Bad Times Don’t Stop People Buying Bottled Water
by Tony D:Altorio, INVESTMENT U, December 15, 2010
They said the bottled water industry was in trouble…
First, it was health and environmental issues, including what to do with the used plastic.
Then the global recession hit and people really started to bash the business. Everyone expected cash-strapped consumers to turn to the tap for their drinking needs.
Yet somehow, despite those reasonable predictions, bottled water became one of the food and drink industry’s star performers.
- Danone ADR (PINK: DANOY), with its Evian brand, increased sales by 8.7% last quarter.
- And Nestle ADR (PINK: NSRGY), its biggest competitor, saw a 7.8% boost.
In both cases, bottled water sales outpaced the larger company’s sales by two percentage points. And for Nestle, with brands like Pure Life, such figures mark a sharp difference from the hits it took in 2008 and 2009.
Coca-Cola (NYSE: KO), the world’s third-biggest bottled water supplier with brands like Dasani, didn’t break out segment sales. But it did flag water as one of its growth drivers.
That could be due to Europe and Japan’s unusually hot summers. And U.S. sales did notably bounce back after 2009′s depressed levels and cooler seasons.
But bottled water producers point to a more fundamental change… Once again, it seems that emerging markets are driving demand…
Emerging Market Consumers Hit the Bottled Water
For all intents and purposes, it appears that emerging market consumers have hit the bottle.
For instance, Nestle saw bottled water demand there grow at a 20% annual rate. And top-line growth from its production and distribution emerging markets network helped it lift margins in its water division by 10 basis points in the first half of the year.
That makes sense considering emerging market growth has run at roughly double the developed world’s 4% to 5% rate over the past five years.
Rick Haffner, head of global beverage research at Euromonitor, sees this trend continuing.
- He believes bottled water sales will continue to grow on a long-term basis, largely “driven by emerging markets.”
- Haffner attributes the trend to rising incomes and a desire for clean drinking water. [Read rest of story]