Coke and Pepsi Executives Cite
Reasons for Water's Growth.
Bullish on Branding. Segmentation Ahead?

Pepsi North America vp non-carbs Doug Boyle says bottled water will continue "to grow at an extraordinary level" in cold channels and "will pick up even more in large format." Pepsi's research shows water is "right in the sweet spot of consumer trends." Cites "better for you" halo over water and non-carbs. Coke's Charlie Robinson -- brand director for adult brands (Dasani and diet CSDs) -- also optimistic. Suggests growth will continue over next several years "in double-digit range." Robinson cites importance of "wellness trend -- consumers' interest in healthy beverages." Pepsi's Boyle says consumers "are looking for 'better-for-you' refreshment beverage alternatives." Adds recent emergence of "strong brands" helps propel category growth. Declares, "People buy brands." Both also cite importance of convenience packaging proliferation. Trend. Data shows major brands now performing strongly; private label loses share.

Branding. Both Pepsi and Coke executives sharply disagree with some executives who suggest branding bottled water may be difficult or futile. Coke's Robinson cites other global markets where water has brand loyalty "at the same levels as Coke and Diet Coke." Notes Coke "learns" from those markets and predicts company can achieve CSD-type loyalty with Dasani. Pepsi's Boyle says water "absolutely" can become powerful brand like CSDs. Notes water until recently was marketed in US "as a fairly generic product. People hadn't brought strong brands to the market." Notes, "we believe that the purity platform is an extremely strong one for Aquafina." Explains, "from an attribute standpoint, it goes right to the heart of what people are looking for in water." Evolution. Boyle notes importance in beverage brand-building of products starting in "immediate consumption channels and migrating into planned purchases in grocery stores and mass merchandisers." Boyle expects same pattern to develop for bottled water. Declares: "This is going to become a highly branded category."

Segmentation. Several bottlers suggest Coke and Pepsi may add segments to current water offerings such as other brands at different price points, flavored water or multi-source spring water. Asked about segmentation in general, Boyle notes it "is a very important subject. This category is going to continue to grow at an extraordinary rate, and segmentation lines are already starting to develop. It's premature to define exactly how we're going to attack that. I wouldn't rule out anything." Adds, however, that purified and spring waters "are addressing the same consumer need." Suggests "other ways of segmenting the category." Coke's Robinson: "As the core user base grows and the category matures, the segments fall out." Flavored water? Asked about potential of flavored or "near" waters, Coke's Robinson says: "Flavored waters are showing an increase in consumption and rate of growth ... There's growth there, but is it big enough for us to consider?" Pepsi's Boyle describes flavored water as "one potential avenue. We see what's happening overseas, and I think that is a viable segmentation line. There are others as well. We are evaluating all the options." Both also cite "functional" water as possibilities. Bulk? Neither company has plans to enter bulk package segment. Both say profit potential insufficient.

Cadbury's dissenting view. Cadbury CEO John Sunderland recently expresses disinterest in water business (BD 9/18/00). Tells BD: "We're not such great fans of the water business. (It) is not a high economic profit sector ... I have a feeling personally that in the long run, there's not going to be enough margin in water to support both sides of the franchise equation."