In October 2012, our last meeting, Clay Bell of Melwood Springs really went out of his way in providing an outstanding fall plant tour. If you haven’t eaten his home cooked barbecue and stew, you don’t know what you’ve missed. We ha a real good group in attendance.

Our next meeting will be our annual meeting to be located at Beau Rivage in Biloxi, Mississippi on May 7-10, 2013. This is an outstanding facility. I am looking forward to this joint meeting with our MABWA partners. The program is going together great. I think we will have something for everyone to be able to take home and use to increase his or her business in 2013.

For those who need CEU credits we have approximately 8 hours available with speakers like Chris Dunn, NSF; Tamara Risser, IDEXX, and Bob Hirst, IBWA. We also have presenters like Peter Raisch, Kennedy Communication, Joseph Doss, IBWA, Allen Wankat, Culligan International, and Nathan Laverty and Marissa Murray, DW Waters. On the final day we will hear from Jim Lewandowski, Sparkletts®, with a review of the latest Beverage Marketing Report. This will all be followed by time for questions and answers.

For some fun in the sun, we’ll be holding a Golf Tournament, Fishing Tournament and a tour of the well-known Beauvoir.

We are looking forward to seeing you in May!

Fred Garrett
SEBWA President

Mar 17th 2012 | from the print edition

IN OCTOBER 1996 the cover of Fortune magazine showed Roger Enrico, then the chief executive of PepsiCo, trapped in a Coke bottle under the headline “How Coke is kicking Pepsi’s can”. Ten years later, just after Pepsi had surpassed Coca-Cola in market capitalisation for the first time in their 108-year rivalry, the same magazine ran another big story on the cola giants. It admitted that it was wrong to have declared Pepsi defeated and lauded it as one of America’s best-run companies.

Fast forward another six years and Coke is again kicking Pepsi’s can. Both are losing cola drinkers in America as consumers switch from fizzy, sugary drinks to healthier water, tea, juices and sports drinks. But whereas Coca-Cola has lost on average 2% a year in like-for-like volume of fizzy drinks in America since 2004, Pepsi has lost 3% (see chart), according to Sanford C. Bernstein, an investment bank. That means its American drinks business has shrunk by about 20%. Coke’s Simply juices and its lower-priced Minute Maid are taking share from the fruity concoctions of Pepsi’s Tropicana. And Coke’s sports drink, Powerade, is knocking spots off Gatorade, Pepsi’s brew for athletes.

Faced with mounting investor dissatisfaction about Pepsi’s stagnant share price, the food-and-drinks giant recently embarked on an effort to relaunch the company. On February 9th the group announced that it was cutting 8,700 jobs, or 3% of its workforce. Having underinvested in its flagship beverage brands for years, it is increasing investment in marketing and advertising by $500m-600m. It has some catching-up to do: at the end of 2010 Pepsi spent 3.3% of sales on advertising compared with 8.3% of sales at Coca-Cola, according to Judy Hong, who follows drinks makers for Goldman Sachs.

Pepsi is also pinning its hope on the launch across America on March 26th of Pepsi Next, a new soda sweetened with both high-fructose syrup and artificial sweeteners which has 60% less sugar than classic Pepsi. Angelique Krembs of Pepsi says the new drink is aimed at consumers who are keen to imbibe less sugar with their cola but dislike the taste of diet drinks. She splits this mostly male group in two: “dualists”, who switch between regular and diet (and sometimes mix the two), and “resistants”, who never touch either.

Repeat performance

Will Pepsi’s reset be enough to win over investors? Pepsi Next is dividing opinions. “We have seen this movie before,” says Mark Swartzberg, a drinks analyst at Stifel Nicolaus, a bank. In 2004 Pepsi launched Pepsi Edge, a mid-calorie soda, which Coca-Cola matched with a new mid-calorie brew called C2. Both disappeared from the shelves after a few years.

Is Nooyi ready to move on?

Pepsi’s boss, Indra Nooyi, is seeking to revive the company’s core business while continuing her ambitious drive to transform the company into a maker of healthier drinks and snacks, and a better corporate citizen. In the past few years Ms Nooyi has spent disproportionate time and effort on promoting products that Pepsi calls “good for you” (oatmeal, fruit juices and sports drinks), which make up about 20% of its sales. She is aiming nearly to triple the revenue of nutritious products, to $30 billion, by 2020.

Ms Nooyi has also devoted resources to cultivating a corporate image focused on global social responsibility. In 2010 Pepsi skipped soda ads at the Super Bowl, launching instead a $20m online competition for the nomination of worthy causes that Pepsi might finance. The Refresh Project succeeded in gathering 80m online votes and helped numerous homeless shelters and orphanages. But it did not sell much soda, which is why Pepsi went back to its usual ads at the 2011 Super Bowl.

It will take time for the revised strategy to bear fruit, as it did for Coca-Cola when it reset its course in the late 2000s after a series of management and marketing mishaps. Coke’s bosses now feel they are on the right track with its offering of fizzy drinks, vitamin water, juice, coffee and tea. They think they are giving health-conscious customers sufficient choice. Of the 3,500 drinks Coke sells worldwide, more than 800 are zero- or low-calorie.

If Ms Nooyi’s relaunch does not work Pepsi may get a new chief executive. The company seems to be preparing for a possible change at the top. On March 12th it revamped its management structure, poaching back Brian Cornell—a former Pepsi man who went on to run the Sam’s Club division of Walmart—to head Pepsi’s Americas Foods snacks division. It put John Compton, the current head of Americas Foods, in charge of all the company’s global groups, making him an heir apparent in the newly created role of president. Another possible crown prince is Zein Abdalla, boss of Pepsi’s European business.

Ms Nooyi may leave before she is pushed out. She is one of the contenders for the top job at the World Bank. Though she says she loves her job, she has talked in the past of her desire to spend some of her career in public service. And the World Bank may suit her zeal to do good on a global scale rather more comfortably than the maker of popular but largely fatty, salty and sugary foodstuffs.

Increasing demand and competition caused by the world’s rising population and scarcities created by climate change and poor management threaten to disrupt economies and increase regional tensions, the report concludes.

Prepared at the request of the State Department, the report is based on a classified National Intelligence Estimate completed last October that reflected an increasing focus on environmental and other factors that threaten security. An estimate reflects the consensus judgment of all intelligence agencies.

While the report concluded that wars over water are unlikely in the coming decade, it said that countries could use water as political and economic leverage over neighbors and that major facilities like dams and desalination plants could become targets of terrorist attacks. Coupled with poverty and other social factors, problems with water could even contribute to the political failure of weaker nations.

The public report, unlike the classified version, did not specify countries at greatest risk for water-related disruption but analyzed conditions on major river basins in regions with high potential for conflict — from the Jordan to the Tigris and Euphrates to the Brahmaputra in South Asia.

“During the next 10 years, many countries important to the United States will almost certainly experience water problems — shortages, poor water quality, or floods — that will contribute to the risk of instability and state failure, and increase regional tensions,” the report said. “Additionally states will focus on addressing internal water-related social disruptions which will distract them from working with the United States on important policy objectives.”

The report warned that water shortages would become acute in some regions within the next decade, as demand continued to rise. While disputes over water have historically led to negotiated settlements over access, upstream countries will increasingly use dams and other projects “to obtain regional influence or preserve their water interests” over weaker countries downstream.

This is already happening on the Tigris and Euphrates, where Turkey, Syria and Iran have harnessed the headwaters of the two rivers that flow through Iraq.

The release was timed to the announcement by Secretary of State Hillary Rodham Clinton of a new partnership to promote conservation and improved management in conjunction with corporations like Coca-Cola and Ford and nongovernmental organizations like the Nature Conservancy.

The report said that improvements in management — like the use of drip irrigation systems — could ease the potential for shortages, especially in agriculture, which accounts for 70 percent of the world’s water use.

“Numerous countries have over-pumped their groundwater to satisfy growing food demand,” the report said. “Depleted and degraded groundwater can threaten food security and thereby risk social disruption.”

Danone Research and Avantium have entered into a joint development agreement to produce bottles made from polyethylene furanoate — a furanic polyester developed by Avantium to be a 100 percent bio-based, recyclable alternative to PET.

PEF boasts superior thermal, barrier and light-weighting properties compared to PET, according to Avantium.

Avantium makes PEF using its YXY technology, a catalytic chemical process that converts carbohydrates into bio-based polymers, including an alternative to terephthalic acid.

Using XYX technology, Danone and Avantium will focus on creating renewable materials using feedstocks that do not compete directly with food production. XYX can use a variety of feedstocks like grains, energy crops, lignocellulosic matter, waste streams, waste paper or agricultural residues, Avantium said in a news release.

The firm will continue to produce PEF using renewable feedstock that does not compete with food, they said.

This is the second major partnership for Avantium. In December, Coca-Cola Co. announced it was investing in the firm, and two other companies, in an effort to find a 100 percent bio-based version of its Plant Bottle.

Avantium currently operates a pilot plant in Geleen, the Netherlands, with the capacity to produce 40 tons of PEF for application development.

Jessica Holbrook is a reporter for Plastics News, a sister publication of Waste & Recycling News.

Bottled water volume overall grew a little over 4% in 2011, according to preliminary tracking figures from the Beverage Marking Corp. (BMC). The single-serve retail PET segment, which is comprised of domestic brands of non-sparkling water in 1.5 liter and smaller plastic bottles, rose 5.4%.

“The single-serve segment of this category accounts for more than 60% of the total bottled water category volume,” said Gary Hemphill, managing director of New York-based beverage tracking firm. “And we are projecting sold growth in 2012 at roughly the same rate as 2011.”

Numbers at Chevron’s ExtraMile stores bear out BMC’s optimistic outlook.

“Water sales showed modest growth for 2011, which was a significant improvement over 2010,” said Theresa Webb, the beverage category manager for Chevron.

However, Butch Fulton, beverage category manager for Portland, Ore.-based Plaid Pantry, expressed concern over the fact that supermarkets are selling 24-packs of single-serve bottled water at a deeply discounted price. “Their prices are so cheap that we can’t possibly afford to compete with them,” he said. “Our biggest concern is what this could do to sales longer term as customers get more conditioned to buying in bulk.”

On the other hand, premium-priced Fiji water—in a single-serve size—sells well at Plaid Pantry.

BMC’s preliminary figures show that the volume of value-added waters—flavored and vitamin—and mineral-enhanced varieties , dropped 1.6% last year.

“In many cases, consumers may have gotten a sour taste in their mouths when they read the labels and realized that some of these waters contain as many calories as a bottle of soda pop,” Fulton said, adding that the zero calorie varieties of flavored and enhanced waters, led by Glaceau’s Smartwater, have really taken off.

Americans continue to guzzle more bottled water, ready-to-drink tea and coffee, sports drinks and energy drinks, rather than sip on soda and fruit juices, according to beverage statistics released Tuesday.

The U.S. beverage market grew by 0.9% in 2011, according to preliminary data from Beverage Marketing, a research, consulting, and financial-services firm that tracks the beverage industry. Although this marked the second year of growth for the beverage industry, after two consecutive declines in 2008 and 2009, the pace of growth slowed from 2010.

Beverage Marketing said sales were hurt by higher prices, which made the drinks more difficult for struggling lower-income consumers to afford.

Beverage Digest, an industry newsletter that also issued industry sales data Tuesday, estimates carbonated soft drink prices were up about 3% last year, as companies passed on the higher cost of sweeteners, such as corn syrup and other raw materials, to consumers.

All of the big three beverage companies Coca-Cola(KO) PepsiCo(PEP) and Dr Pepper Snapple(DPS) old lower volumes in the U.S., as sales of leading brands such as Coke, Diet Coke, Pepsi-Cola, and Mt. Dew fell, according to Beverage Digest.

Both Coke and Pepsi saw their market shares shrink, while Dr Pepper’s share was flat, the newsletter said. Sales of Dr Pepper’s flagship brand rose 0.5% last year, a good showing, but not nearly as good as Fanta, the ninth largest soda brand, which saw sales volume climb 3%. Fanta’s growth was enough to unseat Diet Dr Pepper from the top 10.

While Fanta’s growth was impressive, the fastest-growing beverage brand was Dasani, a bottled water sold by Coca-Cola. Dasani’s volume rose 11%, according to Beverage Digest. It was followed by Arizona iced tea, which grew 9.3%, and Pepsi’s Gatorade, which rose 8%.

To put this in perspective, carbonated soft drink sales grew about 3% annually in the U.S. for much of the ’90s. The category has been declining since 2005, however, as increasingly health-conscious consumers turn to other beverages perceived to be more healthful.

In the carbonated soft drink category, six of the top 10 brands lost volume, and only four grew. Overall, sales of carbonated soft drinks fell 1% in 2011, faster than the 0.5% decline in 2010, Beverage Digest said.

Beverage Digest includes fast-growing energy drinks within the category. Without energy drinks, sales of carbonated soft drinks would have fallen 1.5%.

Beverage Marketing estimates energy drink sales grew 14.4% by volume in 2011. This means it was the fastest-growing segment with the beverage industry. But it remains a relatively small share of the total beverage industry volume. In fact, only the read-to-drink coffee category is smaller, Beverage Marketing said.

Not surprisingly, no energy drink or ready-to-drink coffee brand ranks among the leading trademarks.

Sports drinks are another matter. Gatorade has been growing at a fast clip and topped the one-billion-gallon mark for the first time last year. Gatorade, coupled with G2 and other brand variations, is the fifth-largest beverage trademark, according to Beverage Marketing.

As for bottled water, its growth continues to accelerate. In 2008 and 2009, tough economic times led to a decline in bottled water sales, but the category recovered in 2010, and its growth rate accelerated in 2011. Bottled water sales volume was up 4.1% in 2011, faster than the 3.5% growth in 2010.

“The strong showing by high-end and functional products shows that consumers — at least the more affluent ones — are not concerned exclusively with economic consideration when making their beverage selections,” said Michael C. Bellas, chairman and CEO of Beverage Marketing.

Residents and tourists alike avoid drinking the native waters making bottled water a multi-billion dollar industry. Mexico has become one of the most valuable water markets for beverage bottling companies in the world.  Mexicans have been long noted as the biggest drinkers of soda consuming about 166 liters of carbonated beverages per person per year but that number pales in comparison to the estimated average 248 liters of bottled water per capita, more than double the 110 liters estimated average consumption by Americans.

Government anti-obesity campaigns (ban of sodas in schools) and other regulations have flattened the earnings growth of soda sales. Companies like Pepsi Co (NYSE: PEP), Coca-Cola (NASDAQ: COKE), and Group Danone (NASDAQOTH: DANOY.PK) are battling  for the most shares of the bottled water market. Currently Danone is the market leader but Coke and Pepsi are working to catch up.

“Soft drinks are no longer such a great business in Mexico,” say Ana Trulin, an analyst with Euromonitor in Mexico City. “Water is the big profit maker.”

Mexican bottled water sales are projected to eclipse $13 billion by 2015, an increase over the $9 billion in 2011, surpassing the U.S. market. Eighty-five percent of bottled water sold in Mexico is sold in 10-20 liter jugs sold through home delivery services. Pepsi who held the dominant position in the early 2000s maintains their hold in the jug market. Unfortunately for Pepsi, that is not where the big money rests. Single serve bottles are king and are about ten times more profitable. Danone and Coke have cornered the single serve market.

French company Danone has secured 26.5% percent of Mexico’s water market, mostly in part to its strong advertising and packaging for its Bonafont brand aimed at women looking lose weight. Bonafont is marketed as “light water” and is packaged with peach labeling with a slim silhouette.

Coke boasts 23.5 % percent of the bottled water market while Pepsi brings up the rear with only 13%. Analysts note that Pepsi is currently focused on combining its largest Mexican bottlers; Empresas Polar, and Embotelladoras Unidas. Pepsi’s distraction has allowed Danone and Coke plenty of room to build market share.

Pablo Lopez, marketing manager for Ciel, is leading the charge for Coke in Mexican territories. Coke has implemented a five year expansion plan worth $5 billion and expects to spend $1 billion this year alone. The company expects to double its Ciel sales by 2020 overtaking Danone. Lopez says, “The market is extremely competitive, especially in the single serve category but we are confident we can get there.”

It is estimated that a third of this year’s investment budget will be devoted to Ceil. Ceil intends to put their hands into a little bit of everything starting with the introduction of a round, 350ml bottle designed for children. They will also be promoting flip top lids and thinner, flexible plastic bottles that are easier to recycle. Ceil has placed television advertising spots featuring glamorous celebrities twisting the new bottles into compact strips saying the slogan “ Dale La Vuelta” –“Turn it Around”- hoping to snare the ever growing eco-friendly population.

Over the past few years Bonafont has introduced several flavored waters in different sizes which Ciel plans to offer alternatives; namely their own versions of flavored water, mineralized, and “purified” to woo Mexico’s growing base of health conscience consumers. A Danone spokesperson stated that the company will be increasing their flavored water line in an effort to boost market share.

Coke’s Lopez has decided to focus on the young and active in Ciel’s marketing campaigns. Bonafont, on the hand, is perceived as a more fashionable product.  Analysts predict that Coke will probably see an addition of 15% to Ciel’s profit margin while the higher end Bonafont will likely add 18% to theirs. Coke’s water profit margins are one to two points higher than their soft drink margins because of the lower costs of production.

One of the reasons beverage companies are making money in Mexico is due to cholera outbreaks in the mid 1990s resulting in a long standing mistrust of local reservoirs. Health officials encouraged the turn to bottled waters which in turn encouraged less than honest hawkers to distribute faux “purified” waters. Many natives began to boil tap water to ensure safety but a rise in natural gas prices made the practice expensive. Other problems exist; earthquakes that damaged miles of water mainline along with areas that are still lacking access to tap water and sanitation.  In some areas the water tastes so bad that residents question its safety. Although the Mexican government has committed to spend billions in water and sanitation infrastructure there’s still massive distrust of the supplies.

The Director of Mexico City’s water utility, Ramon Aguirre Diaz, says the water quality isn’t as bad as believed; 95% of Mexico City’s drinking water is potable as is 80-90% of water elsewhere in the country. “Many people prefer to carry cool-looking water bottles instead of paying municipal water bills,” Diaz states.

Currently, Mexico’s residents pay nearly 500 times more per 1,000 liters of bottled water than they would for city water. It has simply become more fashionable in many case to be seen carrying around branded water. “Drinking bottled water has become chic in Mexico,” Diaz said.

The growing profit margins for Coke and Danone would tend to agree with Diaz. Both companies are presuming that bottled water will not be losing its stature anytime soon.

As a quick overview, Florida has bills filed regarding a five cent per gallon tax on bottled water, a six percent surcharge on packages less than one gallon, permit requirements, and a proposal to extend the statewide six percent sales tax to cover bottled water.

Georgia has mandatory deposit bills, multiple water management proposals, and bills that would remove bottled water’s sales tax exemptions.

There are 57 industry-related bills filed in Tennessee at this time, including deposit, groundwater, sales tax, and food safety legislation. Many bills have multiple sponsors from both parties, which makes passage more likely.

SEBWA, together with IBWA, often are the bottled water industry’s first line of defense against many onerous and expensive legislative initiatives. The most glaring examples are in Tennessee, where the state is in serious financial trouble, and is looking at any possible revenue source. This industry needs to work together, and needs to get everyone involved before huge added burdens yoke bottlers and distributors. Join SEBWA, if not a member, and encourage others to do so!

On the upbeat side, SEBWA’s Trade Show and Convention should be on every industry calendar. The convention will be in Orlando, starting June 28. The networking is invaluable, along with industry seminars and Continuing Education Credits for IBWA’s Certified Plant Operator’s license. Join us!

Allen Wankat,
SEBWA President