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Drinking Water Market

Monday, August 9, 2010 - 16:40

In the coming decades humanity may encounter a very serious crisis begotten by lack of drinking water. Tony Clarke — Director of the Polaris Research Institute — thinks that the crisis may be serious enough to threaten the existence of the human race.
Fresh water constitutes only 3% of the total amount of water resources, and the amount of easily reachable fresh water is only 2%. Humanity is already using approximately 54% of the total available surface yield (sustainable resources of fresh drinking water). In 2025 this index is expected to rise up to 70%. The population on the planet increases by 85 million people every year. Water consumption per capita also increases — it doubles every decade. Industrial production, ecological pollution, deforestation and other similar processes decrease the amount of fresh water suitable for drinking. Approximately 10% of all liquid effluents spill into lakes and rivers used for drinking water withdrawal.
Lack of water especially affects the Middle East, Northern China, Mexico, South African countries, South-Eastern Asia and a number of post-Soviet countries. One in three people living in cities lack water or suffer from its low quality. 2.3 billion people live in countries constantly suffering from lack of water (under 1 700 cubic meters of water per capita). 400 million people seriously suffer from lack of water; by 2050 this number will rise up to 4 billion. Even in Europe 23 million people suffer from lack of drinking water every year. Lack of water causes 3.4 million deaths annually.
According to the World Resources Institute data the countries which are in the most serious position are Kuwait, where the amount of water per capita is 11 cubic meters, Egypt (43 cubic meters) and the United Arab Emirates (64 cubic meters). The eighth place in the list of countries lacking drinking water most is Moldova (225 cubic meters), and the ninth is Turkmenistan (232 cubic meters).
Drinking water has become a subject of business. The Fortune magazine analysts believe that the revenue of the companies dealing with the sales of drinking water amount up to 40% of the oil companies revenue, exceed that of pharmaceutical industry and rise up to USD 1 trillion per year. And it is only 5% of world water resources that are controlled by private capital. The world market of drinking water is controlled by ten large corporations. The largest of them are Vivendi Universal, Suez, Boyuguez Saur, RWE-Thames Water and Bechtel-United Utilities. The world leaders Vivendi Universal and Suez (both French) deliver water to over 200 million consumers in 150 countries.
Bottle water sales industry is one of the most rapidly growing in the world today. For example, in 2001 over 90 billion liters of bottle water were sold in the world.
Nowadays there are plans to build water delivery pipe lines similar to those delivering oil. One of such projects is targeted at the delivery of water from Canada to Mexico and the Southern states of the US.
The world market of bottle drinking water is one of the most rapidly growing today. For example, according to the information from the Association of Soft Drinks Producers of the Russian Federation, its growth ratio in the last 4 years was steady at 20%, and the volumes in 2009 amounted to USD 930 million. According to the Association’s experts in the short-term perspective this sector is likely to grow by at least 50%, but even in this case its potential will hardly be exhausted: in Russia an average consumer drinks 15 liters of water per year, while in Poland this figure is 40 liters, in Czech — 50, and in Western Europe — 70 liters. Producers of drinking water believe that this significant growth ratio is determined by the growth in people’s income and development of consumer culture.
As a rule, water producers do not offer only water, but also a number of additional services or products. Some companies sell coolers and pumps for water and deal with repair and sanitary service of the equipment. Moreover, a number of companies supply the customer with some other accompanying goods — one-use plastic glasses. 10% of the clients really require this service.
As a rule in the production process water is purged with several carbon and sand filters. At the next stage special filters demineralize water or on the contrary — enrich it with certain minerals like argentum and fluorine. After that water is decontaminated, affected by ultraviolet and enriched by ozone with the same purpose. Actually, any decontamination involves disturbance of its structure. The safest method is argentum ionization of water. But such water is very rare among drinking bottle water due to high cost of argentum ionizers.
There are several types of bottle water, according to the National Agency for Food and Drug Administration and Control (NAFDAC). This classification can be called international. The product can be marked as bottle water, drinking water of any of the following ways:
1. Artesian Water \ Artesian Well Water: Bottle water from a bore well that reaches artesian water in water-bearing strata of rock between waterproof strata. In these layers water level is higher than overlying confining beds and sometimes fountains upon opening;
2. Drinking Water: Drinking water is another name for bottle water. Thus, drinking water is a kind of water that is sold for human consumption in hygienic containers and does not contain additional sweeteners or chemicals. It does not contain calories or sugar. Flavoring agents, extracts and essences (from spices or fruit) may be added to bottle water, but must not exceed 1% of the final weight of the product. Drinking water must be free of sodium ions or contain very little quantity of them.
3. Mineral Water: It is bottle water containing at least 250 weight parts of minerals for 1 million total weight parts (mineralization over 0.25 g/l — according to the world accepted classification). Mineral water is distinguished from all the other types of water by constant level and relative quantity of elements in the source. No mineral components can be added to this type of water;
4. Purified Water: Water that is produced through distillation, deionization, reverse osmosis or other similar processes may be classified as purified bottle water. Other ways to call this kind of bottle water: distilled water if it is produced through distillation; deionized (tempered) water if it is produced through ionization (desalting); or water purified by osmosis if purification was performed with the use of the osmosis process;
5. Sparkling Water: Water, including one after processing, that contains the same amount of carbon dioxide as after extraction from source;
6. Spring Water: Bottle water produced from underground formation flowing naturally to the surface. Spring water must be collected from a bore hole revealing the underground formation of the spring. Spring water must have all the physical properties and the same content and quality as water flowing naturally to the ground surface;
7. Well Water: It is bottle water that is obtained from a well or bore that is bored, excavated or otherwise created in the ground to achieve the water bearing strata.
According to experts’ estimates the bottle water situation in different regions of the world cannot be uniquely defined. For example, practically all the water that is produced in Western countries undergoes the reverse osmosis process. Special membrane osmosis filters “select” only molecules of water and only after that this super purified water is enriched by minerals in accordance with sanitary norms. This method can be used even to purify water from a puddle — and this will be pure, safe and healthy. But this will be “dead”, mechanical water. “Life giving” water is only natural water which can only be slightly purged to exclude suspended material and bacteria. Such water is obtained from underground sources. For example, in the USA well and spring water is not sold in 1.5 or 5 liter bottles and is not bottled for coolers. It is sold in small (0.2 liters) glass bottles at a relatively high price. There are certain requirements for the production of bottle water:
1. According to the World Health Organization standards, drinking water must be bottled directly from the bore hole. In this case the bottle must have a label: artesian water (carbonated or still).
2. Drinking water artificially purified is a kind of water from a water source, purified by the addition of chemical agents (some producers desalt water almost fully — this process is called demineralization, reverse osmosis, and then add minerals in the appropriate quantities).
3. Total salt level of drinking water — mineralization — is a very important factor for normal functioning of the human body. In the world practice drinking water standards limit only the higher levels of mineralization — 1000–1500 mg/l and the main mineral components: chlorides and sulfates.
In the recent years the drinking water market has not been bringing any surprises to water producers. Its growth ratio has been very good. To achieve greater results the market members try to add more value to their production. Thus, producers present water enriched by vitamins and minerals and also flavored water.
According to ACNielsen, in 2009 growth in retail sales of bottle drinking water rose up to 25% in volume and 27% in value. Generally the sales growth made more people in the world take care of their health. Many people have joined the supporters of healthy life style, among them those who give up drinking sweet carbonated beverages and those who regard bottle water as an alternative to tap water, since the quality of the latter leaves much to be desired. According to ACNielsen experts’ estimates, it was the consumption of drinking water that determined the growth of the market on the whole. Drinking water is extensively used at home for cooking. In this context 5-liter bottles are in special demand. Consumption of bottle water also grows in various every-day situations. For example, a small 0.5-liter bottle is very convenient to buy in the street and to be taken to school or university. A liter bottle is convenient on the road or at lunch with a small company. An at home at dinner table it is usually a 2-liter bottle that is used.
According to ACNielsen, the most widely spread package material is plastic. In the retail sales structure glass takes only 3.5% in volume and 11.6% in value, tin cans — under 1% in volume and value. Plastic takes 96.5% and 88.4% of market respectively. Plastic bottled sales are distributed in the following way: the leading positions are taken by 1–1.5 liter bottles — 51.2% in volume terms and 51.8% — in value; under 1 liter — 10.1% and 21.3% respectively; over 3 liters — 20.3% and 11.7%. A relatively new for the world market type of under 1 liter package with the «sport cap» is far from the leading positions yet and takes 1% of all the physical amount of water sold in plastic bottles.
Rivalry on the bottle water market is very high. Moreover, companies have to struggle not only against their direct rivals, but also against the players on related markets — producers of soft drinks and juices. This still complicates the difficult task to promote the production. As independent marketing experts underline, drinking water is a very complicated product when it comes to advertising and sales promotion. For most consumers there is no difference between drinking water of various labels. Therefore, companies turn to the functional properties of their production. Thus, in February 2008 in the Russian Federation, USA and Western Europe promotion of drinking water Contrex started. This water contained daily amount of calcium and magnesium. Contrex positions as water which in combination with a special diet helps first to reduce weight and then to keep it on the desired level.
It is also very popular to enrich water with vitamins, minerals or various reactive additives like, for example, ginseng. Also, various flavoring substances may be added. Last year, for example, Coca-Cola offered to Russian consumers a new line of vitamins enriched water — BonAqua Plus. There are two types of this water — apple and orange flavored. Another soft drinks producer giant PepsiCo also has a kind of mineralized water — Aqua Minerale Life. According to ACNielsen, during the period from February to November 2008 in 16 largest cities of the USA the share of drinking water with flavoring agents (without sugar) was 0.8% in volume and 1.3% in value. The most popular among consumers was water with the flavor of lemon and orange — 64.4% and 7% respectively of the total physical volume of sales of mineral water with flavoring additives. Meanwhile the share of mineral and drinking water without flavoring additives rose up to 99.2% in weight terms and 98.7% in value. Therefore, it is not all the players of the market who try to fill the production range with water with various flavors. It is very hard to speak of general success of this sub-segment as its share in the world market is very low (under 1%). In Western countries this type of water is regarded as alternative to soft carbonated drinks.
One more marketing trick used by companied for promotion of their production is promotion of water for children. This type of water, however, is not registered in the state register of food products of many countries. Therefore, in this case we can only speak of water recommended for baby food.
As for the channels of bottle water sales, we can distinguish the so called combined channel — supermarkets, minimarkets and food stores. Today it takes 50% of sales in weight terms and 54% in value. Major volumes are sold through supermarkets, and this channel is especially important in a megalopolis context. In capitals it takes 60% of retail sales in natural weight.
According to AC Nielsen, almost half of drinking water sales falls upon water that costs USD 0.3–0.4 per liter bottle (below average segment). And it is this segment that has been losing its share in the world market in the recent years. In 2007 almost 30% of water was sold in this segment, while in the first half of 2008 the sales amounted to 23% in value. “Premium” water sales (over USD 0.5 for 1 liter) are growing most rapidly. In the first half of 2008 with the market share of 38% it gained 3 points in comparison with the corresponding period in 2007.
General tendency in the economy segment changed (below USD 0.3 for 1 liter). Till recently its sales had been growing due to the growth of water consumption in the regions, where local producers had an opportunity to sell water at almost dumping prices. In the first half of 2008 the sales in the economy segment remained at the level of the corresponding period in 2007 and amounted to 29% of total sales in value.
The world accepted leaders in the drinking water market are Coca-Cola and PepsiCo. According to the February–November 2008 data the total share of these two companies was 25.1% in volume and 26.9% in value.
Thus, drinking water market is taken by several large players — famous corporations working in many countries and primarily in middle and high price segments. But a considerable segment of the market belongs to small companies. Very often it is local brands that are sold only in certain regions. As a rule, local trademarks are cheaper than global brands, but water quality is usually on a very good level and this water also has its loyal consumers.

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