Power Lunch

Power Lunch: Helping Regional Water Bottlers Stay Afloat

Small bottlers are key suppliers during weather emergencies.

By Tony Verdini of Old Saratoga Inc.

The U.S. has a huge consumer market for bottled water. One would think such a large market would have ample opportunities for the small, regional bottler … right?

Wrong!

Competing against the likes of Aquafina, Dasani, Nestle Pure Life, Glaceau Smart Water and the many Niagara labels is a daunting endeavor. But the preservation of regional bottlers is paramount in maintaining adequate water sources for the future, especially during emergencies.

Private label has proven to be an avenue where regional bottlers have been able to compete effectively -- mostly because of their proximity to a retailer's distribution center. However, the escalating cost of goods, fiercely competitive bids, not having such efficiencies as blowing your own bottles, minimizing the use of corrugation and aggressive marketing programs all present obstacles for the regional bottler.

In order for regional bottlers to compete aggressively, they have to establish a point of difference. If managed correctly, private label can be that distinction. The key factor in private label water is ensuring adequate shelf inventories on a consistent basis, especially in weather-distressed periods.

The three major components of a successful private label water program are predicated upon the quality of the water, fair pricing and the supplier's ability to keep the retailer's shelves continually stocked, especially in severe weather.

Pricing is an ongoing issue that regional bottlers fight daily. National companies have the economies of scale to price their products as low as their budget and desire for distribution allow. In order to reduce competition, it has long been the strategy of larger bottlers to use pricing as a gauntlet against the smaller regional bottlers.

This has proved to be successful. Albeit, this is a short-term advantage, however beware of the long-term consequences for the retailer. Eliminating competition by price alone will forever alter the check and balance mechanics needed to keep pricing fair.

There are certain retailers that are solely motivated by price. Others tend to be more inclusive in their criteria. They understand in weather-challenged areas, such as the Southeast, it is imperative to have ample water available on your shelves. Since most private label programs offer pricing at low to medium price points, it is essential the supplier has the ability to adequately fill the retailer's needs to the exact quantities that are ordered. In distressed times, this has been an issue for some national bottlers.

When retailers predicate their buying decisions solely on price, they are unintentionally subjecting themselves to a future of paradoxical circumstances. National bottlers have tremendous volume responsibilities. They manage those responsibilities by priority. When inclement weather occurs, they produce to their priorities, not specifically to the retailer's priorities. The top-ranking accounts that contribute significant income to the producer's bottom line will be shipped first.

Every time there is a hurricane or tropical disturbance in the Southeast, Walmart, Kroger, Target all seem to have ample water replenishment. The secondary tier of accounts gets less and the tertiary accounts get whatever they can scavenge.

When severe weather occurs and a customer cannot find enough water to meet their needs because their retailer is out of stock, the retailer just failed their customer. That is an indisputable fact that proves itself every time unusual weather comes into play.

The larger bottlers are in a position to dictate the cost of water. Retailers need to be aware of this pricing game. The first step of acquiring distribution from a competitor is to undercut their price. That is a relatively easy thing to do when most regional bottlers do not have the economies of scale the larger bottlers have.

The second step is to ensure total acquisition of all business within an account. Most regional companies do not have their own transportation fleets. They rely on back haul or other alternative means of shipping product. Consequently, most only bid the distribution centers in close proximity to their facilities. The national bottlers have the ability to offer contract pricing tied into 100% distribution of all DCs, thus theoretically eliminating the need for a regional source. The dark side of this is national bottlers historically cannot meet every retailer's need.

Water is our life line. It should not be treated as just another consumer product. Protecting our water sources and those who are able to ensure its availability is vital to the future of our economy and our survival.