S P E C I A L R E P O R T

THE NEW BOTTLED WATEROPPORTUNITYC O U L D T H E N E X T S P A R K F O R H I G H - M A R G I N G R O W T H

A L R E A D Y B E O N Y O U R S H E LV E S ?Sometimes simple is better. While innovative new products keep things interesting, it’s important to attend to and reinvent the core categories of the store—the ones that bring consistent ROI.

For many c-stores, bottled water is one of these solid margin leaders—and if it isn’t, it should be. Consumers’ move toward better-for-you options has helped propel explosive growth of bottled water, which is now outpacing carbonated soft drinks (CSD).

Additionally, bottled water has proven to be a top driver of margin and profits for retailers with focus and intent.

A Shifting LandscapeSales of carbonated drinks are actually declining, while still water purchases continue to rise. Bottled water has seen a 5-point gain in share of stomach in the past five years as CSD dropped 12 points. That growth isn’t stopping, with the category expected to increase 8% over the next five years in the c-store channel and 5.6% across all channels and formats, according to Nielsen Scan Track data.

Furthermore, this growth isn’t just limited to still water. Many consumers who are looking for healthier

hydration trends that are driving annual bottled water sales and consumption increases,” says Chris Hoban, vice president of communications for IBWA. “It’s clear why the BMC says bottled water is on course to become the number one packaged beverage in America in 2016.”

BMC research indicates annual U.S. bottled water consumption for Americans rose by nearly 11 gallons between 2004 and 2015, from 23.2 gallons to 34 per person. Bottled-water sales increased by 6.4% in 2014 and now total $13.07 billion (wholesale).

Your Water Sweet SpotsIt seems retailers feel pressure to be on a constant search for the next blockbuster item to feature in their stores. That’s why putting more effort into promoting what they already have—bottled water—is a nice reprieve.

“It’s always important to understand the needs,

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alternatives to soda are choosing unsweetened sparkling water. For retailers, this shift to healthier bubbles has led to healthier margins: In c-stores, unsweetened sparkling water unit sales have grown 17% YTD.

Some say this represents a seismic shift in the beverage landscape, and the category is not even mature yet.

According to a survey conducted in the past year for the International Bottled Water Association (IBWA) by the Beverage Marketing Corporation (BMC), 96% of Americans believe we should be drinking more water, and 95% view bottled water as a healthier choice than soft drinks.

“This reflects healthy

ANNUAL U.S. BOTTLED WATER CONSUMPTION

FOR AMERICANS ROSE BY NEARLY 11 GALLONS

BETWEEN 2004 AND 2015.SOURCE: BMC

THE AVERAGE PROFIT MARGIN FOR WATER IS HIGHER THAN MOST OTHER COLD VAULT CHOICESSOURCE: NIELSEN, NACS SOI 2014

interests, tastes and purchase behaviors of consumers as it pertains to beverages,” says the beverage lead of a national convenience retailer. “The latest and greatest innovation is only part of the equation—it’s also important for retailers to maximize existing core and top-selling items within categories such as bottled water.”

Optimizing bottled-water sales means that first and foremost, retailers should focus on customers and their needs and desires, such as better-for-you choices. “Many consumers are seeking healthier options in beverage consumption,” the retailer says. “They are also looking for simplicity and purity in the products they consume, and bottled water provides a strong fit. We see this business growing substantially in the foreseeable future and taking more share within the beverage industry.”

Additionally, focusing efforts on fundamentals can be the best way to increase bottled-water sales and profit margins. The retailer focuses on four key areas of emphasis:

• Understanding the consumer

• Providing the right assortment and variety

• Pricing competitively every day and on offer

• Bringing more value through solutions and food and snacking pairs that make a customer’s in-store experience the best it can be.

True North Stores, a nine-store chain based in Brecksville, OH, centers its bottled water promotions around the recognizable Nestlé Pure Life brand. John Herbert, senior category manager for beverages, says the chain is able to capitalize on consumers’ new enthusiasm for water while promoting bottled water as a core category for high margin growth.

“You see innovation in everything as far as beverages are concerned, but you still need to respect the core, focus on the tried and true,” Herbert says. “You’ll reap huge dividends if you do.”

The chain creatively cross merchandises different beverage categories in the cold vault such as Nestlé

Pure Life and Arizona teas with great success. He is looking to execute a still water/energy drink cross-promotion soon to help drive morning sales. While True North counts on “huge incremental growth” with premium brands (such as Fiji or Smart Water), its intention to focus on Nestlé bottled water as a core category and healthful choice is crystal clear.

“We enjoy encouraging

THE AVERAGE PROFIT PER FOOT IS $26.36

FOR BOTTLED WATER, RIGHT BEHIND THE LEADER,

ENERGY DRINKS, AT $39.11.SOURCE: NIELSEN

BOTTLED WATER HAS SEEN A 5-POINT GAIN

IN SHARE OF STOMACH IN THE PAST 5 YEARS.

SOURCE: NIELSEN SCAN TRACK DATA

consumers to buy still water by promoting Nestlé Pure Life bottled water in the cold vault as a healthy alternative to products containing sugar, calories and other ingredients,” says Herbert. The chain carries only two still water brands, Nestlé Pure Life and Ice Mountain. The 3-liter Ice Mountain bottle is a top seller in the inline, warm beverage section along with Nestlé Pure Life 20-packs.

“On our cooler doors we identify our still water as a better-for-you option,” he says. “We don’t mind suggesting people think about switching from a vitamin water to a bottled water or from a sugar-laden beverage like Powerade to basic

water. We want to make sure we are at least putting the idea in front of people.

“We generate our own POS signage to

at least put the idea in front

of consumers that this is a healthy alternative to other beverages,” Herbert says. “Still water is pure...you can’t get much healthier than that.”96% OF AMERICANS

BELIEVE WE SHOULD BE DRINKING

MORE WATER. SOURCE: BMC

95% VIEW BOTTLED WATER AS

A HEALTHIER CHOICE THAN SOFT DRINKS.

SOURCE: BMC

Focusing on bottled water is crucial for maximizing cold-vault sales. BOTTLED WATER SHOWS

CONSISTENT GROWTH IN C-STORES, WITH A PROJECTED GROWTH OF 8% OVER THE NEXT FIVE YEARSSOURCE: NIELSEN

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Six-year CAGR +47%VS 2014!