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Bottled water and snake oil
Jul 31st 2007
From Economist.com
Is bottled water proof that consumers are daft?
SO THE emperor really isn’t wearing any clothes. Last week PepsiCo announced that the label on its Aquafina brand of bottled water will soon carry the words “public water source”, instead of simply the innocent looking “P.W.S.”. That’s right: Aquafina is to all intents and purposes tap water. Coca-Cola is under pressure to follow suit with its Dasani brand, though so far it is refusing to do so. “We don’t believe that consumers are confused about the source of Dasani water,” Diana Garza Ciarlante, a Coca-Cola spokeswoman, said. “The label clearly states that it is purified water.”
No doubt Coca-Cola still remembers what happened in Britain in 2004, when the press made a stink over the fact that Dasani was simply filtered tap water. The company became a laughing stock, as readers were reminded of an episode of a popular TV comedy, “Only Fools and Horses”. In it Del Boy, a decidedly dodgy businessman, decides to bottle tap water, selling it as “Peckham Spring”, named after the unprepossessing inner-London borough. No sooner had the initial furore died down than Coca-Cola discovered that some of the water had been contaminated betwixt tap and bottle, and decided to admit defeat. Dasani was axed in Britain a mere five weeks after it was launched.
Will Pepsi’s new label have a similarly disastrous impact on sales of Aquafina, which is now the market leader in bottled waters in America? It is by no means inevitable.
The success of bottled water is in many ways one of capitalism’s greatest mysteries. Studies show consistently that tap water is purer than many bottled waters—not including those that contain only tap water, which by some estimates is 40% of the total by volume. The health benefits that are claimed for some bottled waters are unproven, at best. By volume, bottled water often costs 1,000 times the price of tap water. Indeed, even with oil prices sky high, a litre of bottled water can cost more than a litre of petrol. And on top of that, there are the environmental costs of transporting bottled water and of manufacturing and disposing of the bottles.
Yet sales of bottled water have been booming. In 2006 Americans spent nearly $11 billion buying 8.25 billion gallons (31.2 billion litres) of the stuff, an increase in volume of 9.5% on a year earlier. The average American drank 27.6 gallons of bottled water last year, up from 16.7 gallons in 2000.
In Britain, despite the failure of Dasani, sales of bottled water have soared from 990m litres in 1998 to 2.28 billion litres in 2006—worth $3.3 billion and accounting for 15% of the total soft-drinks market. Its share is forecast to rise to 21% next year.
Moreover, drinks companies are betting heavily on the future growth of bottled water, including popular new varieties with added “healthy” ingredients. In May Coca-Cola paid $4.1 billion for Glaceau, the company that makes vitaminwater.
To many, all this is the ultimate proof that consumers are daft and easily manipulated by retailers to buy things they don’t need. Indeed, a campaign, “Think Outside the Bottle”, is now under way in America, aiming to wean the public off bottled water. It is winning influential converts. Having successfully popularised gay marriage, San Francisco’s charismatic young mayor, Gavin Newsom, is now trying to achieve the opposite impact on bottled water: his ban on the use of city funds to buy the stuff took effect on July 1st. Other mayors are starting to follow his lead.
Even so, there may be good, rational reasons for the popularity of bottled water. It is convenient, much more portable than a tap. Also, some consumers suspect, perhaps correctly, that there is a “last mile” problem with tap water. It may be pure as driven snow when it is tested at the plant, but is it still so virginal once it has passed through old pipes in homes and offices?
Above all, consumers may be buying bottled water because they believe it is fundamentally safer, less likely than tap water to become contaminated—a growing worry nowadays, thanks to terrorists. And, if it is contaminated, that contamination is likely to be spotted and neutralised faster and more effectively by a bottler than by government regulators or a water utility.
The contaminated Dasani water in Britain brought bad publicity, but the dirty water never reached the public. Likewise, the impressive way that Perrier handled its benzene contamination scare in 1990—immediately recalling its entire output of bottles—is a case study in how to manage such a problem.
Perhaps the popularity of bottled water is an indictment of the waste inherent in capitalism. On the other hand, maybe it is testimony to the good job that capitalism, in the form of bottled-water producers, has done in developing quality controls and safety protections that are more reassuring than those put in place by our governments and regulated utilities. The difference may be small—but big enough to get those who can afford it to pay a substantial premium for what is, after all, the stuff of life.
http://www.economist.com/daily/columns/businessview/displaystory.cfm?story_id=9569968
Jul 31st 2007
From Economist.com
Is bottled water proof that consumers are daft?
SO THE emperor really isn’t wearing any clothes. Last week PepsiCo announced that the label on its Aquafina brand of bottled water will soon carry the words “public water source”, instead of simply the innocent looking “P.W.S.”. That’s right: Aquafina is to all intents and purposes tap water. Coca-Cola is under pressure to follow suit with its Dasani brand, though so far it is refusing to do so. “We don’t believe that consumers are confused about the source of Dasani water,” Diana Garza Ciarlante, a Coca-Cola spokeswoman, said. “The label clearly states that it is purified water.”
No doubt Coca-Cola still remembers what happened in Britain in 2004, when the press made a stink over the fact that Dasani was simply filtered tap water. The company became a laughing stock, as readers were reminded of an episode of a popular TV comedy, “Only Fools and Horses”. In it Del Boy, a decidedly dodgy businessman, decides to bottle tap water, selling it as “Peckham Spring”, named after the unprepossessing inner-London borough. No sooner had the initial furore died down than Coca-Cola discovered that some of the water had been contaminated betwixt tap and bottle, and decided to admit defeat. Dasani was axed in Britain a mere five weeks after it was launched.
Will Pepsi’s new label have a similarly disastrous impact on sales of Aquafina, which is now the market leader in bottled waters in America? It is by no means inevitable.
The success of bottled water is in many ways one of capitalism’s greatest mysteries. Studies show consistently that tap water is purer than many bottled waters—not including those that contain only tap water, which by some estimates is 40% of the total by volume. The health benefits that are claimed for some bottled waters are unproven, at best. By volume, bottled water often costs 1,000 times the price of tap water. Indeed, even with oil prices sky high, a litre of bottled water can cost more than a litre of petrol. And on top of that, there are the environmental costs of transporting bottled water and of manufacturing and disposing of the bottles.
Yet sales of bottled water have been booming. In 2006 Americans spent nearly $11 billion buying 8.25 billion gallons (31.2 billion litres) of the stuff, an increase in volume of 9.5% on a year earlier. The average American drank 27.6 gallons of bottled water last year, up from 16.7 gallons in 2000.
In Britain, despite the failure of Dasani, sales of bottled water have soared from 990m litres in 1998 to 2.28 billion litres in 2006—worth $3.3 billion and accounting for 15% of the total soft-drinks market. Its share is forecast to rise to 21% next year.
Moreover, drinks companies are betting heavily on the future growth of bottled water, including popular new varieties with added “healthy” ingredients. In May Coca-Cola paid $4.1 billion for Glaceau, the company that makes vitaminwater.
To many, all this is the ultimate proof that consumers are daft and easily manipulated by retailers to buy things they don’t need. Indeed, a campaign, “Think Outside the Bottle”, is now under way in America, aiming to wean the public off bottled water. It is winning influential converts. Having successfully popularised gay marriage, San Francisco’s charismatic young mayor, Gavin Newsom, is now trying to achieve the opposite impact on bottled water: his ban on the use of city funds to buy the stuff took effect on July 1st. Other mayors are starting to follow his lead.
Even so, there may be good, rational reasons for the popularity of bottled water. It is convenient, much more portable than a tap. Also, some consumers suspect, perhaps correctly, that there is a “last mile” problem with tap water. It may be pure as driven snow when it is tested at the plant, but is it still so virginal once it has passed through old pipes in homes and offices?
Above all, consumers may be buying bottled water because they believe it is fundamentally safer, less likely than tap water to become contaminated—a growing worry nowadays, thanks to terrorists. And, if it is contaminated, that contamination is likely to be spotted and neutralised faster and more effectively by a bottler than by government regulators or a water utility.
The contaminated Dasani water in Britain brought bad publicity, but the dirty water never reached the public. Likewise, the impressive way that Perrier handled its benzene contamination scare in 1990—immediately recalling its entire output of bottles—is a case study in how to manage such a problem.
Perhaps the popularity of bottled water is an indictment of the waste inherent in capitalism. On the other hand, maybe it is testimony to the good job that capitalism, in the form of bottled-water producers, has done in developing quality controls and safety protections that are more reassuring than those put in place by our governments and regulated utilities. The difference may be small—but big enough to get those who can afford it to pay a substantial premium for what is, after all, the stuff of life.
http://www.economist.com/daily/columns/businessview/displaystory.cfm?story_id=9569968
