By Mike Esterl
Water is heavy, cheap and flows from kitchen taps--not exactly
the first thing you'd consider putting on your online shopping
list, right?
Well, it's more popular than you might think.
Nestlé SA says its U.S. water home-delivery business grew twice
as fast as shipments to brick-and-mortar stores last year. In the
first quarter of this year, it grew three times faster, and Nestlé
expects the momentum to continue.
For decades, trucks have dropped off five-gallon, 40-pound jugs
for water coolers to houses and offices, typically at regular
intervals through subscriptions. Customers received monthly bills
by mail. Then sales stalled during the recession.
Now Nestlé says it's getting a big lift from customized Web
orders for its still and sparkling water brands, including Poland
Springs, Perrier and Pure Life, after it spent millions of dollars
upgrading software. The company began offering a broader packaging
mix, including half-liter bottles, a couple of years ago. Since
last year, online consumers also could make one-time orders, with
delivery within 24 hours.
Shoppers increasingly are ordering everything from diapers to
wine online. When it comes to water, some don't like how it tastes
from the tap and don't want to carry something heavy from a store.
Now they don't even have to lift a five-gallon jug in their house,
and can change orders on the fly.
"The world is going this way," said Tim Brown, president of
Nestlé Waters North America. "It's the convenience factor."
Some consumers appear willing to pay for that convenience.
Nestlé says its home-delivery business has avoided increasing
competition in stores, where prices for bottled water have been
falling in recent years as private-label brands proliferate. It
says customers typically pay $6 to $7 for a case of 24 half-liter
bottles delivered to their homes, compared with $5 and less in
stores.
Families, not single-person households, are doing most of the
buying when it comes to home delivery, said Mr. Brown, who
estimates U.S. household penetration of delivered water is only
about 2%. Bottled water makers are benefiting from consumers
avoiding soda, whose U.S. sales volumes have declined 10 straight
years amid health and obesity concerns.
The Swiss company's delivery business, roughly split between 1.5
million homes and offices, represented about 20% of its $4 billion
in U.S. water sales last year.
Nestlé says its water sales to U.S. homes and small businesses
rose 14% in volume terms in 2014, compared with 7.8% at stores. In
the first quarter of this year, the company says its
direct-to-consumer shipments increased nearly 21%, compared with
5.5% at retail outlets.
Other companies see the same opportunity. Private-label soda
maker Cott Corp. last December acquired DS Services of America
Inc., which delivers water via its water.com site, for $1.25
billion including debt. Consumers on Costco.com can have an entire
pallet--1,872 half-liter bottles--of Pure Life water delivered to
their homes for $489.99, if they live on the first floor.
Coca-Cola Co.'s Dasani and PepsiCo Inc.'s Aquafina water brands
are sold on Amazon.com. Fiji Water Company LLC, which has been
delivering water from a remote South Pacific island to U.S. stores
for years, also offers home delivery. Its website offers shipping a
36-pack of 330-milliliter bottles for $47.50.
Nestlé has an advantage because it's the biggest seller of
bottled water in the U.S., with an estimated 34.9% share of the $13
billion market at wholesale prices. It also controls about a third
of the $1.6 billion home-delivery market, with DS Services a close
second, estimates industry tracker Beverage Marketing Corp.
The company owns a fleet of 2,000 delivery trucks for homes and
offices reaching 60% of the U.S. population. Drivers track orders
with hand-held devices and make about 50 deliveries a day. The
average order is about $35, with roughly 20% of that for shipping
costs. Orders carry a $20 minimum.
Not everyone is convinced this is the wave of the future for
water.
"I don't think water for hydration to keep us alive is going to
be delivered by UPS or Amazon," said Tom Pirko, managing director
at Bevmark and a longtime beverage industry consultant.
Michael Bellas, chief executive at Beverage Marketing, expects
single-serve bottles bought outside the home to continue to be the
biggest driver of industry growth over the next few years. But he
also sees potential for companies like Nestlé and DS Services that
have built large customer bases from years of delivering
five-gallon jugs.
"They already have entry into the home and the idea is to
leverage that. It's a service business," said Mr. Bellas.
Write to Mike Esterl at mike.esterl@wsj.com
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