A sparkling performance: bottled water in Italy

Author: Hope Lee

Date published: 13 Aug 2004

According to the latest research by global market analyst, Euromonitor International, Italy is the largest bottled water consumer in Western Europe, with total volume sales of 10.2 billion litres in 2003. At 177 litres per person, Italy also boasts the highest bottled water consumption in the world. Despite the maturity of the market, the country has seen steady increases in sales of bottled water over the past few years with total volume growth of 22% between 1998-2003. The hot summer of 2003 fuelled the demand for bottled water, although the chief spur for growth has been the trend towards healthy products, as bottled water is perceived as a safer alternative to tap water, which is facing a crisis of confidence amongst Italian consumers.

A part of everyday life

Euromonitor considers that a key contributing factor for the high level of water consumption is bottled water’s low unit price. As one of the largest bottled water producers in the world, Italy boasts 175 mineral water sources which package and sell 280 brands of bottled water. Natural mineral water accounts for around 98% of total bottled water consumption in Italy. Unlike the case in some countries where mineral water remains a luxury, mineral water is an everyday drink for most Italians. However, the low price of bottled water carries with it attendant problems of profitability for the water industry.

Still the most popular

Still water represents 65% of total bottled water consumption in Italy, growing by over 30% in volume terms between 1998-2003, in contrast to 8% growth for carbonated water. Still water benefited the most from the general increase in demand for healthy drinks as it is perceived as a healthy alternative to other soft drinks and more thirst-quenching than sparkling water. There is also a tendency for Italian consumers to use still water for cooking at home.

Still water was also the beneficiary of the increasing segmentation of functional or ‘enhanced’ waters, fortified with various health benefits. Some are marketed as diuretic waters, as is the case with Rocchetta, others as digestive aids, such as Uliveto. Some new launches have also been targeted at newborn babies, as is the case with Sangemini or Sant’Anna. Euromonitor’s research findings show that fortified bottled water is likely to grow in popularity amongst consumers whose health awareness is rapidly growing.

As the water market has reached saturation point in Italy, the cost of new brand launches has skyrocketed in recent years. Manufacturers instead tended to refresh their image by introducing brand extensions. Danone’s Boario Active for example with a high calcium content was launched under the popular family brand Boario.

Apart from functional water, still spring water is another bright spot in the Italian water industry. The spring water segment is still very small in Italy and accounts for around 1% of volume sales in 2003, according to Euromonitor’s latest research. However, spring water is increasingly employed in the field of HOD water coolers for dispensing in offices and other institutional areas. Its use for home consumption has also been increasing in recent years as a result of two major launches.

In 2001, Parmalat, Italy’s largest dairy manufacturer, successfully launched a new microfiltered bottled water brand, Aqua Parmalat. Prior to the Aqua launch, spring water (as opposed to mineral water) had never played a significant role in Italy. In the same year, San Benedetto entered the spring water market with the brand Sorgente di Bucaneve, sold in 5-litre PET bottles. However, San Benedetto is so far available in a limited number of outlets. Large size packaging formats such as 5 litres are not permitted for mineral water in Italy, as mineral water can legally only be bottled in packages containing no more than two litres.

Sparkling water remains a comparatively small sector in the Italian water industry, with sales totalling 3.5 billion litres in 2003. Between 1997-1999, artificially carbonated bottled water suffered from negative publicity regarding high levels of sodium. In the ensuing years, sales of carbonated water recovered slightly, with volume growing at 4%. The main driver of growth was the introduction of lightly carbonated water, which consists of artificially carbonated water and naturally sparkling.

However, Euromonitor’s research findings show that carbonated water is unlikely to exhibit fast growth in the future as the consumer trend favouring healthier drinks is set to continue and still water is predicted to continue to outperform sparkling water.

Flavoured water faces legislative issues

Flavoured water is a niche product in Italy, accounting for a fraction (barely 0.1%) of total volume water sales in 2003. The high growth over the review period (1998-2003) was a reflection of the product’s low base. There are legislative and cultural obstacles impeding widespread acceptance of flavoured water. Italian law does not allow flavoured water to be called "water", which makes it difficult to market the product. San Benedetto – which is to date the only manufacturer of flavoured water active on the Italian market – got around this problem by using names such as "Bevi il Gusto" and "San Benedetto Ice", which do not use the term "water". The brand conveys the idea of a product based on something natural and authentic, which is reinforced by the products’ packaging. Both bottle and label are transparent, in order to underline this image.

San Benedetto expressed its dissatisfaction with the performance of its original flavoured water brand "Bevi il Gusto" by replacing it with a different product, San Benedetto Ice, launched between 1999 and 2000. San Benedetto Ice is a less typical flavoured water than Bevi il Gusto, as the flavouring is via mineral salts and fructose, which also increases its ability to quench thirst. A sports cap bottle contributed to strengthening this new positioning.

Nestlé leads the market

The bottled water sector is relatively concentrated in Italy, with the big four players – San Pellegrino (owned by Nestlé), San Benedetto, Italaquae (owned by Danone) and CoGeDi – accounting for two thirds of off-trade volume sales in 2002. San Pellegrino leads the market with its flagship brand Levissima, representing over 10% of retail volume sales. San Pellegrino strengthened its position in 2002 owing to the good performance of Levissima. San Benedetto also gained shares marginally in 2002 essentially due to the growing sales of its San Benedetto and Guizza brands.

Parmalat, the most recent new entrant, managed to achieve a 1.4% volume share in 2002, despite having launched its Aqua brand only the previous year. The launch was supported by a high profile advertising campaign, which the company repeated throughout 2003. Euromonitor predicts that Aqua is likely to increase its shares further as some consumers migrate to spring water.

In 2002-2003, the soft drinks giant Coca-Cola launched Bonaqua, its global water brand. The launch initially took place only in Sicily. Coca-Cola has expressed its commitment to extending the new brand to the country as a whole in the near future. Bonaqua is a mineral water with a low sodium content, directly bottled at the Tinnea spring, which is located in the centre of Italy. It remains to see how this carbonates giant will compete with established bottled water players such as Nestlé and Danone in Italy.

Smaller players appeared to be the losers in the water war. The price cutting strategy employed by big firms has effectively squeezed their share. Smaller companies tend to focus on door-to-door sales, the on-trade channel and traditional types of retail outlets such as independent food stores.

Still water also benefited from wide distribution of regional brands. The increasing consolidation of the retailing market means that well established regional brands now have a chance to be present in other regions.

Vinadio’s Sant’Anna and Trafficante’s Lilia for example are working hard to expand their geographic penetration at regional level. It is also part of the survival strategy for stronger local manufacturers to extend to other regions. This has facilitated the growth of a number of brands on the shelves of supermarkets/hypermarkets. In any given hypermarket, for example, over 37 different brands of bottled waters are on display, which is a considerable increase compared with the situation at the beginning of the review period.

Healthy image will continue to drive growth

Despite having the highest per capita consumption of bottled water in the world, Euromonitor expects market demand for water is expected to continue in 2003-2008, with total volume sales set to grow at 7.8%. This is a slowdown compared with the historical period amid high market maturity. Consumer awareness and concerns over artificial additives, caffeine, alcohol, calories, salt and fat content in food and beverages will continue to drive the demand, especially for functional water.

Advertising activity will continue to play an important role, targeting new occasions for consumption as well as introducing new packaging and other innovations. In terms of value, sales are forecast to slow down as well, with pressure on prices building from trends already apparent during the review period, with manufacturers attempting to protect their positions in an intensely competitive environment. Brand loyalty will become an increasingly rare commodity, with branding becoming more important as the number of brands available results in a fight for supermarket shelf space.