Consumers are shunning carbonated soft drinks in favor of bottled water, even in the face of recent price increases caused by commodity inflation, Nestle Waters North America’s top executive said.
And even though commodity prices have moderated, those increases are here to stay, said Kim Jeffery, president and chief executive of Nestle Waters North America, at the Reuters Food and Agriculture Summit in Chicago.
“They’re not going to come back down. This industry has been operating at substandard margins for the last five years due to all the competitive desire to gain market share,” Jeffery said.
Over the last decade, bottled water prices have fallen 35 per cent, Jeffery said, as a host of companies, including Coca-Cola Co and PepsiCo Inc fought their way to prominence with inexpensive offerings that pressured the whole category.
Yet in the face of unprecedented commodity cost increases last year, Nestle Waters raised prices on its regional water brands and its value brand Nestle Pure Life by about 30 cents per case, or about 10 per cent. That was the first increase in a decade for the company, which sells a billion cases of water a year.
“We led the category in that and we suffered for a little bit at the hands of some people who took advantage of that for a few months,” Jeffery said. “We went from positive to negative for a few months.”
Still, the business ended 2011 with revenue growth of about 4 per cent, Jeffery said. He said 2012 was off to a good start as well. He does not see further price increases on the horizon.
Commodity prices that prompted the price increase have stabilized, though they remain at “nosebleed levels”, he said.
Nestle Waters’ biggest purchases include resin to make plastic bottles, cardboard and plastic for case packaging and bottle caps.
The United States is the only developed country in the world where soft drinks outsell bottled water, Jeffery said, but predicted that could change as soda consumption declines and bottled water consumption increases.
Over the last decade, US carbonated soft drink consumption has fallen to 44 gallons per person per year from 54 gallons, he said. At the same time, bottled water consumption went to 24 gallons from 16 gallons.