Market analysts Euromonitor report that Italian bottled water volumes totalled 10.2 billion litres in 2003, leaving per capita consumption at a whopping 177 litres. But volume growth between 1998 and 2003 was a very healthy 22 per cent, according to the analysts, reflecting the trend towards bottled water consumption as a health product.
While this trend has been largely responsible for most of the growth, Euromonitor suggests that the key contributing factor to the overall success of bottled water in Italy is the low unit price, making it a regular part of every Italian’s staple diet.
“As one of the largest bottled water producers in the world, Italy boasts 175 mineral water sources which package and sell 280 brands of bottled water,” said Euromonitor analyst Hope Lee. “Natural mineral water accounts for around 98 per cent of total bottled water consumption in Italy. Unlike some countries where mineral water remains a luxury, mineral water is an everyday drink for most Italians. However, the low price of bottled water carries with it attendant problems of profitability for the water industry.”
Still water accounts for 65 per cent of total bottled water consumption in Italy, growing by over 30 per cent in volume terms between 1998 and 2003, compared with just 8 per cent growth for carbonated water over the same period. “Still water benefited the most from the general increase in demand for healthy drinks as it is perceived as a healthy alternative to other soft drinks and more thirst-quenching than sparkling water,” said Lee. “There is also a tendency for Italian consumers to use still water for cooking at home.”
Still water was also the beneficiary of the increasing segmentation of functional or ‘enhanced’ waters, fortified with various health benefits, according to Euromonitor. Some are marketed as diuretic waters, as is the case with Rocchetta, others as digestive aids, such as Uliveto. Some new launches have also been targeted at newborn babies, as is the case with Sangemini or Sant’Anna. Euromonitor suggests that fortified bottled water is likely to grow in popularity amongst consumers whose health awareness is rapidly growing.
But while there are still opportunities for growth in the Italian market, they come at a price. Because there are already so many competing brands, carving a niche for a new product is a costly affair, with producers having to spend considerable amounts on advertising and promotions to make their new brand strand out from the crowd..
As a result, manufacturers tend to refresh their image by introducing brand extensions rather than totally new brands, according to Lee, who cited Danone’s Boario Active – a bottled water with a high calcium content – which was launched under the popular family brand Boario.
Hope springs eternal
Still spring water is another bright spot in the Italian water industry, although the segment is still very small, accounting for around 1 per cent of volume sales in 2003, according to Euromonitor. Spring water is increasingly employed in the water cooler segment, however, and its home consumption has also been increasing in recent years as a result of two major launches: Parmalat launched Aqua Parmalat in 2001, while San Benedetto entered the spring water market later that same year with the brand Sorgente di Bucaneve.
Spring water’s main point of differentiation with the plethora of mineral water brands comes in packaging. Large size packaging formats are not permitted for mineral water in Italy, which can legally only be bottled in packages containing no more than two litres. Sorgente di Bucaneve, for example, comes in 5-litre PET bottles.
Sparkling water, meanwhile, remains a comparatively small sector in the Italian water industry, with sales totalling 3.5 billion litres in 2003. Between 1997 and 1999, artificially carbonated bottled water suffered from negative publicity regarding high levels of sodium, but in the ensuing years, sales recovered slightly, with volume growing at 4 per cent, helped primarily by the introduction of lightly carbonated water, which consists of artificially carbonated and naturally sparkling water.
However, Euromonitor’s research shows that carbonated water is unlikely to exhibit fast growth in the future as the consumer trend favouring healthier drinks is set to continue, flavouring the still variety.
Italians unimpressed by flavours
The other major development in the global bottled water market over the last few years has been the development of the flavoured water market. However, bottled water remains a niche product in Italy, accounting for a fraction (barely 0.1 per cent) of total volume water sales in 2003, according to Euromonitor, with both legislative and cultural obstacles impeding widespread acceptance of flavoured water.
Italian law does not allow flavoured water to be called ‘water’, which makes it difficult to market the product. San Benedetto – which is to date the only manufacturer of flavoured water active on the Italian market – got around this problem by using names such as Bevi il Gusto and San Benedetto Ice, which do not use the term ‘water’. The brand conveys the idea of a product based on something natural and authentic, which is reinforced by the products’ packaging. Both bottle and label are transparent, in order to underline this image.
However, Bevi il Gusto failed to meet the comapnhy’s ambitious targets and was replaced in 2000 by San Benedetto Ice, which not only uses a different flavour formula but also, tellingly, includes the San Benedetto name for the first time, highlighting its heritage as a water brand.
The drink also contains mineral salts and fructose which increases its ability to quench thirst, and the brand is increasingly marketed as a sports drink as a result.
Small players being marginalised
Despite the 280-odd brands available in Italy, the bottled water market is dominated by just three main groups - San Pellegrino (owned by Nestlé), San Benedetto, Italaquae (owned by Danone) and CoGeDi, which together accounted for two thirds of off-trade volume sales in 2002.
San Pellegrino leads the market with its flagship brand Levissima, representing over 10 per cent of retail volume sales, and the brand continues to strengthen its position, despite good performances from Danone’s San Benedetto and Guizza brands.
But new entrants can be successful, as Parmalat showed in 2002 when it garnered a healthy 1.4 per cent share of the market after launching its Aqua brand just a year earlier. The launch was supported by a high profile advertising campaign, which the company repeated throughout 2003, and Euromonitor predicts that, despite Parmalat’s high profile financial problems, Aqua is likely to increase its shares further as some consumers migrate to spring water.
Another recent new entrant is Coca-Cola, which launched Bonaqua, its global water brand, in 2002/03, initially only in Sicily with a nationwide rollout planned for the near future. Although the Bonaqua brand is used the world over, the Italian version is a home-grown mineral water with a low sodium content, directly bottled at the Tinnea spring in central of Italy.
While Bonaqua’s long-term staying power is yet to be seen, the might of Coca-Cola, and in particular it marketing expertise, should guarantee it some form of success, but the same cannot be said of many smaller players, who lack the necessary cash to keep their brands at the forefront of consumers’ minds. The price cutting strategy employed by big firms has already squeezed the market share of many smaller companies, who now tend to focus on door-to-door sales, the on-trade channel and traditional types of retail outlets such as independent food stores.
Indeed, it is medium-sized players which have a strong following in their local region which are the most likely to offer some kind of competition to the likes of San Benedetto and San Pellegrino. The increasing consolidation of the retail market in Italy means that well-established regional brands now have a chance to be present in other regions, in effect becoming national brands in their own right, Euromonitor predicts.
Vinadio’s Sant’Anna and Trafficante’s Lilia, for example, are working hard to expand their geographic penetration at regional level. It is also part of the survival strategy for stronger local manufacturers to extend to other regions. This has facilitated the growth of a number of brands on the shelves of supermarkets/hypermarkets. In any given hypermarket, for example, over 37 different brands of bottled water are on display, far more than just five years ago.
So despite having the highest per capita consumption of bottled water in the world, Euromonitor expects Italian market demand for water to continue up to 2008, with total volume sales set to grow by 7.8 per cent. While this growth is slower than the previous five years, it is nonetheless impressive for such a mature market, driven by the ongoing health trend.
But the maturity of the market means that advertising activity will continue to play an important role, with companies increasingly targeting new occasions for consumption as well as introducing new packaging and other innovations. But the low price of water – and ongoing efforts to push prices down even further – means that value sales growth will also slow.