Choosing Your Water Part 3: It’s all about the Benjamins
September 12th, 2008 by Kishore
We’re up to Part 3 of our 6 part conversation on water choices (Check out Part 1 and 2).
We’ve reached your pocketbook…how much does it cost to choose water?
In SF, tap water costs about $3 per 1000 gallons. That translates to $0.0008 per liter. Compare that to most bottled water prices (Aquafina is about $1.50/L, other premium waters run upwards of $2/L).
That’s a 2000 X as much for bottled water. 2000! I can’t think of anything I pay that kind of premium on in my life.
In 2007, Americans spent about $11 billion on bottled water, thats more than movie tickets.
| Year | Millions of Gallons | Annual % Change | Millions of Dollars | Annual % Change |
| 2000 | 4,725.1 | – | $6,113.0 | – |
| 2001 | 5,185.3 | 9.7% | $6,880.6 | 12.6% |
| 2002 | 5,795.7 | 11.8% | $7,901.4 | 14.8% |
| 2003 | 6,269.8 | 8.2% | $8,526.4 | 7.9% |
| 2004 | 6,806.7 | 8.6% | $9,169.5 | 7.5% |
| 2005 | 7,538.9 | 10.8% | $10,007.4 | 9.1% |
| 2006 | 8,253.5 | 9.5% | $10,857.8 | 8.5% |
| 2007 | 8,823.0 | 6.9% | $11,705.9 | 7.8% |
| 2008(Proj.) | 9,418.0 | 6.7% | $12,573.5 | 7.4% |
Source: International Bottled Water Association
While growth is slowing, we’re nearing 10 billion gallons. If you were a private company and saw consistent 8-10% growth, wouldn’t you get into the fray?
Let’s take a closer look at the sales broken out by company ($ are in millions, parent company in parantheses)
| 2007 Rank | 2004 | 2005 | 2006 | 2007 | |
| Dasani (Coca Cola) | 1 | 1035.2 | 1049.9 | 1346.6 | 1609.8 |
| Aquafina (Pepsi) | 2 | 917.4 | 1206.7 | 1503.1 | 1470.3 |
| Poland Spring (Nestle) | 3 | 623.9 | 726.4 | 823.6 | 878.2 |
| Arrowhead (Nestle) | 4 | 514 | 546.5 | 565 | 585.8 |
| Nestle Pure Life (Nestle) | 5 | 166.4 | 248.8 | 355.7 | 545.1 |
| Crystal Geyser (Crystal Geyser) | 6 | 435.5 | 380.5 | 444 | 529.4 |
| Deer Park (Nestle) | 7 | 374.2 | 422.2 | 470.6 | 499.5 |
| San Pellegrino (Nestle) | 13 | 81.7 | 107.4 | 117.1 | 137.2 |
| Fiji (Fiji) | 14 | 48 | 78.2 | 104.7 | 131.1 |
Source: Beverage Marketing Corporation
Pepsi, Coca-Cola, and Nestle own about 65% of the market. 3 companies alone!
And how much money are they making? Let’s look at a $1.50 bottle. 0.50 (33%) goes to the retail store. About 0.50 (33%) goes to the distributor including transportation , 0.15 (10%) is the cost of the bottle, cap and the water. That leaves 0.35 for the bottler (23%) as profit. For companies like Coke or Pepsi, they own the distribution channel as well…Cha-Ching! That’s well over 300 million profit for Coke (excluding distribution profits) for a product they were already making (Coke purifies their water for their soft drinks already…the process is nearly identical to the process used to make Dasani).
The water used itself costs very very little. 5% at most. It’s probably the only product in grocery stores where the non-consumed component represents only 95% of the cost.
So put yourself in the retailer’s position…here’s a product you have to do little or no work on. Has a built in market. Probably has the highest margin of any product you sell (its the highest margin product at Starbucks - outside a flavor shot). It’s a no brainer to sell bottled water.
Takeaway:
The profit margins on bottled water are too good for industry to walk away from. The industry is morphing into value-add (vitamins, flavor, etc) into water, as a marketing push to hedge bottled water backlash. Know that when you buy a bottle of water, only 5% of that cost is the water.
Resources:
FastCompany article on bottled Water
Beverage Marketing Corporation
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