Richard Hall, Managing Director, Retail Measurement Services – APMEA, Nielsen

Water is the essence of life. So it should be little surprise that among the top brands in Indonesia is the bottled water brand whose name is a synonym for water, according to a “top of mind recall” consumer survey conducted by Nielsen in the first quarter of 2011 in Asia Pac across several categories. From still to sparkling, from flavored to fortified, there is something for every consumer of bottled water in Asia, catering to basic hydration as well as lifestyle needs.

The many attempts by manufacturers to move consumers up the mineral water value chain beyond just basic needs have generally yielded limited results, as it looks like Asian consumers still tend to prefer their bottled water “still” and au naturel. Consumers across several markets in Asia prefer “home-grown” brands; private labels are also popular, especially where consumers view this category as a commodity like sugar. In South Korea, almost all of the mineral water retail sales are domestic brands; the same trend holds true in Taiwan. Meanwhile in Hong Kong, the clear market leader is a brand produced by the local outlet of a major soft drink company.

Even as mineral water sales continue to grow, some markets are reaching the saturation point, and this has provided the impetus for manufacturers to focus their efforts in search for new growth. In Taiwan, flavored water currently accounts for just about 1 percent of total sales value. In Singapore, the market has remained stagnant between 6-8 percent over the past three years. The lackluster growth could be due to the higher price tags placed on flavored and sparkling waters, and consumers are not seeing the “pay-off” by paying extra.

The payoff for manufacturers who continue to innovate can be significant. While water with “extras” has relatively small market shares currently, the upside potential is clear. Based on Nielsen’s analysis in Singapore, flavored water only represents about 3 percent of retail sales volume, but accounts for 8 percent of sales value. In other words, one unit of sales volume will see a corresponding increase in sales value by a factor of more than 2.5 times. We found similar results when it comes to sparkling water. Imported brands command an even higher “multiplier effect.”

Manufacturers that connect with consumers by injecting marketing finesse into the equation have been rewarded with “new” growth. Take the example of a leading flavored fortified water brand that was launched in Singapore in November 2010. The brand gained almost 1 percent share of retail sales volume and a corresponding 2.5 percent share of sales value in just four months. The campaign, featuring innovative bottle packaging in a variety of flavors and catchy copy, offered to hydrate consumers while providing the nutrients they may be missing. At the same time, it provided an emotional connection with celebrities who have endorsed the product.

Going beyond the “commodity” bottled water, the sparkling and/or flavored versions can satisfy certain taste buds as well as lifestyle or emotional needs as we saw in the case of the brand in Singapore.  In addition, these “premium” waters, often accompanied by more appealing packaging and promising benefits beyond hydration, can serve to expand the category by drawing new consumers who do not currently buy bottled water.