Examining The Market For Nutraceutical Water

This is an exploding category with major firms showing interest.

By Greg Kitzmiller

“The world is changed. I feel it in the water…” These are the opening words of the motion picture, Lord of the Rings, Fellowship of the Ring and they could easily be applied to the changes taking place in the world beverage market. Water alone may not be considered a nutra­ceutical but what many firms are doing to water is another story.

First, let’s get a clear picture of the global water market. A recent ACNielsen study stated that water (still and carbonated) is tied with refrigerated meals as the second fastest growing food and beverage category globally, posting $10-15 billion in sales. Additionally, the watersegment increased by 13% internationally, representing an absolute dollar growth of $1.7 billion dollars be­tween 2000 and 2001. In that same period only prepared alcoholic beverages grew faster.

In the U.S., Coca-Cola and PepsiCo claim to be brand leaders with PepsiCo’s Aquafina claiming 17% market share to Coca-Cola’s Dasani maintaining a 13% share, according to the Wall Street Journal. Coca-Cola recently inked a deal with France’s Danone to distribute the company’s Evian water in the U.S., which would push Coca-Cola equal to or slightly ahead of Pepsi in terms of total market share. Evian currently claims 4% market share in the U.S.

Coca-Cola might be able to claim that Dasani is a nutraceutical since it is fortified. It is that fact, as well as other commitments to water by firms, that we want to investigate strategically.

It’s What’s in the Water

What makes water a nutraceutical? Fortification of water could be classified as nutraceutical activity, particularly if the ingredients added provide health benefits. While Aquafina is currently the leading brand, it is not considered nutraceutical since it uses filtered water. PepsiCo previously tried spring water but it was not successful. Determined to get into the water business, the company did not want to have distributors haul water long distances, so the strategy was to use highly filtered water from each of its bottlers.

Dasani, on the other hand, uses filtered water with added minerals. Coca-Cola claims the minerals enhance the taste, so it does not make any functional claims for them. In­stead, the company uses a wellness ap­proach in its marketing and has even designed a special website about wellness equipped with a team of wellness experts. This approach is very close to a nutraceutical ap­proach and it is what signifies the strategic difference versus PepsiCo.

Coca-Cola does not ship water from a special source by using locally filtered water. Furthermore, the company maintains a secret formula for its minerals and sells it to bottlers in the same way it sells Coca-Cola syrup (the company claims the formula for the minerals is as closely guarded a secret as the Coca-Cola syrup formula). In more recent developments, Coca-Cola also has announced plans to launch Dasani Nutriwater, which will be enhanced with nutrients and vegetable flavorings.

PepsiCo already possesses nutra­ceutical water through its Gatorade division, which promotes its Propel Fitness Water as a Gatorade brand extension. The major advantage of Propel is the low level of flavoring and the fortification with essential vitamins. PepsiCo has also reported that it will launch fortified water under the Aquafina Essentials brand. The waters will contain vitamins and minerals and fruit flavorings. Prior to this, PepsiCo attempted to add calcium to Aquafina but it reportedly failed in taste.

The Other Players

The real nutraceutical products currently being marketed are not from market leaders such as PepsiCo and Coca-Cola. Category newcomers Baxter International and Suntory Water Group offer fortified waters that are truly functional. Suntory Water Group USA uses six brand names including Belmont Springs, Crystal Springs, Hinckley Springs, Kentwood Springs, Sierra Springs, and Georgia Mountain. Suntory has introduced a calcium fortified water under the Hinckley Springs brand in the Midwest, the Crystal Springs brand in the South and the Kentwood Springs brand in the Southeast. The waters highlight calcium and its connection to bone health in publicity materials.

Baxter claims it has the first water-based dietary supplements to be introduced by an established global healthcare firm. Its new brand PULSEwater + nutrients includes a Heart Health Formula, Women’s Health Formula and Men’s Health Formula, and all are specially formulated. For example, the Heart Health Formula contains fiber, vitamin C and selenium; the Women’s Health Formula contains soy isoflavones, calcium, magnesium and vitamins plus folic acid and the Men’s Health Formula contains lycopene, vitamins, selenium and green tea catechins.

Strategically it will be interesting to see how these functional waters fare against the marketing giants. It will also be interesting to see if PepsiCo, Coca-Cola, Danone and Nestle move more in the direction of adding functional ingredients to water. It would appear that doing so would help differentiate brands. After all, PepsiCo’s Aquafina does not seem to have much advantage over a product like Sam’s Choice Purified Water from Sam’s Club stores, with the exception of the branding and marketing muscle. Of course, it has been branding and marketing muscle that has kept Coca-Cola and PepsiCo at the top of the cola business for so long. Now that colas are very mature in the U.S. and likely to start declining, each of these firms needs to have viable brands that will allow them to stay highly competitive in the beverage industry. Let the water wars begin!NW