Deal Creates No. 1 Water Company in U.S. : Perrier to Buy Arrowhead, Enter ‘Jug Water’ Market
Perrier is giving its water business a little more sparkle--straight from the San Bernardino Mountains.
The highbrow import--known for its elegant aquamarine bottles--said Monday that it has agreed to purchase Arrowhead Drinking Water Co., a top-selling California spring water sold in plastic jugs.
“It clearly makes Perrier the dominant water company in America,” said Michael Bellas, president of Beverage Marketing Corp., a New York-based research and consulting firm. “It gives them the dominant position in the West Coast.”
Perrier Group of America, the Greenwich, Conn. subsidiary of France-based Source Perrier, did not disclose the price it will pay for Monterey Park-based Arrowhead, which is owned by BCI Holdings. Bellas estimated, however, that “the acquisition probably exceeds $400 million.” Both Perrier and BCI are privately held companies.
The deal will bring together two powerhouses in the fast-growing bottled drinking water market. Perrier and Arrowhead combined will command 20.5% of the $1.7-billion water market, putting it far ahead of its next competitor, McKesson Corp., whose sales of bottled water products, including the Sparkletts brand, totaled $173 million in 1986.
With the purchase of Arrowhead, Perrier, which also owns the Calistoga and Poland Spring brands, gains entry into the vast “jug water” market--the bottled drinking water alternatives to tap water which are popular in large cities such as New York and Los Angeles.
Arrowhead is sold throughout California in grocery stores, according to Arthur Peever, president and chief executive of Arrowhead. The company--founded in 1894--also delivers bottled water to homes and offices principally in Central and Southern California. It opened a new branch in Northern California in the Bay Area to service homes and offices there.
The company also distributes water in Arizona and sells water under the name of Ozarka in Texas. In addition, its Great Bear Spring Co. is sold in 12 Northeastern states.
Arrowhead introduced a line of sparkling waters in 1984 that are now distributed throughout Arizona, California, Nevada and Hawaii.
Arrowhead water is taken from springs in the San Bernardino Mountains, near a spot where the natural formation of the terrain takes the shape of an arrowhead. Local Indian legend said that the arrowhead pointed to natural springs that were sources of health and happiness.
Health spas of the European variety popped up in the area, and visitors from Los Angeles liked the water so much they wanted to have it at home. It was first brought to Los Angeles by horse drawn carriages, then by rail car. Today, it comes by modern stainless steel tanker trucks.
Until recently, the U.S. bottled water industry has been composed of regional companies because it has not been economical to transport water great distances, according to Gary Hemphill, managing editor of Beverage Industry, a monthly trade magazine.
The consolidation of Perrier and Arrowhead is occurring as some big soft drink companies experiment with bottled-water products. Pepsi, for example, just introduced its own bottled water line called Ice Mountain Maine Spring Water into test markets in four New England cities earlier this month.
Canada Dry also is test marketing two new waters in Florida. White Rock Corp., based in the New York metropolitan area, began distributing White Rock Natural Spring Water in 12 Northeastern states.
“There is the potential there for the larger companies to come in. If you look at the beer and soft drink industries, you see an incredible amount of consolidation, especially in the soft drink business, where it is especially difficult for any company to compete with Coke and Pepsi,” says Hemphill.
The corporate interest in bottled water is great because it is the fastest-growing major beverage category, according to Bellas at Beverage Marketing Corp. He says sales of water by the gallons have been rising 12% to 13% a year. “It will slow down slightly to less than a 10% average annual rate for the next five years.”
In 1986, annual per capita consumption of bottled water totaled only 5.7 gallons, compared to 46 gallons of soft drinks and 24 gallons of beer.
Perrier will add a new name to the roster of owners of Arrowhead. In 1920, Arrowhead combined with the L.A. Ice and Cold Storage Co. Over the years, its owners included Standard Oil of California and Rheem Manufacturing. It then became a public company until 1969, when it was acquired by Coca Cola Bottling Company of Los Angeles, according to Peever.
In 1978, Coca Cola Bottling and Arrowhead were both acquired by Northwest Industries of Chicago, which subsequently sold the two firms to Beatrice Foods in 1982. BCI later acquired Beatrice in a leveraged buyout.
1986 WHOLESALE BOTTLED WATER SALES* (in millions of dollars)
Perrier 177 BCI Arrowhead 174 McKesson(Sparkletts) 173 Hinckley& Schmitt 59 SierraSpring Water 38 Others 1,090 Source: Beverage Marketing Corp. * Estimates exclude cooler rentals, point-of-use systems, sales of cups, coffee, etc.