In March of 2017, the Beverage Marketing Corporation, a beverage industry consulting firm, announced that the United States has a new favorite beverage. It's not coffee, or tea, or soda, and it's certainly not beer or anything alcoholic. No, Americans now drink, by volume, more bottled water than any other packaged beverage.
Industry watchers have been anticipating this turning point for some time. For more than a decade and a half, the consumption of carbonated soft drinks has been falling (from just over 50 gallons per capita in 2000 to 38.5 gallons in 2016), while sales of bottled water have been steadily rising.
Though health advocates have cheered the news of soda's declining fortunes, the rise of bottled water is less a nutritional success story than a victory for good old-fashioned American marketing—or, to be more precise, of companies deftly navigating the murky space between what people want and what they can be convinced they need.
Looking back over the last four decades, we can chart water's remarkable rise to the top through several distinct stages. First it was sold, then it was normalized, and then it was commoditized. Now, it's even being enhanced and augmented.
Selling the Waters
The practice of bottling and selling drinking water has a long history in America. The first phase occurred in the first half of the 19th century, as it became popular among fashionable Americans to "take the waters"—both bathing in and drinking mineral waters at resorts like Saratoga Springs in New York and White Sulphur Springs in what is now West Virginia. By the 1850s, as the practice of dip-molding made glass bottles cheaper and more reliable, entrepreneurs began bottling those popular waters and selling them in drug stores, groceries, and even saloons.
The big appeal of these early bottled waters lay in their supposed health benefits. The Ricker family, who operated the Poland Spring resort in Maine and started selling its waters in the late 1850s, originally touted them as a kidney remedy. In the 1850s, E. W. Stephenson, proprietor of St. Catharines Mineral Water, promised that his product, drawn from an artesian well in Ontario, would cure everything from "dyspepsia, liver and kidney complaints" to "sea sickness, fever and ague."
As bottling and distribution grew cheaper, more Americans turned to bottled water as an alternative to the questionable output from early urban water systems. The late 19th century saw the creation of a flurry of spring water companies; some of the brands, like Arrowhead and Ozarka, are still on the market today.
But by the early 20th century, the chlorination of municipal water supplies made safe drinking water widely available, and the sale of bottled water declined into a specialty trade. In the 1970s, just 350 million gallons of bottled water were being sold in the United States—about a gallon and a half per person per year. Much of that came in the big five-gallon jugs used in office water coolers; the rest made up a niche market of mineral waters bottled from natural springs.
But then one of the niche players decided to get serious. Perrier, a French brand of sparkling natural spring water that was founded in the mid-1800s, had been languishing for decades, its distinctive green bottles selling in a few high-end restaurants and almost nowhere else. In 1977, the firm hired Bruce Nevins, a 40-year-old ex–Special Forces officer and former Levi Strauss executive, to relaunch the brand to the American market with a blitz of television ads voiced by Orson Welles.
By highlighting its French pedigree and premium price, Perrier played off baby boomers' growing desire for status as the generation shed its tie-dyed T-shirts and started entering the corporate world. Health concerns played an important role, too: Amid a wave of media coverage of studies linking saccharin—the artificial sweetener used in many diet sodas—with cancer, Nevins positioned "pure Perrier" as a healthful alternative to soft drinks.
His timing couldn't have been better. Jogging was in; the Martini was out. "At a long, wet business lunch," People magazine noted in a 1978 article, a bottle of Perrier "besp[oke] a clear-headed sense of purpose." Formerly notorious drinkers, like Richard Burton and Ed McMahon, the magazine added, had embraced the sparkling water as a substitute for hard liquor. Farrah Fawcett even used it to rinse her hair, the article declared.
Perrier's American sales rocketed from 3 million bottles in 1975 to some 200 million just four years later. In 1980, the Perrier Group purchased Poland Spring Water, its chief US rival, giving the firm an 85% share of what was then called the "bottled spring water market." But Perrier stumbled in 1990 after a small number of its bottles were found to contain traces of benzene, a toxic chemical compound, which prompted a nationwide recall and sent the company's sales plummeting. That opened the door for competing sparkling-water brands to flood the market. In 1992, the Swiss food conglomerate Nestlé purchased Perrier, and, though the Perrier brand never recovered its dominant market share, Nestlé Perrier began snapping up brands like Zephyrhills and Arrowhead. As of 1997, amid strong competition from brands like Evian and Calistoga, the company still held a 26% share of the bottled-water market.
Bottled water's cachet only continued to grow alongside Americans' increasing commitment to exercise and healthful diets. Health clubs and upscale stores in New York and Los Angeles introduced water bars, displaying bottles from around Europe and from even more distant locales like Fiji, charging, as Corby Kummer put it in a 1998 New York Times piece, "laughable prices for something that can be gotten out of a faucet."
The International Bottled Water Association's voluntary code of standards dictates that advertisements "should not exploit consumer fears about the safety of public drinking water supplies." But a series of highly publicized health scares—like an outbreak of a parasite discovered in the Milwaukee water system in 1993, which sickened tens of thousands of people—had made consumers leery of public water sources, and bottled-water sellers were quick to highlight the virtues of their advanced filtration processes over the chemical treatments, such as chlorination and fluoridation, used to treat city water supplies. Health officials pushed back, pointing to Perrier's benzene contamination incident as evidence that the bottled-water industry was hardly immune to contamination issues, and publicly fretting that dental hygiene might suffer as more people shifted to drinking non-fluoridated bottled water.
By 1997, municipal officials in cities like Houston and Kansas City were announcing plans to get into the bottled-water business themselves, with proposals to bottle and sell the output of their municipal water supplies. Dan Jones, the deputy director of the Houston public works department, told the New York Times, "Municipal water professionals have always laughed at people paying ridiculous amounts of money for water that they know is not better than the water they get out of their tap. We just note that for whatever reason, people seem to like to get their water out of bottles these days."
In the end, though, it wasn't American cities that cashed in but the giant soft drink companies, who, after years of dragging their feet, finally decided to get into the game. A tectonic shift was under way in the beverage industry, and it involved much more than water. Americans were looking for alternatives to carbonated soft drinks, and water was just one of many options—including bottled teas and lemonades, like Snapple and AriZona Iced Tea; sports drinks, like Gatorade and Powerade; and even coffee-based drinks—that surged in the market as the 21st century neared.
Pepsi was the first to embrace the new order. "We're a total beverage company," Craig E. Weatherup, the president and CEO of Pepsi-Cola North America, told the Associated Press in 1994. "When you reach for a beverage, we'll be there."
Pepsi began test-marketing Aquafina, its brand of filtered bottled water, in late 1994, and a few years later rolled it out nationwide with a huge marketing campaign. Coke resisted following at first, preferring to promote consumption of its soft drinks over an alternative that might cannibalize sales. But bottled-water sales were growing at 30% each year, far outpacing soft drink sales, and Aquafina, backed by Pepsi's formidable distribution and marketing machinery, quickly became the top-selling brand in convenience stores.
In February 1999, The Coca-Cola Company gave in to the inevitable and introduced its first bottled-water brand. The name was Dasani, which, as a Coke spokesperson explained, had no specific meaning but was intended to convey "a clean, fresh taste." If you can't beat 'em, Big Soda had decided, you might as well join 'em.
As Coca-Cola and Pepsi moved into the market, the reactions from industry watchers were decidedly mixed. The 1990s witnessed vigorous debates—sometimes lighthearted, sometimes in earnest—over whether bottled water was of any real value to consumers, or little more than a slick swindle.
Beverage companies routinely used terms like ''mountain fresh'' and images of glaciers and snowcapped peaks to promote water that had never come within a hundred miles of a mountain, much less the Arctic. Ozarka, an old brand that had surged back on the market in the post-Perrier years, was no longer bottled in the Ozarks but rather came from springs in east Texas. The California brand Yosemite Waters was actually pumped from a well in Orange County.
In the wake of the Aquafina and Dasani launches, a flurry of news stories emphasized the fact that, far from tapping mineral-rich mountain springs, the soda giants were merely pumping and filtering water from local municipal sources. Many commentators found such details highly amusing, and portrayed the bottled-water business as something akin to selling ice to Eskimos—gulling consumers into paying a dollar or more for something they could essentially get for free. "We're trying to market our own brand straight out of the tap in our kitchen sink," snarked a columnist for the State newspaper in Columbia, South Carolina. "We're calling it Babbling Brook."
In 1997, the New York Times interviewed a gaggle of Madison Avenue ad execs for a tongue-in-cheek piece on how one might package and sell water from less-than-exotic sources, like the Hudson River. "On the label, you'd have to attack a negative with a positive right away,'' Donny Deutsch of Deutsch Inc. told the Times. ''You should say something like, 'Our guarantee: No Teamsters floating in this bottle.'''
Others didn't see much humor in the subject. "Just What's in That Bottle of Water?" the headline of a 1997 Newsday article blared. "As demand soars, sources of the product are under scrutiny." After various bottlers charged competitors with exaggerating purity and mislabeling their products, the Food and Drug Administration (FDA) released new labeling rules defining tighter criteria for the terms "artesian well," "mineral," "purified," and "spring water."
In 2006, Corporate Accountability International (CAI), a corporate watchdog organization, launched a campaign called "Think Outside the Bottle" and staged blind taste tests of both tap and bottled water to prove that consumers couldn't tell the difference. In the group's view, bottled water is a prime example of "manufactured demand": Bottled-water companies, CAI argues, first scared consumers about the safety of tap water, then seduced them with images of pure mountain streams as a carefully calculated strategy to sell them an "unnecessary product." (CAI's case is laid out succinctly in this short YouTube video.) More and more advocates also began to decry the environmental impact of bottled water, citing the oil and energy used to manufacture the bottles as well as the billions of bottles that ended up in landfills or trash incinerators each year.
And yet, bottled-water sales continued to climb, topping 8 billion gallons for the first time in 2006 and, after a slight dip during the Great Recession, surging to over 10 billion gallons in 2013. Paying money for a bottle containing nothing more than plain drinking water, once dismissed as an absurd expenditure, had become normalized in the American market. The big soda companies were the apparent victors, opening a spigot of seemingly endless profits from a product whose raw materials could essentially be had for free.
"Unlike with sodas and sports drinks, the beverage companies learned, very little differentiates one bottle of filtered water from another."
But then something curious happened. The water business turned out not to be quite the cash cow that market watchers had anticipated. Unlike with sodas and sports drinks, the beverage companies learned, very little differentiates one bottle of filtered water from another. Consumers had deep-rooted loyalties to their favorite soda brands, but they didn't feel nearly the same attachment to water brands like Dasani and Aquafina. Instead, they tended to grab whichever was the least expensive.
In recent years, that least expensive option has more and more often been produced by a firm called Niagara Bottling, which few consumers know by name and which has no connection with the spectacular waterfall on the Canadian border.
In 1963, Andrew Peykoff, the son of Macedonian immigrants, started a delivery business in Orange County, California, lugging five-gallon glass jugs of well water door to door for offices and homes. Peykoff christened his company Niagara Bottling, and sales grew steadily. In the 1970s, the firm purchased its own well; in the 1990s, it moved into the private-label market, producing house brands for grocery chains and discount club stores like Walmart and Costco. Niagara also invested $4.5 million in equipment so it could manufacture its own half-liter bottles instead of buying them from a supplier, saving two cents per bottle in the process.
In the bottled-water trade, it turns out, the real expense lies in the raw materials for making the bottles and in the cost of shipping those bottles to their destination. Niagara poured its profits into automation and engineering, squeezing out every last scrap of waste. By 2005, the firm had decreased the weight of its half-liter bottle from 23 to 12 grams. Its closest competitor, Crystal Geyser, was using a 14-gram bottle at the time, and Niagara has since reduced its weight even further, to seven grams. The firm also introduced its so-called "Eco-Air Package"—essentially a shrink-wrapped bundle of bottles—which eliminated the cardboard tray from cases and allowed more bottles to be stacked on a single pallet.
In recent years, Niagara has expanded far beyond its original California market. It now operates 19 plants across the country, with a combined annual production of more than a billion bottles. On its highly automated lines, a bottle is molded and filled with filtered water in less than an hour, and it's shipped to customers' warehouses via precisely optimized routes. It sells at wholesale for nearly half the price of Dasani or Aquafina.
The Next Frontier: Enhanced Water
As bottled water has become commoditized, Coke and Pepsi have found themselves in another bind: Soda sales peaked in the late 1990s, and have steadily declined since. That fall is not due just to American concerns over the calories in sugar-sweetened drinks, since sales of diet sodas have been falling since 2005, too.
But the bottled-water business hasn't proved to be a great alternative for Coke and Pepsi. Their "branded waters" can still compete in convenience store coolers, where individual bottles may run a dollar or more, but they don't have a chance in grocery stores, where 24-bottle cases of private-label store brands sell for $1.99. In October 2013, the New York Times reported that Hugh F. Johnston, PepsiCo's chief financial officer, had told industry analysts that the company was no longer investing in the regular bottled-water business, saying, "We don't think it creates value over time."
Instead, recent action has all been in the so-called "value-added" or "enhanced" water segment, which can be further divided into two main subcategories: "flavored water" and "functional water." The former products may be still or sparkling, and contain fruit juices or herbs to add a little pizzazz to what would otherwise just taste like...well, pretty much nothing. The "functional" category edges more into the nutritional realm, adding caffeine, vitamins, and herbal extracts to create what are marketed as "energy waters," "wellness waters," "vitamin waters," and even "protein waters." (All of these are marketing terms and are not officially recognized by the FDA.)
As was the case with bottled spring and mineral waters two decades before, the enhanced-water field was originally driven by small, up-and-coming brands. In 2010, for instance, the Talking Rain Beverage Company, a small bottled-water producer in Preston, Washington, found itself on the verge of folding after years of slumping sales, so it decided to throw its remaining resources behind a single brand in its portfolio: Sparkling ICE, a zero-calorie blend of fizzy spring water and fruit juice. After redesigning the packaging and tinkering with new flavors, Talking Rain invested in a targeted marketing campaign in the Pacific Northwest, which paid off handsomely. In 2011, revenues more than doubled, to $60 million, and the firm launched a national advertising campaign and blanketed the country with sales reps. Sales soared to $350 million in 2013, and $650 million two years later.
Around the same time, in 2009, Ben Weiss started selling Bai Antioxidant Infusion, a five-calorie water product infused with coffee fruit and flavored with exotic fruit juices. After initially hawking the product from a folding table at health food stores, Weiss landed distribution agreements with Costco and Target and a promotional deal with pop star Justin Timberlake, who ended up buying a stake in the company. Sales soared to $120 million in 2015, then to $300 million in 2016.
The enhanced-water boom even breathed new life into languishing older brands, like LaCroix Sparkling Water. Introduced in 1981 by the G. Heileman Brewing Company as a discount Perrier competitor, LaCroix was acquired in 1996 by Florida-based National Beverage Corp., makers of the Shasta and Faygo soda brands.
In 2011, as enhanced-water sales were starting to rise, National Beverage added flavors like coconut and mango to the LaCroix line, growing to offer 20 different varieties. It made a splash through new social media channels, earning fans first among so-called "mommy bloggers" and paleo-diet enthusiasts as a healthful alternative to soft drinks. The brand then gained traction with Los Angeles–based television writers, who lauded it on Instagram and Twitter. From there, LaCroix crossed over to a new market of young urban professionals—the 21st-century counterparts to the yuppies who had started sipping Perrier instead of tossing back lunchtime Martinis a generation before.
It was only a matter of time before the big soda companies turned their sights on this promising high-margin sector. In February 2014, Coca-Cola rolled out Dasani Sparkling in four flavors (lime, lemon, berry, and apple). The following year, Pepsi countered with Izze Sparkling Water, a 10-calorie beverage made from organic ingredients and sold in tall, skinny cans, similar to those used for energy drinks. In March 2016, Coke extended its Minute Maid line of juices with "Minute Maid Sparkling," which they call "low-calorie fizzy juice drinks," each with 30 to 40 calories. A month later, Pepsi launched Aquafina Sparkling in flavors like black cherry dragonfruit and orange grapefruit.
In November 2016, Dr Pepper Snapple Group bought Bai Brands for $1.7 billion, and we can look forward to similar acquisitions from Coke and Pepsi, too. "We are looking for more bolt-ons," Coke CEO James Quincey told The Street last year. "We have our list. We know where we want to acquire."
All this activity raises the question of whether such products are really bottled water or a modified form of soft drink. They're carbonated and sometimes caffeinated, lightly sweetened and flavored with fruit and herbs. The new category certainly blurs the boundaries.
In the end, it's hard to untangle how much of bottled water's success was due to clever marketing and "manufactured demand," and how much of it was driven by shifting consumer preferences. Health concerns, the desire for status symbols, the lure of convenience, and, yes, lots and lots of energetic marketing—all played a role.
The next few years, I believe, will be telling. While the decline of sugary sodas seems a permanent trend, advocates continue to bang the drum against the environmental impact of plastic bottles, and the folly of paying a dollar or more for something you can get out of the tap for free.
I predict we'll see plain old bottled water fall out of favor before too much longer. But will it be because consumers have returned to drinking water from the sink, like our grandparents did, or because they've moved on to the next new round of ever-more entrancing flavors, infusions, and value-added innovations?
The idealist in me is rooting for the tap, but if I had to place a bet, my money would go with the marketers.