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April 23, 2008
The tidal wave of specialty water products continues to swell in response to consumer concern about municipal water quality. For retailers, bottled water can be very profitable, and there's ample opportunity to expand merchandizing efforts and increase sales.
The bottled water category is, so to speak, flooded with competitors. Major beverage companies such as Coca Cola and PepsiCo have recognized the profit potential and are dominating shelf space in major grocery chains and other outlets, including convenience stores, drugstores and discount stores.
The burgeoning water market, however, represents a perfect niche for natural products stores, says Michael Langenborg of Natural Planograms, a Santa Rosa, Calif.-based company that consults with naturals retailers. Shoppers already know the importance of drinking pure water, and he believes that with better merchandising retailers can create more demand and increase sales of bottled water.
"For retailers, there are tremendous opportunities in the water category," Langenborg says.
Much of the water sold in bottles these days is standard municipal water that has been put through an extra filtration process. It's probably better than most regular tap water, but not much.
Most naturals stores, however, carry only water that comes from pure sources—springs, wells and deep aquifers. It is important for store employees to explain this difference to customers.
"That's a differentiator for natural products stores. They're different from supermarkets; they're the gatekeepers of quality," Langenborg says. "People come to naturals stores because they can find things that aren't available in regular stores. It goes back to the essence of the industry."
At Community Mercantile in Lawrence, Kan., shoppers can buy specially filtered water that has been cleansed of chemicals. The store has an elaborate tap-water purification process: Water is carbon filtered twice to remove all chemicals, then it's distilled and softened; and in a final step, it's bombarded with ultraviolet light to kill bacteria.
"We sell a ton of that water," says Laurel Matthews, grocery manager. "And overall, the entire water category has increased dramatically in the last six years."
Because water products can be highly profitable, retailers should be more creative in how they merchandise the products, Langenborg says. Profit margins on bottled water range generally from 30 percent to 35 percent. If retailers can show customers that some brands of water provide more health benefits—extra pure, enhanced with vitamins and minerals, more refreshing taste—it's possible to charge a premium price. Creative merchandising can be used to show more benefits.
In most stores, water gets shelf space in the beverage aisle and in coolers. But because water is such an important part of a healthy diet, it can be merchandised effectively in several areas of the store.
As an analogy, Langenborg cites merchandising methods employed by major companies. Several years ago, Chiquita Brands decided to place its bananas in complementary areas of grocery stores. Baskets of bananas were placed in deli areas so when people bought lunch they could pick up a banana without going to the produce section. When oatmeal gained attention for its fiber content and accompanying health benefits, Quaker Oats sold its oat cereal brands in stores' pharmacy areas. The techniques paid off.
Langenborg suggests naturals stores display water in cereal aisles and where teas and coffees are sold.
"I used to work for Traditional Medicinals, and on our packages we said that the best way to brew the teas was with pure water," Langenborg says.
The front of the store is also an effective place for water, according to Langenborg. Make it convenient for a shopper to grab a small bottle of water at the checkout line—it's an easy sale, and the customer gets a healthy treat before leaving the store.
"Not everybody walks down the beverage aisle," Langenborg says. "But you know that 100 percent of your customers go through the checkout line."
Know Your Stuff
Natural foods stores' shoppers are well informed, so retailers should choose carefully when picking new water products. If an "enhanced" product is little more than sugar water, shoppers will know it, Langenborg says.
When manufacturers make claims about their products, ask them to prove it.
"Tell them you want to see their science," Langenborg says. "There's a lot of dishonesty in this category. We hear a lot of complaints from consumer-advocacy groups."
The most common complaint is that enhanced waters don't really provide the claimed benefits.
When customers ask for specific products at Community Mercantile, Matthews does the research to determine if health claims are legitimate. "With water, I would like to see some scientific studies published by legitimate sources. They're making a lot of claims," Matthews says.
Langenborg's strongest advice: Deal with reputable suppliers and ask lots of questions. If answers seem evasive, that's probably a good reason not to carry the product.
Evaluate Sales Trends
To fully leverage any product's potential, analyze sales trends and shelf-space allocations. Langenborg recommends examining two years of sales data to determine what categories are the best-sellers.
"If the sales look good and you want to grow that category, look at the shelf space. If water has 2 percent of the shelf space, increase it to 3 percent," he says.
Retailers also should ask the manufacturers for help. They'll assist retailers in setting up merchandising plans.
"The manufacturers have done the research; they know who buys their product and why," Langenborg says.
Some companies also will make private-label agreements with retailers. Whole Foods, the Austin, Texas-based chain, has been very successful with its "365" brand, which includes a bottled water line.
The human body is more than 90 percent water, so with effective merchandising, retailers can convey to customers the benefits of drinking plenty of H2O.
Natural Foods Merchandiser volume XXIII/number 3/p. 72
Natural Foods Merchandiser volume XXIII/number 3/p. 72
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