German consumers are increasingly switching from bottled water to tap water. Not only is tap water seen as the more sustainable alternative, but bottled water is also becoming an increasingly political issue. In Germany, the communes are responsible for providing tap water which is strictly controlled and must fulfil high safety standards. Most consumers are aware of this, but politics are increasingly involved as the Federal Ministry for the Environment even encourages the use of tap water since it is seen as a more sustainable choice. The rising competition from tap water is placing pressure on soft drinks as consumers see the increasing appeal of counter-top appliances such as SodaStream that make carbonated water at home possible. Moreover, there are further innovations that focus not only on preventing plastic waste but also the adding of minerals.
While bottled water is facing an increasing number of challenges considering sharp volume declines already noted in Germany (down by 3% in 2021), there are still opportunities ahead. The pandemic has enforced the trend towards home consumption and do-it-yourself solutions in the home while impulse purchases have declined. Thus, producers must address the need for more sustainable solutions in order to regain consumer interest.
Declining market: What is happening?
Bottled water in Germany is facing severe problems. The discourse on single-use plastic waste mostly concerns bottled water and its environmental impact. Over the years, plastic bottles have gradually been replaced by returnable glass bottles. In particular, the discounters Aldi and Lidl have contributed to this shift as both retailers only offer plastic bottles. Moreover, the German deposit scheme suggests that plastic bottles – if properly returned to the system – will be recycled and re-used. However, the reality looks different and an increasing number of consumers are becoming aware that a huge share of bottles is discarded or incinerated rather than being re-used. Although companies do try to make plastic bottles more appealing such as using recycled plastic to produce new bottles, consumers remain sceptical. According to Euromonitor International’s Lifestyle Survey 2021, only a third of respondents in Germany would trust a brand/company website as a reliable source. This is a hint of the scepticism amongst local consumers towards brands and corporate activities.
Declining demand for bottled water has also led to the exit of some major brands, especially within spring and purified variants, which can be explained by the fierce competition from natural mineral bottled water in Germany. However, natural mineral bottled water brands are also coming under increasing pressure, whereby for instance, negative reviews in consumer magazines such as “Öko Test” impact a consumer’s perception of a brand. Even the soft drinks giant Coca-Cola has faced difficulties with its mineral water brand Apollinaris, which has been removed from retailers’ shelves and is now only sold via on-trade channels. Since then, Coca-Cola Germany has focussed its marketing efforts on its Vio brand.
The revival of liquid concentrates
An indication of the success of do-it-yourself soft drinks is the recent growth of liquid concentrates. In 2021, it outperformed other categories with an increase of 44% in retail value sales terms. Moreover, various new product launches are a testament to the current and coming growth potential of the category. Companies that mainly produce juice or carbonates have entered this potentially lucrative business. One example is Eckes-Granini, which has launched its own liquid concentrate branded as “die Limo” (named after its carbonates brand). This product will be offered besides the more traditional Yo syrup, which has a more established presence but is now suffering from a weaker performance.
Another prominent product launch has been Coca-Cola’s launch of its own branded syrup in March 2021 – although the player does not offer any counter-top soda machines. While this is somewhat cannibalising sales of carbonates, soda machines is becoming a lucrative business. It is especially beneficial for PepsiCo, which used to be the eternal second-ranked player after Coca-Cola, but now has a real opportunity to become a pioneering leader. Continued growth of liquid concentrates is anticipated as per capita consumption is still rather low compared to other Western European countries. While in Germany, the per capita consumption is less than 1-litre per person per year, France shows a per capita consumption of 2.7 litres.
The way forward
Soda machines are expected to significantly increase their penetration in Germany over the forecast period. At the same time, there will be increasing competition among soda machine providers where the current leader SodaStream will be challenged by cheaper private label lines as well as more premium brands. While Aldi and the drugstore chain DM offer private label machines by Sodapop, the more premium brand Aarke competes with dominant leader SodaStream, which holds more than 80% share of soda machines in Germany. As the offer is likely to increase, it will lead to higher expectations amongst consumers regarding the aesthetics and smart functionality of the machine. As coffee machines have become increasingly sophisticated and affordable, they have become standard equipment in modern German kitchens. Like fully automated coffee machines, soda machines have the potential to move to new kitchens as a standard device.
The consumption of packaged water has become a political issue. Therefore, it can be expected that there will be a greater shift towards home appliances such as SodaStream. Newer entries such as the recent launch “Mitte” show the future potential of soda machines that can also filter water and add natural minerals to it. At the same time, water bottlers must reconsider their business strategies and prepare for more demanding consumers and a more challenging competitive landscape – in Germany and beyond.