Bottled water suppliers - at least those who don’t also supply soft drinks - must raise a glass every time a politician or campaigner utters the words ‘sugar tax’.

Health, and particularly a desire to move away from sugary drinks, is encouraging Brits to splash out in a big way both on plain and flavoured products. And the mooted tax on sugary drinks would further play into the water industry’s hands.

Not that it needs any help. While cutbacks in consumer spending have brought volume declines to many categories, take-home sales of water have soared by 10.4% - or 83 million litres - in the past year, with value up 9.4% to £312.9m [Kantar Worldpanel 52 w/e 23 December 2012]. Factor in impulse outlets and the total market is worth £688.1m [SymphonyIRI 52w/e 8 December 2012].

The prospect of water sales suddenly drying up would seem to be a slim one. But soft drinks have been improving their health credentials of late, as exemplified by Coca-Cola’s reformulation of Sprite, and you don’t have to cast your mind back far to recall the anti-bottled/pro tap water brigade arguing it was an expensive, environmentally unfriendly con. So will water suppliers still be drinking to the category’s success this time next year?

The category can arguably put much of its recent success to positioning itself not as a rival to tap water but to the softer target of soft drinks, whose health credentials it has to date easily been able to trump.

“The debate about a link between obesity and the amount of unnecessary sugar in many other drinks has changed the purchasing habits of parents when choosing drinks for their children, while there has been continued growth in the health-consciousness of adults,” says Brett Fleming-Jones, MD of British brand Iceni Waters, which last month extended its listings into Asda.

This is borne out by the relative sales growth of the two categories. “We have seen shoppers switch spend to bottled water from almost every other soft drink sector,” attests Kantar analyst Gareth Davey, pointing out that value growth in the total soft drinks market has fallen from 7% a year ago to 2.7%. “Over a third of bottled water value growth is due to shoppers switching spend.”

Bottled water has also benefited from average prices remaining largely unchanged, which suggests the switching has been motivated as much by cost as health concerns.

  • Bottled water value has grown 9.4% year-on-year, well ahead of total soft drinks at 2.7%.
  • 37.5% of value growth is due to shoppers switching spend from other sectors and the rest is down to existing shoppers buying more. The average bottled water shopper purchased 7.5% more volume this year than last, with the remaining increase coming from 2.7% growth in the number of buyers.
  • Plain still water contributes to 45.6% of water’s overall value sales and 51.8% of volume. In both cases it is growing slightly behind the rest of the sector - with flavoured sparkling in particular growing faster at 12.9%.
  • The 9.4% growth can be attributed to the 5.5% growth in branded and the 13.8% growth of own label.

Gareth Davey
Kantar Worldpanel

Joanna Watling, marketing director for Aqua Pura owner Princes, certainly believes that’s the case. “Household budgets have tightened and people are looking for value for money in everything they buy, so are switching to bottled water as a cheaper out-of-home alternative to other soft drinks,” she says.

It’s a view echoed by Highland Spring group marketing director Sally Stanley. “Sparkling bottled water has also been performing very well, driven in part by consumers using sparkling water to mix with squashes and cordials as a good value alternative to more expensive drinks when entertaining at home.”

Cutbacks in spending have also helped to drive sales of flavoured waters such as Danone’s Volvic Touch of Fruit and the Volvic Juiced lines introduced last year. In terms of volume growth, still flavoured waters were the strongest performers - up 13.1% [Kantar].

“People are starting to realise it is silly to give their little children an expensive ‘sports drink’ while they are only kicking a ball around in a park,” contends Fleming-Jones. “Walking the dog does not mean you need to be consuming liquids for Olympic athletes.”

Brands have also been looking at how to boost consumption among those leading a more sedentary lifestyle still. Consumers are keen to ensure they take in enough water at work, notes Watling. “This has led to consumers keeping bottles of water on their desk to drink throughout the day and has increased household penetration and growth in frequency and volume of purchase.”

Last year, Evian and Volvic owner Danone targeted office workers as part of a campaign to promote the use of different bottle sizes for different occasions. Even at-home consumption has been a growth area - with some consumers opting to drink from a bottle rather than from the tap.

“Consumers are increasingly using smaller bottle formats at home for the convenience it brings when moving around the house - with the bottle’s cap reducing the risk of the product getting spilt,” says Nestlé Waters retail category controller Silika Shellie.

The success of smaller formats for a range of occasions highlights the difference between the UK and European water markets, which are driven by larger bottles, she adds. “Behaviour in the UK is more similar to that in the US, where the focus is more on smaller pack formats and on-the-go.”

Smaller formats have performed well across all channels, with Highland Spring describing multipacks of smaller bottles such as its 12x50cl packs as the “rising stars” of the category. Nestlé says its 12x50cl Pure Life and 8x50cl Buxton packs have been the top-selling SKUs, and is tipping smaller bottles for strong growth in convenience following the introduction of smaller multipacks.

The importance of pack size and format has changed the way water is merchandised in-store, says Shellie. “Previously, water was stocked by brand blocks but we are encouraging retailers to stock water by format, with smaller multipacks together and the heaviest packs together on the bottom shelves.”

As well as improving their merchandising, retailers have also raised their games on the NPD front. “Retailers have expanded their own-label ranges of plain still and sparkling and flavoured water drinks,” says Christina Medford, Danone Waters head of category development. “More retailers have a value plain still 6x50cl multipack, and there is greater distribution in the grocery market of own-label kids’ small multipacks.”

Such activity has helped volume sales of own-label drinks rise faster than brands year-on-year - at 10.7% against 9.8% [Kantar] to give own label a 63.9%% share. In terms of value sales, own label has soared 13.8% year-on-year to take a 48.4% market share, while brands have risen a more modest 5.5%.

The reason for the big difference in value performance is an increase in branded water sold on deal, says Davey. “We have seen volume on deal increase for both sectors but branded in particular has stepped up, from 38.3% to 45.4% on deal, with the average price for branded falling 3.8% compared with a price increase of 3.8% for own-label.”

Along with smaller formats, another US trend impacting the UK is functional water - a relatively small part of the UK drinks market but one that has been boosted by the reformulation of Coca-Cola’s Glacéau Vitaminwater and Britvic’s SoBe water brand with stevia (as Britvic has also done with its Drench Juicy Spring Water). This sweetener is set to have a growing impact across the market, with Tropicana launching a range of stevia-based juice drinks with half the sugar and calories of conventional juices, and Coca-Cola replacing Sprite with a stevia version to cut calories.

Water has been riding high on the wave of interest in healthy drinks - but NPD like this suggests they might have to fight to stay up there.