Bottled Water Industy Faces Downward Spiral

One year ago we published an article outlining the bottled water industry's plan for dealing with a quickly spreading backlash against their products. We reported that bottled water companies would focus attention on altruistic and humanitarian efforts to hide environmental and social impacts. At the time, marketing publications were predicting that bottled water companies would employ intense 'ethical' or 'responsible' marketing, understood as tying the purchase of a product to charitable activities.

These attempts at cleverly tricking people into buying a product have failed to effectively re-invigorate lagging sales of bottled water. The continuous downward spiral of the bottled water industry over the past year is not likely to be reversed any time soon. Last year's sales figures for the big four bottled water giants (Coke, PepsiCo, Danone and Nestlé) show that sales figures have dropped significantly.

These are desperate times indeed for bottled water companies. Some industry analysts are already predicting the sell off of bottled water assets by Groupe Danone while Nestlé has publicly announced that it is slashing investment in their bottled water brands. However, these difficult times do not mean that these companies are giving up. On the contrary, in the case of Nestlé the company is resorting to facing the bottled water backlash head on through advertising and other, more aggressive means.

Nestlé, its executives, lobbyists and communication firms have their work cut out for them. The fight to have bottled water banished from municipal buildings and promote publicly delivered drinking water in North America has incredible momentum. In December the City of Toronto became the largest city in the world to pass a comprehensive policy to get rid of the bottle in City buildings and to reinvest in publicly delivered tap water. Other major urban centres, like Seattle and New York are promoting their own tap water over bottled water.

To deal with this well organized backlash Nestlé Waters North America has not resorted to the 'ethical marketing' angle, instead it has 'gone negative' by disparaging tap water, using television ads and newspaper advertisements, threatening lawsuits, aggressively lobbying city councillors and employing public relations and communications firms to push their narrative into the media. Looking at Nestlé's track record will show that this company and the industry in general, is desperately trying to hold onto their bottled water customers.

Unlike Coca-Cola and PepsiCo -- two of the big-four international bottled water companies -- Nestlé's beverage division is almost completely reliant on bottled water. Nestlé got into the bottled water business when it bought Perrier in 1992. Over the next decade Nestlé went on a shopping spree, buying a large number of small regional bottled water companies around the world. Today Nestlé owns over 70 brands worldwide.

The majority of these products are non-flavoured still bottled water. Emphasis on regular bottled water has left Nestlé vulnerable to the rapid downturn in sales of this beverage. Nestlé Waters' -- Nestlé's bottled water division -- performance has quickly declined over the past two years due to, what business analysts say is a combination of tough economic times and environmental concerns. Nestlé reported a 1.6% drop in bottled water sales in 2008. Consequently the company announced that it would cut investment in its bottled water division in 2009 indicating that the company does not see a quick recovery of bottled water sales in the near future.

Because of the amount of money it has invested in acquiring its 72 bottled water brands, Nestlé cannot simply de-emphasize its bottled water portfolio and promote other beverage brands much like what Coca Cola and PepsiCo have done over the past few months. Instead, the company must either sell off its bottled water brands or confront the backlash and invest in advertising to attract new customers.