The Weird World Of Economics

With $11 billion in U.S. sales, the beverage's marketers have become clear winners

Americans spent an estimated $11 billion last year drinking 8.3 billion gallons of bottled water, according to Beverage Marketing Corp., the leading compiler of facts and figures about the beverage industry.

That means the average American consumed almost 28 gallons of Aquafina, Dasani, Evian or hundreds of other brands that comprise the up to $100 billion global market for bottled water.

So great is our thirst for the stuff that Americans now drink more bottled water than any other commercial beverage except carbonated soft drinks -- more than milk, more than coffee, more than beer.

And the trend shows no sign of abating. Both the amount spent last year on bottled water and the amount consumed represent nearly 10 percent increases from 2005.

Within a decade, says Gary Hemphill, managing director of Beverage Marketing Corp. in New York, bottled water could overtake soda as the leading beverage in the United States. (The average American currently drinks more than 50 gallons of soda annually.)

"The single biggest factor driving sales of bottled water is health and wellness," he said. "People see it as a healthy alternative."

Today's column takes a broad look at this fast-growing business. On Friday and Sunday, we'll focus on matters of production, marketing, safety and taste.

"This is an industry that takes a free liquid that falls from the sky and sells it for as much as four times what we pay for gas," said Richard Wilk, a professor of anthropology at Indiana University who has studied the bottled-water business.

"There's almost nowhere in America where the drinking water isn't adequate," he said. "Municipalities spend billions of dollars bringing clean, cheap water to people's homes. But many of us would still rather buy it at a store."

Critics of the bottled-water business say this represents a triumph of marketing by powerful beverage companies like Nestle, Coca-Cola and PepsiCo -- the selling of a ubiquitous commodity that most people can obtain easily and safely from their faucets.

They also cite the environmental harm that can come from the annual production and discarding of billions of plastic water containers.

Consumers of bottled water, however, say that they have safety concerns about tap water and that bottled water simply tastes better.

A 2003 study by the Environmental Protection Agency found that while 82 percent of Americans say they drink tap water, nearly three-quarters also buy bottled water. Twenty percent of Americans drink only bottled water.

About a third of Americans who buy bottled water or use filters at home do so because of health concerns, the EPA found, while nearly 28 percent do so because of taste considerations.

People in their 30s or 40s, and those with higher educations levels, are more prone to drink bottled water than other segments of the population, the study found.

Yet a 2001 study by the World Wildlife Fund found that despite the widespread perception that bottled water is better for you, there's actually little difference between what you can buy in a store and what pours from the tap.

"Bottled water may be no safer, or healthier, than tap water in many countries while selling for up to 1,000 times the price," the group said in a report compiled by a University of Geneva researcher.

The study concluded that the only significant difference between some bottled water brands and tap water is that one is distributed in plastic containers and the other via pipes.

"It's not a fair conclusion," responded Stephen Kay, spokesman for the International Bottled Water Association, the leading trade group for the industry. "Bottled water offers consumers the safety and quality they're seeking."

He added: "There are a lot of sensational stories about bottled water. It's a regulated food product that responds to consumers' demand and choice."

Bottled water isn't new. For centuries, people have flocked to spas and springs that offered purported therapeutic benefits. In 1855, France's Vittel Grande Source was awarded a permit to sell its mineral water in individual containers. Perrier received a similar license in 1863.

The industry's future came into focus in 1968, when Vittel unveiled the first plastic bottle aimed at a mainstream consumer market. The company's ad campaign played up how bottled water refreshes you, rather than any supposed medicinal value.

By 1990, smaller half-liter bottles appeared and were instantly popular with on-the-go Americans. Sales have skyrocketed ever since.

In the United States, bottled water is dominated by three companies: Nestle, Coca-Cola and PepsiCo. The largest, Nestle, sells water under a wide variety of brands, including Perrier, Arrowhead, Poland Spring, Ice Mountain and San Pellegrino.

In 2002, Nestle consolidated its dozens of bottled-water brands worldwide into a single subsidiary, Nestle Waters. The division now accounts for nearly 10 percent of the Swiss food conglomerate's total worldwide sales, with almost half of that amount coming from North America.

To help meet steadily rising demand, Nestle signed an agreement in late 2003 to bottle water from the slopes of Mount Shasta and sell it under the Arrowhead brand.

The 50-year deal envisions construction of a 1-million-square-foot plant at the base of the Northern California mountain, bottling as much as 520 million gallons of water annually from the local watershed.

Other companies, including Dannon and Crystal Geyser, already bottle water in the area.

Some residents of the small town of McCloud, located near the proposed Nestle plant, fought the deal. Among other things, they said that by paying only about $300,000 a year for access to local water, Nestle would be giving the town roughly a penny for every 17 gallons it can sell.

In 2005, a Siskiyou County Superior Court judge invalidated the contract, ruling that it failed to pass scrutiny for environmental impact before being signed. This month, though, a state appeals court reinstated the deal.

Barring a state Supreme Court challenge, that means construction of Nestle's $120 million Mount Shasta plant could begin this year.

Jane Lazgin, a spokeswoman for Nestle Waters North America, said no date has been set for groundbreaking. But she said the company is excited about the Mount Shasta site and the water it will produce.

"When we look for a spring, it's a lengthy search," Lazgin said. "There are many criteria that go into it. Part of this is the taste profile.

"I hope that consumers will find the high-quality taste of Arrowhead that they like."

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posted by UncommonBusiness @ 7:17 AM