bottled water sold in the United States is distributed by Nestlé Waters North America (NWNA), a subsidiary of Nestlé Waters. Kim Jeffery, NWNA President and Chief Executive, talked to Editor Nayl D’Souza about how the company gained such a lead in the market and how it intends to maintain its position.
Nestlé Waters North America boasts a broad portfolio of regional water brands including Arrowhead, Calistoga, Deer Park, Great Bear, Ice Mountain, Ozarka, Poland Spring and Zephyrhills. And that’s just brands sourced in the United States. It also sells Nestlé Pure Life – produced as spring water in Canada and manufactured in the US as purifed water; Acqua Panna and S.Pellegrino from Italy; and Perrier and Contrex from France.
The company represented 31.3% of the US bottled water market in 2005 and achieved total North American sales of $3.38 billion, 85.4% of this being generated from business in the United States and the remainder from Canada. Analysts believe the company’s overall share of the market will have been more than preserved in 2006.
Unlike rivals PepsiCo North America and Coca-Cola North America, NWNA has the distinct advantage of being able to focus solely on bottled water rather than a range of beverages. Nevertheless, PepsiCo has managed to achieve notable triumphs in the US market with Aquafina, ranked as the market leading brand within the PET still water category; and Propel, the no 1 brand in the vitamin enhanced water category.
Far from being content to rest on its laurels, the commitment made by NWNA to continue to make improvements in every aspect of its business is clearly evident. It has implemented the latest technology in its operations and commissioned environmentally award winning plants. In natural resource management, the company has made impressive progress from sourcing, bottling and distribution to packaging and market strategy.
The lead that the company has attained in market share has been boosted by a flurry of new products and packaging launched in 2006.
NWNA President and Chief Executive Kim Jeffery told water innovation (issue 40): “We’ve had a very good 2006, due in part to the success of these package innovations. I like to think they are of equal importance in driving new consumption and improving our package mix, by lessening our reliance on the big promotional 24-pack of 50cl bottles.” * Aquapod: ready to take off*
Launched in April 2006, Aquapod is a rocket shaped 11oz bottle that has provided a blast of fun to the kids’ bottled water segment. The innovative packaging, helped along by a flood of humorous and lively advertising on Nickelodeon and other popular kids’ channels, has thrust Aquapod into the centre of the universe for children aged between 6 and 12 years old. Parents, however, seem far less mesmerised by the product than their offspring. This is something the company plans to put right in 2007.
Jeffery confirmed: “While we had a great introductory launch and have raised awareness of the product with children, next year we plan to focus more of our marketing communication on parents.”
Although he is not displeased with the results of Aquapod, he believes the package should be selling at a much higher rate on a par with 8oz bottles aimed at kids. Moreover, it has taken a little longer than the company had anticipated to boost distribution.
“All of our research tells us that consumers love the shape of Aquapod. I think it could have a life beyond its present size and I believe that the long term potential of the product is going to be very significant.” * Fluoride water: added twist *
In 2006, the company also launched its fluoridated 8oz bottles with a child safe twist cap across all of its regional US brands (Arrowhead shown left). The product, aimed at mothers of 2-6 year olds, uses a beverage closure that is both safe and spill resistant as the cap cannot be removed from the bottle. This has been achieved by adopting a reverse thread base. NWNA claims the cap passed child safety testing to the ‘never failed’ point and, as there is no dust cover on the cap, there is no possible choking hazard.
“The safe cap we developed for kids is the first of its kind to be manufactured for bottled water. We think that it gives us a competitive advantage and is the most appropriate for a package intended for children,” he added. * Stackable 3 litre bottle: towering triumph *
In the US, bottled water consumption has more than doubled in the past five years and people are stocking up on bottled water to meet their families’ ongoing consumption needs. In fact, in a recent study conducted by NWNA, 335 of those polled wanted bottled water that is easier to store at home. In response, the company developed the 3 litre bottled water format that stacks like interlocking building blocks (top right). These bottles save space when compared to gallon jugs that can only be stored in one layer.
The remarkable packaging innovation, which was launched in July 2006, triumphed at the 2006 bottledwaterworld design awards. Designed with an ergonomic grip and convenient resealable twist cap, the judges observed the practical nature of the design and were impressed that the concept offers more volume, yet optimises storage space.
“The 3 litre stackable bottle is selling at the rate of our previous one gallon PET package and it has the benefit of being environmentally friendly.
“The 3 litre also offers retailers the benefit of less waste and less labour by reducing the need for secondary packaging waste if it is palletised. We think this innovative container has huge potential and we’re focusing on expanding distribution and retailer support to ensure its success.” * Innovations for year ahead*
The stack of ideas doesn’t stop there. NWNA plans to tap a small but rapidly growing functional aqua plus category developing in the US market. Before the end of the first quarter of 2007, the company will have launched two functional drinks. The first impending launch is Nestlé Pure Life Green Tea Refreshers – which, as the name suggests, contains green tea extracts . The calorie free beverage will aim to take advantage of consumer interest in the health benefits of green tea.
The company will also test market an aqua plus drink for Zephyrhills, a bottled water brand based in the Florida region. The vitamin and electrolyte enhanced beverage is sweetened with Splenda and, therefore, calorie free.
“It is hard to say how big the water plus segment will be in the US market. I don’t think it will be anywhere near as big as our base water business, but water plus is a golden opportunity to broaden our scope and we are interested,” admitted Jeffery.
The aqua plus segment in the US market is fairly consolidated with PepsiCo (Propel), Coca-Cola and the Glacéau range all taking substantial shares of the market. Can products from NWNA also flourish?
“I believe that, in order to compete, you need to have scale. But remember Propel and Glacéau, while the leaders, are pretty small brands in terms of sales. We launched Nestlé Pure Life Splash in 2005. 2006 was our first full year and sales will be over $100 million in North America. It is too early to pick the winners.”
Despite it being a new foray for the US subsidiary, the parent company is no stranger to the aqua plus segment. Indeed, Nestlé Waters dipped its toes into the functional drinks category years back. In 2004 it launched the prebiotic water range Water Care and more recently Energy E, both sold in China but more is to come in 2007. * Demand surges in United States*
In the US market, people are increasingly returning to water as their choice of refreshment and as a source of wellness. In fact, 82% of American adults aged 18-59 consumed bottled water in 2005 and 70% consumed at least one bottle of water per week, according to FRC Research. Bottled water is the fastest growing segment of the entire beverage industry at a 9.2% growth rate in dollar sales for 2005. The pattern of consumption largely remained unchanged in 2006, but will the growth continue unabated?
“Beverage consumption is a zero sum game. If someone is gaining, someone is losing. Right now, much of our growth is coming out of the carbonated soft drink category. Our future growth depends on whether or not that trend continues. For the time being, there is no reason to assume that patterns of consumption will change.”
Indeed, most analysts agree with this assumption and suggest that bottled water will surpass carbonated soft drinks as the nation’s most popular beverage well before 2020 – some forecasters reckon this may happen even sooner.
Although Jeffery believes that there are always aspects of the business that can be improved upon – such as efficiency, productivity and competitive positioning – he seems genuinely pleased by the company’s overall performance.
“We benchmark best in class in manufacturing cost and supply chain logistics; our growth rate has averaged 15% per year for the past five years; and we gained market share again in 2006 against world class competitors.”
Interestingly, consumer research shows that spring water is preferred conceptually among US consumers, but there is also an acceptance of drinking water – which does not exist in Europe.
“We think that having most of our volume in spring is good but Nestlé Pure Life, which is drinking water, is now a big brand in North America and is 20% of our PET volume. I feel we are advantaged in having a large business in both segments.”
In 2005, the company introduced a range of flavoured waters under its Nestlé Pure Life brand. Nestlé Pure Life Natural Fruit Flavoured Water Beverages, are a still water based drink with zero calories and carbohydrate. It is available in six Splash flavours: lemon, orange, raspberry, kiwi strawberry, tropical fruits and peach mango.
Premium brands, savvy marketing
It would be unthinkable to fail to mention the luxury bottled water brand portfolio of the company. According to NWNA, brands such as Perrier, S. Pellegrino and Acqua Panna are growing approximately 20% per year in the US.
And the company is proving its creativity. For example, the recent NWNA marketing campaign for Perrier bottled water changes the name of the Perrier brand into other words that end in ‘-ier’. Reworked brand names, appearing on bottle labels, postcards, stickers, swizzle sticks, umbrellas and coasters, include ‘Luckier’, ‘Sassier’, ‘Crazier’, ‘Scarier’, ‘Prettier’ and ‘Riskier’.
Despite concerns about altering such a recognisable brand, NWNA Vice President for Marketing Bob Davino remarked: “We always want to keep the brand fresh and contemporary. The brand is still instantly recognisable through the bottle shape and the way the label looks, but we want our younger target – who doesn’t have much of a history with the brand – to discover it on their terms”.
“This campaign makes Perrier, a high profile premium brand with an iconic bottle shape and label, more approachable for people by not taking itself so seriously. It’s extremely extendable and its humour will appeal to a young audience which at present doesn’t have a relationship with the product. The advertising is very sophisticated,” observed Kim Jeffery. * HOD: small yet significant growth*
As the retail price of water coolers has fallen, there is a trend towards people buying coolers as they would a small appliance instead of renting them. Therefore, the rental income NWNA has enjoyed in previous years is declining.
The company has also had to face even sterner competition from DS Waters in the US home and office delivery (HOD) market, having recently acquired Crystal Mountain Spring Water and Culligan Water Conditioning. Despite this, NWNA is still the no 1 HOD player in the US market with nearly 1.5 million customers. HOD only represents around 15% of the company’s total revenue and its growth rate is much lower than its retail business.
“The company is seeing growth of around 5% this year in HOD, where our biggest competitor is declining by around this amount. We’ve been working on improving our commercial business. This is where the growth opportunity is. We’ve greatly increased our sales staff team and have become very sophisticated on our delivery processes today. We have key performance indicators every month and measure against on time delivery and order correctness. More than this, we have an extensive database, which we’ve been very successful in mining. We know where our customer is and where every competitive customer is located.”
*Sustainable stewardship: big debate continues *
Although NWNA has been busy investing in the latest equipment and technology within its bottling plants, the company has also gained recognition for sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. As a result of such efforts to conserve natural resources, the company is the first US food and beverage manufacturer to achieve Leadership in Energy and Environmental Design (LEED) status from the US Green Building Council. In fact, five of the company’s plants are now LEED certified, while others are in development.
NWNA owns more than 12,000 acres of natural land which provides watershed protection and wildlife habitat. It has lowered the gross weight of its 50cl spring bottle by nearly 40% since 1989, and demonstrated a strong commitment to corporate responsibility through initiatives such as Project WET (Water Education for Teachers) and Crystal Springs Nature Preserve. Moreover, the company claims to take particular care when managing spring water sources for sustainability and aims to continue to improve on this.
Yet all these efforts seem to be somewhat overshadowed by controversy surrounding a bottling facility producing water for Ice Mountain, the company’s Midwest US brand primarily marketed within the Great Lakes region, which has been operating successfully since early 2002. Action groups have used the plant as a vehicle for focusing public attention on issues such as the responsible use of local water by corporations, the distribution of water beyond the watershed from which the water originates and potential environmental impacts resulting from water withdrawals.
So can NWNA continue to wear green credentials yet while tapping water from the Great Lakes for a bottling plant in Stanwood, Michigan?
Kim Jeffery responded: “First of all, we are not taking water from the Great Lakes per se. We are one of literally thousands of businesses using groundwater from states which border the Great Lakes. We may be the only company that records our use and harvests sustainably, meaning we only take what nature gives us based on scientific testing and constant monitoring. When one understands our commitment to sustainability of these sources, our green credentials remain intact.”
The NWNA bottling facility in Stanwood used on average less than 450,000 gallons of ground water per day in 2006 for bottling its Ice Mountain and Nestlé Pure Life products. This is substantially less water than for average golf course irrigation and nearly 19 times less than a family owned trout hatchery.
A key ruling by Michigan Court of Appeals concluded that the company has the right to withdraw water but at a rate considering factors such as competing uses of water – a lower rate than the one issued by the Michigan Department of Environmental Quality. Meanwhile, on the question of property ownership providing the right to use water, the company clearly believes it is using water reasonably and responsibly, with respect to other water users and the environment.
Kim Jeffery is adamant that, from a sustainability perspetive, “NWNA does bottled water right”. Whether the company can convince all its critics it is an excellent steward of environmental and ethical values is anybody’s guess, but the man at the helm of the company appears to think that the odds are definitely in his favour.
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