Industry Targets Global South

An article appearing in today's Times Online highlights how future growth for the bottled water industry lies in Asia. The article echoes what we at the Polaris Institute have been saying over the past few months that led by Coke, Pepsi, Danone and Nestlé, the industry will increase its exploitation of the desperate lack of potable publicly delivered Water in the Global South.

Asia is definitely a major growth area for the industry, but we would add that Latin America, in particular Mexico and Brazil, are also major targets for bottled water companies.



Asian middle classes’ thirst for bottled water will pull trigger on an Eastern blue gold rush

Leo Lewis, The Times, December 17, 2009 - The relentless rise of Asia’s middle classes is poised to create an explosion in the global market for bottled water that will see the world consuming more than 280 billion litres annually by 2012.

According to sustainability analysts, bottled water will establish a permanent presence on dining tables in emerging markets despite abrupt reversals in the US and Western Europe, where recessionary thriftiness and environmental concerns have begun to bite.

The expected growth surge, which will be driven in large part by China, India and the Middle East, is expected to trigger what some are already dubbing a blue gold rush as investment money chases different ways to play the bullish consumption forecasts and back whichever brand appears likely to become the “Perrier of the East”.

The recently published Global Bottled Water report by the consultancy Zenith International said that worldwide bottled water growth in 2008 had been 4.5 per cent and predicted another 18 per cent rise over the next three years. However, others judge these figures too conservative and believe growth rates will be more like 25 per cent over the same period.

Behind the more bullish forecasts are three features of the Chinese market that suggest its growing thirst for bottled water may be even more vigorous than the one that gripped the US and Europe from the late 1990s. The first is a recent United Nations survey of tap water in 11 Chinese provinces that found more than half of all water samples contained unacceptably high levels of bacteria.

Increasing water shortages are also expected to play a big role as households stock themselves with bottled water to overcome seasonal droughts.

The biggest driver, though, is expected to be wealth. A recent report by McKinsey explored the probable economic impact of a huge Chinese middle class demanding better living standards. Bottled water was a symbol of middle class luxury in the US and Europe, and China’s middle class is expected to comprise at least 350 million people by 2011.

Brokers said there were few “pure” ways for investors to play the bottled water story in emerging markets: Danone, Nestlé, Coca-Cola and Pepsico all have significant water businesses in developing countries but are too diverse to track accurately bottled water growth.

Some believe that the bottled water story most strongly favours Thailand’s Indorama Polymer — the company poised to become the world’s secondbiggest producer of plastic bottles.

Senior investment bankers in Asia said they were also gearing-up for several years’ worth of potential deal-making as mergers reshape the landscape and the “new Nestlés and Coca-Colas” emerge from Asia as dominant players. Consolidation is expected to be a theme in India particularly, where the market is expected to grow by 100 per cent over the next five years and there are currently more than 2,000 bottled water producers.

Analysts described as “striking” the suddenness with which consumers in Europe and the US were turning back to tap water. Simon Powell, head of sustainability research for CLSA, the brokerage, said that awareness campaigns about the carbon footprint of plastic bottles and internationally transported water have successfully been waged against bottled water in the West. The result, he said, was that “at the extreme end, you have got people sloganeering that drinking bottled water is the moral equivalent of smoking or driving a Hummer”.

Mr Powell said: “It is so striking how the EU and US consumer have abandoned bottled water. Two years ago, if you asked for tap water in a restaurant, you’d practically be shown the door. Now, it’s the done thing. As bottled water emerges as a growth area in the developing world, investors are constantly going to find themselves underestimating the fashions involved.”