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What are the challenges around selling sparkling mineral water to the U.S. market?
Hi there, and thank you for your request for the challenges around selling sparkling mineral water to the US market. Below you will find information from sources like Euromonitor, Market Realist and Forbes.
The short version is that the sparkling water market in the US reached US$1.15 billion, and it is experiencing a moment of growth due to increasing popularity among the US public.
Challenges to the market lie in the fragmentation of providers, lack of loyalty to a brand by consumers, and its still relatively smaller market compared to soda drinks.
I elaborate on my findings below.
MINERAL SPARKLING WATER IN THE US MARKET SIZE
The mineral and bottled water market in the US, including sparkling water, reached US$11.4 billion in 2013. Of this, 20% comes from bottled still water, with sparkling representing around 10% of total - or US$1.15 billion. According to Euromonitor, as reproduced by the Huffington Post, sparkling water and "smart" water combined reached US$4 billion as of 2015.
The US still trails behind other developed countries in the consumption of bottled water, sitting at 11th with 116 liters per each year as of 2012 (latest number available).
However, this position may be about to change, as Americans are becoming more health-conscious and leaving soda for water. Sparkling water is having a moment of especially strong growth, and it is expected to drive this figure up - sales swelled 56.4% between 2009 and 2014. Domestic sparkling water, particularly, has been having a profitable moment - sales volume increased 17.9% between 2013 and 2014, compared to 7% growth for non-sparkling, and 11.5% growth for imported water.
In terms of brands and market leaders, Nestlé Waters leads as water brand in this category, 30% of sales. Coca Cola has been trying to penetrate the market, but sits currently far behind, at 5%.
Nestlé's control of the market might be eroded, though, as smaller, craft brands make their way into the industry. According to Statista, private label brands represented 20.9% of sales in 2016 - more than any single name brand. Sparkling Ice was the top performer for a single brand, concentrating 18.9% of sales, followed by Perrier (10.3%), La Croix (8.9%) and San Pellegrino (6%).
CHALLENGES TO THE MARKET, FOCUSING ON NEW ENTRANTS
1. Strong market players
Even though the market is still expanding, there are some market players with a strong presence - namely Nestlé, which owns three brands of sparkling water which combined concentrate 30% of the market.
As well as already established big players, other multinationals are making their way onto the market - including Coca Cola, which has a couple of brands but is looking to increase its still small presence (5%).
2. Quick growth could result in rapid saturation of market
Americans are increasingly turning to sparkling water as a substitute to soda. As health concerns rise in the US, consumers are ditching highly sugared drinks for sparkling water - resulting in a significant increase in sales and forecasts that point at a booming market.
This opportunity has lied the path for private labels and multinationals alike (as explained above) to try and grab a chunk of the market - which could result in rapid saturation. Fragmentation is also a possibility, as the variety of the offerings lead to no real market leader.
3. Lack of brand loyalty
Building upon the last point, another challenge in the sparkling water market is that customers are not as loyal to a brand of water as they are to soda brands. "water is water, and doesn't spark the same kind of heated debate that often comes up between lovers of Pepsi vs. Coke.," S&P analyst Joseph Agnese told USA Today.
This could pose a threat to brands, since building a customer base could prove harder than it was for soda brands.
4. Customers' misunderstanding of product
The reason behind the explosion of sparkling water, experts say, is the health-craze trend undergoing in the US. "The demand for sparkling water is rising as consumers who prefer carbonated beverages consider sparkling water to be a better choice, as sparkling water doesn’t contain sweeteners or artificial ingredients," explains Market Realist.
However, many companies are launching flavored sparkling water, which could contain the same artificial ingredients as soda. Customers could retaliate against that, in the same way they are currently doing with sweetened carbonated drinks.
5. Market still under development
Even though it is highly promising, the bottled water market, including sparkling, is still significantly smaller than soda.
Soda reached US$39 billion in 2014 - compared to US$11.4 billion in 2013 for the bottled water market. So whereas experts are bullish on how the market is going to grow, there is still uncertainty on whether it will reach the development stage of carbonated soda drinks.
To wrap up, the mineral sparkling water market in the US is expanding in a significant way, which represent an opportunity as well as pose several challenges for companies looking to enter the industry.
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