Saturating the Market : Pure-Water Companies Expand to Quench Demand
The popularity of pure drinking water is growing nationwide, a trend that two Southern California companies are tapping into.
Glacier Water Services of Carlsbad and McKesson Water Products of Pasadena plan to expand their out-of-state operations this year to quench the demand for clean-tasting water that is free of chlorine odor and low in sodium and other dissolved solids, the unappetizing features of municipal water supplies across the land.
Nationwide sales of nonsparkling pure water in vending machines, retail outlets and office or home deliveries grew 7.4% last year and 9.6% in 1994.
That makes water among the fastest-growing beverage sectors, outpacing most hard liquor, beers and soft drinks, according to Beverage Marketing, a research firm in New York.
California, with only 12% of the U.S. population, accounts for nearly 30% of all U.S. pure-water purchases--a disproportionate share owing to health-minded Californians and the poor taste of municipal water.
The state’s demographics are also a huge factor in pure water’s popularity. Many immigrants come from Latin or Asian countries with unsafe water supplies and are used to buying it purified. In fact, Glacier says 60% of its sales in some California locations are to Latino or Asian customers.
But the California pure-water market is increasingly saturated, growing only half as fast as the rest of the nation. So Glacier and McKesson are looking beyond the state to develop new business.
Both companies purify their water by combining reverse osmosis technology, developed by the Navy to make seawater fit for drinking, with a number of filtration techniques.
McKesson is trying to strengthen its retail and delivery presence in California and seven other Sunbelt states, while Glacier is hoping to place its vending machines inside supermarkets in cold-weather states that until now have been off-limits.
McKesson Water Products’ sales--$250 million last year--are dominated by its Sparkletts brand bottled water.
Sparkletts is sold mainly in 1 gallon bottles on supermarket shelves and in larger containers delivered directly to homes and businesses. McKesson also owns Aqua-Vend dispensing machines, a small fraction of its overall water sales.
On the other hand, Glacier sells pure water only through coin-operated vending machines, a business that generated $42 million in revenue last year.
In the last three years, Glacier has tripled the number of its red and white units and now has 8,700 machines in 11 Sunbelt states, nearly three times the number of Aqua-Vend, its closest competitor.
Up to now, locations of Glacier and Aqua-Vend water-dispensing machines have been limited to Sunbelt states because freezing temperatures damage them.
But both firms say they will soon begin installing machines inside supermarkets, a move that will increase their sales in cold-weather states.
Until recently, supermarkets had better uses for valuable floor space than water vending machines.
But analysts say supermarket grocers now see the machines as a way of clearing shelves of the increasingly popular but bulky water containers.
“From the supermarket’s point of view it’s found money. It costs them no money and they get a check once a month as a percentage of sales. And it’s replacing bottled water, a product that’s a bulk item indoors with low margins,” said William Gibson, investment analyst at Cruttenden Roth Inc. in Santa Barbara.
McKesson Water, a unit of the giant McKesson Corp. chemicals and automotive company based in San Francisco, plans to boost total Aqua-Vend machines this year to about 3,500, a 10% increase. But the main thrust of its strategy will remain its Sparkletts brand bottled water.
“I suspect McKesson is concentrating on retail sales over the vending operation because retail is the fastest-growing pure-water segment in the industry,” said Hellen Berry, vice president of marketing research at Beverage Marketing, New York City-based consultants to the beverage industry.
Sales of Sparkletts and other brand-name water off supermarket shelves increased 26% in 1995 from the previous year, three times the growth of delivered or vended pure water, Berry said.
Since its initial public stock offering in 1992, Glacier has been on a growth binge, adding 3,000 machines in California, 1,000 units in Texas and another 1,000 in Florida. But President Jerry A. Gordon says big growth years are still ahead.
“We want to create a national brand,” he said of Glacier water, which costs between 25 cents and 35 cents a gallon.
The growth at times has been misdirected. The company admitted that its first-quarter earnings declined 24% from the same period last year because many of its machines need upgrading. Glacier has relocated more than 600 of its machines in the last five months.
The key to success for Glacier is consistent water quality and maintaining the confidence of supermarket chains by operating reliable units that require a minimum of the grocer’s attention. Supermarkets typically receive a fee of between 25% and 60% of gross sales. Glacier’s leading host supermarket chain is Vons.
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Agua Caliente
Sales of purified, nonsparkling water from vending machines, retail outlets and home delivery have grown strongly since 1991, when consumers were frightened by a recall of bottled water by Perrier. With about 12% of the nation’s population, California accounts for nearly 30% of all pure water sales. Sales, in billions of gallons:
U.S. total: 2.9
California: 0.79
Source: Beverage Marketing Corp.
