E.V. bottled water company enjoys skyrocketing sales - East Valley Tribune: Business

E.V. bottled water company enjoys skyrocketing sales

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Posted: Sunday, June 22, 2003 8:40 am | Updated: 1:19 pm, Thu Oct 6, 2011.

When Frank Leonesio turned a former Mesa PetsMart into a purification plant two years ago and jumped in the sea of bottled water makers, he knew he wouldn’t drown.

Beverages were a $150 billion a year industry, the founder and CEO of O Premium Waters reasoned at the time. Bottled water made up about $8 billion of the total and was the only segment that was headed up.

"Colas, teas, coffees, beers, wines, all of those things, were relatively flat, but water was growing (in sales) at least 10 percent a year," Leonesio said. "What that told me back then was there was a paradigm shift occurring in the hydration habits of Americans. People are wanting less carbonation, less calories, less food coloring, all of those things you find in whatever your beverage may be. And that’s why we elected to make an investment in bottled water."

O Premium is the East Valley’s example of a market rising faster than the Fountain Hills fountain.

Arizona ranks first in the United States when it comes to the per capita consumption of bottled water. In 2002, each person drank nearly 47 gallons a year, more than 3 gallons more than Californians.

It is a category Arizona has led since overtaking the Golden State in 1998.

"It’s just been in meteoric growth," Leonesio said, adding the company has nearly 30,000 accounts served by a fleet of 67 trucks and vans. "We’re adding two to three large delivery trucks a month. It’s been very good to us and it’s working very well."

Others agree.

"Obviously, when you get to the hot weather climates, people drink a lot more water, " said David Brimm, a spokesman for Suntory Water Group, which operates in the Valley as Sierra Springs. "We don’t really talk about market share, but we are among the top three players in the market. We’ve been in Phoenix probably 15 years."

Great year-round weather makes for a great home delivery market, said Ray Nelson, a Sparkletts employee in charge of the Southwest region.

"We’re in our peak season right now, and typically, in the next four months, we expect to see an increase in sales volume somewhere around 20 to 30 percent," he said.

According to the Beverage Marketing Corp., bottled water rivals beer, coffee and milk in volume and could overtake carbonated soft drinks by the end of next decade to become the most popular commercial beverage in the United States.

Manufacturers sold more than $7.7 billion worth of bottled water last year, an increase of 12.3 percent from 2001, according to the marketing group. Last year, the average consumer drank 21 gallons of bottled water, about 11 percent more than in 2001.

The market has grown at least 7 percent every year since 1992, according to Beverage Marketing Corp.

"A lot of people have lost confidence in public drinking water supplies and that has driven them to bottled water," Brimm said. "And, the second thing is lifestyle. People are healthier, they’re out more. Plus you’ve had kind of a backlash against things like sodas and juices with sugar in them. These days parents are a lot more informed and educated than they use to be. They pay a lot more attention to the kind of beverages they serve their kids. Drinking bottled water is something everyone can embrace without any problem."

While soft drink consumption stood at more than 54 gallons in 2002 — much higher than bottled water — it has declined for more four consecutive years.

The numbers are stark enough that the nation’s large cola peddlers have gotten into a business that once was dominated by multinational food and beverage companies Nestle Waters North America, the Swiss company that does business in the Valley as Arrowhead Mountain Springs, and Groupe Danone’s Danone Waters of North America, the French yogurt company that owns Sparkletts and Evian.

In 2002, Danone was the largest bottled water company in the country when measured in dollar sales, a Beverage Marketing Corp. analysis showed. Relative newcomer Pepsi-Cola now ranks number two and Coca-Cola’s rapid growing Dasani brand could soon lead the pack, industry experts say.

Pepsi and Coke have gone from owning no U.S. bottled water brands just a few years ago to holding brands with respective market shares of 11 percent and 10 percent in 2002.

Pepsi’s Aquafina led in brand sales last year with $838 million, a 30 percent change from the year before. With more than 300 million gallons in 2002, Aquafina now sells more than many of the company’s carbonates products, Beverage Marketing Corp. said.

"The parent company, PepsiCo, has 15 billion dollar brands at retail, " said Bart Casabona, Pepsi spokesman. "Aquafina, which was just introduced nationally in 1997, has already become one of those 15 brands. So it’s a tremendous growth driver. It certainly is one of the most important brands in our portfolio."

The industry’s growth has led to some criticism, including from the California Department of Conservation, which says billions of empty bottles are causing serious environmental problems.

According to a report, more than 1 billion water bottles are winding up in the trash in California each year. That translates into nearly 3 million empty water bottles going to the trash every day, the state says, or an estimated $26 million in unclaimed California Refund Value deposits annually.

Consumers pay the deposits when they purchase beverages from a retailer. The deposits are refunded to consumers when empty containers are redeemed through local recycling centers.

With their popularity increasing and summer here, single serve water bottles are poised to cause even greater environmental concerns if recycling rates go unchanged, the department says. According to the report, only 16 percent of polyethylene terephthalate, or PET, water bottles sold in California are being recycled.

Stephen Kay, spokesman for the International Bottled Water Association, says education and curb-side recycling are the keys to reusing bottles.

"All bottled water containers, whether they’re plastic, glass or aluminum, are recyclable," he said, adding bottles only make up about 2 percent of the waste stream. "We certainly advocate recycling. What we don’t agree with are what we call forced deposits."

The Natural Resources Defense Council estimates that bottled water is 240 times to 10,000 times more expensive than tap water. While consumers may pay a few dollars for every thousand gallons of tap water, they can pay almost $2 per gallon of some brands of bottled water.

The organization also says the booming industry could be draining aquifers and other water resources, contributing to pollution and producing energy inefficiencies.

But Kay says the claims are not based on sound science and other commercial industries, including breweries, soft drink companies, and paper mills use greater quantities of water in manufacturing their products. A majority of the industry utilizes groundwater, he said. About 25 percent of bottled water comes from a public water source and enhanced by filtration and disinfection, he said.

The Food and Drug Administration requires beverage companies to label their waters to define where the water came from, and if it’s been purified or carbonated. Bottled water can be classified with terms such as purified, spring, sterile and artesian, or well water.

O Premium offers a patented 10-step double purification process that the company says removes even the tiniest amounts of trace particles.

There are about eight companies in the greater Phoenix market that offer water delivery and probably about 15 players in the state, Leonesio says.

While no one tracks local sales figures publicly, he says his company ranks second in market share behind only Sparkletts. But he has no plans to compete with water purveyors on grocery and convenience store shelves.

"We’re doing some limited testing in the stores, but that’s where we want to play the game," he said. "We’re not going to be able to compete as a local or regional company in those distribution channels. Frankly, the profit margins on packaged goods just aren’t that attractive to us."

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