Coke, Pepsi Struggle to Market Premium Bottled Water as Consumers Turn Frugal

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Media : Jakarta Globe

Date : Wednesday, February 03, 2010

Page : B4

Tone : Neutral

Position : Top-Left

Section : International

Turn Frugal

Atlanta. Not long ago, Coca-Cola and PepsiCo pulled off a remarkable feat: converting the world's most plentiful liquid - water - into a product wrapped in brand images, aspirations and marketing hooks.

It was easy to get excited about bottled water three years ago: sales were rising smartly. Mergers and acquisitions reflected it.

In 2007, Coca-Cola plunked down a cool $4.1 billion to buy Glaceau, the maker of Vitaminwater. It was Coca-Cola's largest purchase ever.

Things are much less exciting now for Coca-Cola and PepsiCo. The old rivals are now locked in a similar predicament. As a recession and economic uncertainty have caused shoppers to cut their spending, big bottled water brands have suffered.

Sales of Coca-Cola's mainstay brand were down by 22 percent in the first nine months of 2009; PepsiCo's fell 9 percent, according to Beverage Digest.

Meanwhile, the big winner is private label bottled water, up 12 percent. Those waters are cheaper than the offerings from CocaCola and Pepsi, and appeal to America's new sense of frugality.

The appeal of affordability will not soon go away. Sales ofprivate label water will rise another 10 percent this year, according to Beverage Marketing.

As shoppers look to save money, the price gap between branded water and nondescript labels is provingtroublesome for Coca-Cola and PepsiCo, despite their marketing prowess, sales muscle and powerful distribution networks.

"Big Blue and Big Red are masters of one thing," said consultant Tom Pirko, using the industry shorthand for Pepsi and Coke. "That is, marketing soft drinks."

Water presents different challenges. "Here they are with a product that is really anonymous; it's all image," Pirko said. 'They can no longer provide the 'oomph' in consumer demand."

Coca-Cola, which sells a range of waters, does not seem worried. Chief executive Muhtar Kent last month expressed confidence despite a sales decline.

The bottled-water category in general shrank less dramatically last year than carbonated soft drinks. That is slim consolation for Coke and Pepsi, which have seen bottled water become a drag on their results after a decade of contributing growth.

The question that divides beverage-industry insiders is whether bottled water will be a commodity business marked by cutthroat prices, or a category where brands can command premium treatment and shopper loyalty.

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