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Can Growing Bottled Water Sales Save CSD Makers' Fortunes?

Ritujay Ghosh
Is (LXFR) Outperforming Other Industrial Products Stocks This Year?

An increasing number of Americans are becoming health conscious. This has resulted in steady growth in sales volume of bottled water, making it the number one preferred beverage in the United States in 2017, according to a recent release from International Bottled Water Association ("IBWA") and Beverage Market Corporation ("BMC").

Understandably, Americans are refraining from carbonated and sugary drinks. According to analysts, the bottled water market is expected to grow further in the days to come. This has made carbonated soft drink (CSD) manufacturers shift focus toward bottled water and other healthier options.

Bottled Water Becomes the Number One Beverage

Bottled water has become the highest selling beverage in the United States for two years in a row. According to IBWA and BMC, bottled water volumes escalated to 13.7 billion in 2017, reflecting a 7% year-over-year increase. Bottled water sales came in at $18.5 billion, increasing 8.8% year over year.

Per capita consumption of bottled water exceeded 42 gallons, increasing 6.2% over the same time period. It goes without saying that the gap between carbonated drinks and bottled water is fast widening.

Bottled Water Market to Grow

The sparkling water category grew 70% between 2011 and 2016 and is expected to touch $3.1 billion by 2022, according to Euromonitor. Per BMC, per capita consumption of bottled water will cross 50 gallons in the next few years. 

Interestingly, all segments under the bottled water category witnessed robust growth in 2017. Domestic sparkling water surged 27.5%, while domestic non-sparkling and imported water jumped 5.5% and 9.2%, respectively.

Moreover, according to IBWA, three out of five Americans prefer bottled water to any other beverage. Also, according to a recent Nielsen data, sales of bottled water, flavored water and energy drinks have jumped in the four weeks to May 19. During this period, PepsiCo’s share of sparkling water category grew 4.7%, up from 0.6% growth in January. Also, Dr Pepper Snapple’s shelf-stable juices and drinks witnessed sales growth of 13.1%.

Industry Shifts Focus Toward Bottled Water, Healthier Options

According to Nielsen’s latest data, sales growth of energy drinks, still flavored water, sparkling flavored water and bottled water grew 7%, 10.9% and 17.7% and 7.1%, respectively, in the four weeks to May 19, on a year-over-year basis.

Given that more Americans prefer bottled water to other soft carbonated beverages, CSD manufacturers like the Coca Cola Company KO, PepsiCo, Inc. PEP, Nestle S.A. NSRGY, Dr Pepper Snapple Group, Inc. DPS, Fomento Economico Mexicano S.A.B. de C.V FMX and Monster Beverage Corporation MNST too are redesigning their portfolio along these lines. Coca Cola, PepsiCo, Nestle and Dr Pepper Snapple Group, each carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Coca-Cola recently introduced a range of flavors in smaller packages to its diet coke brand to attract new-generation drinkers. Moreover, the company has promised to reduce the sugar-level in most of its products. It has also introduced Coke Zero Sugar, revamping its Coke Zero. The company also acquired the U.S. rights of Topo Chico, a premium sparkling mineral water brand in October 2017. 

In February, Pepsico launched its new sparkling water line Bubly. A few months ago, Nestle announced that it will be rebranding its Nestle Waters’ Regional Spring Water Sparkling portfolio. The new portfolio will comprise 10 new flavors, design changes in bottles and a new can format.

Bottom Line

Undoubtedly, Americans’ growing health-consciousness has led to a surge in sales volume of bottled water and other healthier beverages. Moreover, the bottled water market is poised to grow further in over the next few years. This has made beverage companies reorient their business strategy and redesign their portfolio with increased focus on bottled water.

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