BeveragesGlobalRetailMajor Retail Trends For Bottled Water Products In 2019

We examine how some of the world’s largest retailers are growing their bottled water market share ahead of CBD's seemingly inevitable legalization.
Rhys Hanak Rhys HanakMarch 10, 201920 min

With U.S. bottled water sales volumes reaching roughly 13.7 billion gallons in 2017 according to Statista, the United States presents the world’s largest consumer market for bottled water products.

In this report, we examine how some of the world’s largest retailers are leveraging both private and national water labels to grow their bottled water market share—a market that will likely become increasingly valuable as new, innovative product offerings such as CBD-infused water (aka hemp-extract water) become available.

The Alkaline Water Company: A Growing National Brand

The Alkaline Water Company (NASDAQ and TSXV: WTER), a leading producer of premium bottled alkaline drinking water sold under the brand name Alkaline88®, recently announced its expansion into all Whole Foods Southwest Stores. With 30 new Whole Foods stores now carrying Alkaline88’s® 1-gallon size, Alkaline88® is available in over 100 Whole Foods locations nationwide. The Alkaline Water Company expects its products be in all Whole Foods stores by the end of company’s 2020 fiscal year – and as you know, Whole Foods is now owned by Amazon (NASDAQ: AMZN).

In order to ensure that it can satisfy the demands of its growing organic consumer base, the Alkaline Water Company has also recently announced a partnership with international flavor house The Ungerer Company. Through this partnership, the Alkaline Water Company can leverage Ungerer’s cutting-edge flavor technology to develop the company’s low calorie, naturally flavored A88 Infused Beverage products—including the company’s forthcoming hemp-extract water.

Via The Alkaline Water Company,

“. . . Ungerer has taken their skills to another level and solved the impossible; they have created a great tasting flavoring to use in our hemp-extract water. This product is low in calories, high in all-natural flavors, and does not have a ‘hemp’ after-taste,” concluded Mr. Wright [President and CEO of The Alkaline Water Company].

As the second fastest growing branded water among the top 20 brands in the U.S., Alkaline88® provides the Alkaline Water Company with an unrivalled platform to launch its hemp-infused product line, which includes sparkling flavored hemp-infused alkaline water and hemp-infused Alkaline88® original.

With the Company’s hemp-infused beverages continuing to roll out over the course of the following weeks, the Alkaline Water Company is expected be the first national U.S. beverage company—and the first NASDAQ-listed company—to bring premium, hemp-infused alkaline water to U.S. consumers – attacking one of the biggest potential beverage categories in the coming years: CBD-infused drinks.

Alkaline88® is already sold in over 47,500 retail locations nationwide in all 50 states, with a distribution that spans more than 150,000 stores, including 9 of the top 10 largest retailers in the entire U.S., such as Whole Foods, and two of the largest retailers in the entire world such as Walmart (NYSE: WMT) and Krogers (NYSE: KR).

Walmart

As the world’s largest company by revenue, Walmart Inc. (NYSE: WMT) serves nearly 270 million customers a week through more than 11,700 stores across 28 countries.

In 2018, the company recorded revenue of over $500 billion—and it appears that bottled water may deserve some of the credit.

Via Thinknum,

“Of the 15 types of bottled water that Walmart [sells], every single one of them ranks in the top-100 products sold . . .”

While bottled sparkling, antioxidant-infused, and alkaline water products make up a significant portion of Walmart’s highest consumer rated water products, Walmart’s committment to a “Everyday low price” (EDLP) pricing strategy has helped Sam’s Choice—the company’s discounted, private labelled water brand—become its best-selling bottled water product.

Thinknum continues,

“. . . Sam’s Choice — Walmart’s in-house brand — takes the top four spots of [Walmart’s] most-sold bottled-water products . . .”

The popularity of Sam’s Choice comes as little surprise, especially considering Walmart’s cost-sensitive retail culture. However, its broad appeal comes at the cost of alienating some of today’s stickiest consumers—specifically those that prefer more premium, health conscious products. It’s worth noting that the Alkaline Water Company’s (NASDAQ: WTER and TSX-V: WTER) are sold in Walmarts across the country.

Amazon & Whole Foods

With its acquisition of Whole Foods back in 2017, Amazon.com, Inc. (NASDAQ: AMZN), the world’s largest e-commerce marketplace and cloud computing platform as measured by revenue and market capitalization, is quickly emerging as one of the world’s largest water retailers. Last January, Amazon had announced that net sales for the company had increased 31% to $232.9 billion for the full year 2018.

Much like Walmart, Amazon has created its own private label bottled water in hopes of capturing the cost-sensitive consumer.

Via Inc.,

“. . . Amazon is selling 12 packs of 365 Everyday Value flavored sparkling water at a deep discount for Amazon Prime members . . .

‘The deal highlights how Amazon is using Whole Foods . . . to go after some of the hottest brands in consumer-packaged goods . . . Whole Foods introduced 365-branded canned sparkling water in September 2017, a month after Amazon closed the acquisition.’”

But while Amazon’s “365 Everyday Value” branded water products attempts to capture market share in the same way as Walmart’s Sam’s Choice, it too fails to command a premium price like other national label water products.

Kroger

The Kroger Co. (NYSE: KR), the largest grocery chain in the United States, recently announced its financial results for the fourth quarter and 2018 fiscal year. The results were less-than-stellar.

For the fourth quarter ended February 2, net earnings fell from $854 million to $259 million, a 70% decrease. Total sales fell 1.2% to $121.2 billion in 2018 compared to $122.7 billion in 2017.

Despite missing analyst earnings targets, Kroger Chairman and CEO William R. McMullen believes that the company has successfully laid the groundwork to hit its 2020 Restock Kroger targets.

Via Supermarket News,

“The ‘Restock Kroger’ initiative will involve an accelerated and more data-driven effort around pricing, personalized communications with customers and a massive revamp of product assortments . . .”

One product assortment undergoing significant change happens to be beverages.

Supermarket News continues,

“We’ve reinvented what beverage sections look like,” said Stuart Aitkin, CEO of Kroger’s 84.51° data analytics division. “We need to make sure our stores stay relevant.”

Though clearly resource intensive, bold initiatives like ‘Restock Kroger’, are key to staying in touch with today’s rapidly changing consumer preferences. It’s again worth noting that Kroger’s also carries Alkaline88®.

Costco

Costco Wholesale Corporation (NASDAQ: COST), the world’s largest retailer after Walmart, recently reported its fiscal second quarter results. The results beat analyst expectations; net sales for the quarter increased 7.3%, to $34.63 billion from $32.28 billion last year, while net income for the quarter came in at $889 million, or $2.01 per diluted share, compared to $701 million, or $1.59 per diluted share, last year. 

Much of Costco’s growth can be attributed to its Kirkland Signature private label brand—a rare example of a private label done right.

Via Business Insider,

“ . . . Kirkland accounted for nearly a third of all Costco’s [2018] sales. Customers see the brand [Kirkland] as a blend of quality and value, and it gives shoppers a unique reason to go to Costco that other retailers can’t match — online or off.”

While Costco’s Kirkland Signature brand presents a real challenge to many of today’s national labels, its bottled water products sacrifice innovation for affordability—like so many of today’s other private bottled water brands. But it certainly seems to work. 

Private Water Brands Lack ‘Premium’ Consumer Appeal

Though major retailers are investing in the growth of private label water brands like never before, it appears that “in-house” retailer water brands have still failed to capture the premium consumer.

Via Grocery Dive,

According to the firm’s and the Food Marketing Institute’s “Power of Private Brands” report released this summer, dollar share of grocery private label in the premium (24%), value (18%) and organic (6%) segments has remained unchanged since 2015 despite shifting industry economics.”

This is largely due to the fact that private label water brands have historically focused on value over innovation. However, they may not have to create products for the premium market. The big box retailers, such as Walmart and Krogers, have the added benefit of not only selling their own private-label value brands, but selling premium and innovative brands also, such as the Alkaline Water Company’s  Alkaline88®.

Furthermore, the CBD/hemp-infused segment is expected to be one of the hottest beverage trends in the coming years, but its launch still comes with jurisdictional risk. The Big Box Retailers can let the smaller, more nimble companies – such as the Alkaline Water Company – figure it out first, and then carry their products later when it becomes more mainstream.

Disclosure: Directors of Mugglehead own shares of The Alkaline Water Company Inc. and other marijuana stocks not mentioned in this release and we have been compensated by the Alkaline Water Company for news coverage.

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