Making a splash

The new breed of functional water is giving something extra to consumers ... and C&I retailers

The spectacular rise of bottled water as a convenience and impulse outlet staple has doubtlessly been underpinned by the Australian consumer's seemingly insatiable demand for ever more healthy products. Yet now it appears that, for a growing number of H2O aficionados, mineral water just isn't considered healthy enough! That trend is reflected in the fact that the still/mineral category has shrunk by some 4% over the past year.

But all is not lost for water. The dramatic emergence of the functional water segment, that is water which boasts enhanced nutritional benefits, has helped the water category as a whole to continue to grow at around 4%. And, according to the most recent Australasian Association of Convenience Stores Report, water still has a very respectable 15% share of the impulse beverage segment.

Fastest growing category

For its part, enhanced water is said to be the fastest growing category across the board in Australian petrol and convenience and is already over half the size of the sports drink market and double the size of Ready To Drink Tea. The stats show it is growing at some 70% and is now worth $99 million in the impulse channel, claiming a 3.9% share of total beverages (excluding white milk).

In other words, enhanced water in Australia is absolutely bubbling, and appears to be following the same outrageously successful path it carved in North America.

Not surprisingly, the changing needs of the water-loving public are being met by a vast amount of new product developments, and these are commanding greater shelf space and presence for the category ... and delivering incremental sales to convenience and impulse retailers.

And while the rise of – and the profits delivered from – functional water has certainly been eye-catching to date, it seems that the best may be yet to come from this category.

Coca-Cola which produces glaceau vitaminwater – the leading functional water brand in Australia with more than 40% share of the convenience and impulse channel – says functional water is still very much in its infancy.

"As it currently stands, household penetration and brand awareness are still relatively low, suggesting that the category is exploding with potential," said Kelly Brooks, Coca-Cola South Pacific's Brand PR Director. "We are passionate about growing glaceau vitaminwater and taking functional water to the next level."

Building awareness

This commitment to building awareness is reflected in the fact that the company recently launched its biggest ever advertising campaign globally in support of the 15 glaceau vitaminwater variants. Although glaceau has only been in the Australian market since 2008, Coca-Cola is still looking for new ways to optimise the range and thereby maximise sales. In April this year it launched the new lemonade flavoured 'super-v' and there may well be more variants to come.

Frucor, whose leading functional water brand Mizone was launched in Australia in 2001, is also extremely optimistic for the category's future.

"The launch and uptake of new items in the functional water category has delivered significant growth rates in both value and volume," said Frucor's Category Manager for Functional Water, Chrisie Madden. "Consumers are expanding their repertoire and are willing to increase their average weight of purchase if they feel the product is beneficial to them."

Ms Madden says Frucor is constantly seeking fresh ways and opportunities to innovate and extend its functional water portfolio. She believes that innovation will be critical in delivering continued growth of the category over the next 12 months, and Frucor plans to be a big part of that.

Similarly, Schweppes Australia – which launched Spring Valley Smart Water in June 2008 – believes new innovations in the category will continue to emerge to meet the different consumers' functional needs.

"We would expect functional water sales to continue to grow as people look for healthier beverage choices and tastier alternatives to bottled water," said Darryn Wallace, Marketing Director, Schweppes Australia.

"Market dynamics and consumer trends are constantly changing and, as a result, Spring Valley is always looking for ways to improve to better meet consumer needs. It's better for us, the consumer and our retailers."

While Spring Valley Smart Water is still relatively new, it nonetheless commands a 9.1% market share of the category and Schweppes Australia is aiming to increase consumer awareness of its offer and encourage trial of the various flavours.

The range was fully refreshed in October with improvements including reducing the sugar content; adding vitamins B3 and B5 across the range; incorporating a cleaner, more impactful design; and launching a new Tropical Lychee flavour. The refreshed range is being supported by a national outdoor and sampling campaign.

"To maximise sales from Smart Water, retailers need to ensure that their fridges are in the best location in the store, functional waters are merchandised at eye level, and that the category is blocked and merchandised together," said Mr Wallace. "Stocking a variety of functional water offers gives consumers greater choice within the category – both of brands and of flavours."

Something new & different

Of course, new entrants into the marketplace are all hoping to offer consumers something new and different that will set them apart. NutrientWater is no different and has recently announced the launch of D-Stress, which it says is a unique addition to the Australian enhanced water category.

"NutrientWater conducted its own research and found that stress on the whole is the most common cause of anxiety, irritability and fatigue for anyone leading a busy lifestyle," said NutrientWater Director, Luke Marget. "Enhanced with Vitamin D and L-Tyrosine, D-Stress helps the brain produce more neurotransmitters thereby regulating emotions and controlling stress levels ... D-Stress is naturally flavoured with Blackberry and Goji berries and is set to be a strong seller this summer."

Mr Marget says consumers are becoming better educated about good health and are more likely to match a specific diet with their lifestyle.

For that reason, Coca-Cola's glaceau vitaminwater has a range of seven unique variants, each of which are said to be specifically designed to meet consumers' changing needs throughout the day.

"By ensuring that the full range is always in the fridge, outlets will generate maximum shelf standout from the glaceau 'rainbow' and will maximise sales by offering consumers what they need, when they need it," said Coca-Cola's Kelly Brooks. "The convenience channel is a natural fit for glaceau vitaminwater as it is all about impulse."

Indeed, while glaceau is said to appeal to all ages, it is teens and young adults who are at the heart of the brand.

"For these consumers, glaceau is the perfect accessory to their 24/7 lifestyle, and the convenience channel is well suited to their on-the-go consumption behavior," said Mr Brooks. "Most of our new growth is coming from route as our distribution base continues to grow."

Getting noticed: POS & in-store presence

Of course, as a relatively new category, in-store presence is a critical element in encouraging trial of functional water; and point of sale communication can help communicate brand personality and functionality, drive trial and, crucially, influence the decision to purchase.

With more than 60% of purchase decisions made at the shelf, strong shelf and/or fridge presence could scarcely be more important as a way of capturing the shopper's attention.

Similarly, packaging is an equally vital way of communicating the brand message and getting noticed on shelf.

"We believe that the glaceau bottle is key to building brand personality and communicating the variant functionality," said Mr Brooks. "Our 500ml pack format is the perfect on-the-go size, well suited to the impulse consumer who is purchasing through the convenience channel, and we also use fun, cheeky messaging on our package as a way to further engage our youthful core consumers."

Frucor's Mizone is primarily targeted at 25-35 year olds and the company is well aware that the convenience and route shopper is often purchasing for immediate consumption, whether it is for pre/post exercise or just part of the consumer's repertoire of drinks.

They also say that this naturally makes package design absolutely critical. Sara Salter, Client Service Director at The Saltmine Design Group, says that with the latest Mizone labels, the overall aim was to clearly communicate the essence of the brand as a functional sports water.

"When shopping, consumers on average spend 4-6 seconds looking at the shelf to make their purchase decision," she said. "For this reason effective packaging is fundamental to success for any brand."

Mizone's new design features two key components … mountain-like water peaks, highlighting the fact that the product is truly a sports water; and a cogs device which symbolises the five essential vitamins, electrolytes and antioxidants in Mizone's hypotonic formulation working harmoniously together.

While the buyers of functional waters can be said to be largely seeking similar functional health benefits, there is of course a difference between the needs of consumers shopping in each channel.

Consumers purchasing in supermarkets are purchasing largely for the future rather than immediate consumption. And they are also more likely than an impulse shopper to increase average weight of purchase during promotional periods.

Frucor's Chrisie Madden says that the supermarket channel in particular has enjoyed significant growth within this functional water segment due to the growing space both on shelf and in refrigeration that the category has been given, and the increased promotional activity it has enjoyed.

"A challenge in the future is whether shelf/fridge space within retailers will be able to expand at the same rate of new product developments entering the market," she said. "We would certainly expect functional water to continue to grow based on current growth rates and the sizeable opportunity still available versus other beverage segments."

Schweppes Australia is keen to point out that while functional water makes up a relatively modest 1.4% of grocery's non-alcoholic ready to drink (NARTD) sales, it constitutes around 5% in both route and convenience.

"As functional waters are currently only available in single-serve format, the category makes up a higher percentage of NARTD sales in the route and convenience channels, as they suit the impulse purchase occasion," said Darryn Wallace from Schweppes Australia. "We would expect functional water sales to continue to grow as people continue to look for healthier beverage choices and tastier alternatives to bottled water."

Like its main competitors, Schweppes Australia has put a lot of thought into the packaging of its functional water products. The Spring Valley Smart Water range packaging has recently been re-designed to give more impact on shelf. The product, which is primarily targeted at 18-30 year olds of both sexes, now boasts a cleaner and simpler front of pack design making it easier for consumers to choose their favourite flavour, and to see what vitamins and supplements are contained in it.

Clearly then, functional water suppliers are anxious to ensure that customers fully understand the benefits that enhanced water can bring to their demanding and hectic lifestyles.

"Enhanced water is the only beverage category on the market that provides consumers with a range of health solutions," said NutrientWater's Luke Marget, noting that this winter the company has seen notably increased sales of particular products such as NutrientWater Immunity.

"Blended with immune boosting Echinacea and Vitamin C, the proportional sales increase is evidence that consumers are selecting specific NutrientWater varieties depending on how they feel or how they want to feel."

It is fair to say then that we can expect a lot more variants and new products to be appearing in the market over the coming months and years, as functional water continues to shake up the established beverages order on shelves and in fridges.

And the added excitement, innovation and promotional activity surrounding this most healthy of categories has got to be good for everyone.