Environment, economy weigh on bottled water sector

By Emma Thomasson - Analysis

ZURICH (Reuters) - The world's top sellers of bottled water are trying to stop western consumers turning back to the tap by addressing environmental issues and trumpeting health benefits, while expanding aggressively in emerging markets.

Nestle, the world's biggest bottler of water with brands like Perrier and Poland Spring, said last week the economic slowdown and environmental concerns were hurting sales in western Europe and North America.

PepsiCo saw double-digit declines in the third quarter in its water brands, which include Propel and Aquafina, while Danone, with brands like Evian and Volvic, said demand had contracted in France, Spain and Britain.

Organisations like conservation group WWF have campaigned against bottled water, saying resources are wasted in bottling and transporting water which may be no safer or healthier than tap water while selling for up to a thousand times the price.

"It is a problem area for the whole industry," said Sarasin analyst Patrick Hasenboehler, citing downtrading risks as well as concerns over transport, packaging and water sourcing.

"When you have clean water at home it's one of the easiest ways to save money. For certain people it's become a bit trendy to drink tap water rather than bottled water."

Nestle controls 19.2 percent of the world's bottled water market followed by Coca-Cola on 9.4 percent, Danone on 8.0 percent and Pepsi on 4.8 percent, according to a report by food and drink consultancy Zenith International.

TAP VERSUS BOTTLE?

John Harris, Nestle Waters executive vice president, said last week the firm had listened to environmental concerns, cutting energy used in bottling and lobbying for more recycling.

"We fundamentally believe that we can address the sustainability issues facing the brand and get growth going," he said, adding the amount of plastic used to bottle water has fallen by 22 percent since 2002.

Nestle is also promoting its bottled water as a healthy alternative to soft drinks and other high-calorie beverages that Harris said make up 21 percent of Americans' energy intake.

"Bottled water is not tap water. We have minerals and vitamins that are unique to the local community and we want to sell that," he said.

Coca-Cola said in a sustainability report this week it was working to make packaging lighter and was investing more than $80 million to build six plastic bottle recycling plants:

"With our water brands, as with all our beverages, we are committed to using resources responsibly, reducing our environmental footprint and protecting natural resources."

Sarasin's Hasenboehler said premium mineral and spring water brands -- like Nestle's San Pellegrino and Danone's Volvic -- would remain a growth area, even in developed markets.