Bottled H2O Vs. Soda

 

Are we witnessing the beginning of the end of soda or is the shift to bottled water a temporary fad?  What is paradoxical about this trend is that it is driven by environmental and health concerns when it is neither one nor the other.

 By STEPHANIE STROM

Few things are more American than Coca-Cola.

But bottled water is washing away the palate trained to drain a bubbly soda. By the end of this decade, if not sooner, sales of bottled water are expected to surpass those of carbonated soft drinks, according to Michael C. Bellas, chief executive of the Beverage Marketing Corporation.

“I’ve never seen anything like it,” said Mr. Bellas, who has watched water’s rise in the industry since the 1980s.

Sales of water in standard lightweight plastic bottles grew at a rate of more than 20 percent every quarter from 1993 to 2005, he said. The growth has continued since, but now it has settled into percentages within the high single digits.

If the estimated drinking of water from the household tap is included, water consumption began exceeding that of soda in the mid-2000s.

That significant shift has posed a tough challenge for the Coca-Cola Company and rival PepsiCo in recent years. While both companies sell bottled water lines, Dasani for Coke and Aquafina for Pepsi, they have had trouble establishing dominance in the more profitable business of so-called enhanced waters — including flavored and carbonated waters and those with added vitamins and minerals — where a horde of new beverage companies like TalkingRain, Hint water and Fruit2O are giving them a run for the money.

“Given where pricing has gone, I would assume that on the average 24 pack of bottled water, Coke and Pepsi are selling at break-even at best,” said John Faucher, who tracks the beverage and household products businesses at JPMorgan Chase. “The one thing keeping them in plain, old bottled water is that both have a very large and highly profitable single-serve business in it.”

Plain bottled waters are little more than purified tap water with a sprinkle of minerals tossed in, which makes the business one of producing bottles and filling them.

Factors as varied as innovations in bottling technology that have helped drive down the price of water as well as continuing concern about obesity and related diseases are also driving the trend. A recent study by North Dakota State University, for instance, used dietary intake data collected by the federal government to draw correlations between decreased consumption of soda from 1999 through 2010 and improvements in the biomarkers that indicated cholesterol and other chronic diseases.

A study by Coca-Cola asserted that the government’s data, the National Health and Nutrition Examination Survey, was flawed, but that had not stopped public health officials from encouraging greater consumption of beverages with less sugar.

Last month, Michelle Obama heavily endorsed water, teaming up with Coke, Pepsi and Nestlé Waters, among others, to persuade Americans to drink more of it. Health advocates complained that Mrs. Obama had capitulated to corporate partners by not explaining the benefits of water over the sodas they sell and that her initiative promoted even greater use of plastic bottles when she could have just recommended turning on the tap.

Bottled water has also grown cheaper, adding to its attraction. Cases of 24 half-liter bottles of store-brand water can be had for $2, or about 8 cents a bottle, and some grocery store chains even are using waters as loss leaders to attract customers, teeing up shopping carts with a case already on board.

Companies like Niagara Water, a privately held company that is the largest private-label water bottler in the country, have a fully integrated, highly automated production system that starts with plastic pellets that are made into bottles and goes all the way through to filling the bottles, making caps and screwing them on.

This poses a problem for the big beverage companies selling branded waters. “Coke and Pepsi can compete in convenience stores where water is being sold one bottle at a time, but they can’t make money on selling cases at $1.99 apiece,” said John Sicher, publisher of Beverage Digest.

In a conference call with analysts last week, PepsiCo’s chief financial officer, Hugh F. Johnston, said that the company had no plans to invest in increasing its bottled water offerings. “We don’t think it creates value over time,” Mr. Johnston said.

Some of the things that have made Pepsi and Coke formidable competitors in the soda business work against them in water. The companies, for instance, stock grocery store shelves directly off their trucks. That gives them more extensive and timely information about how their products are doing and greater control over marketing, but it also is much more expensive than the distribution system used by companies like Niagara and Nestlé Waters, which has a private label business in addition to marketing brands like Poland Spring and Ozarka.

Those companies let retailers handle stocking, shipping pallets of their waters to warehouses.

Coke sold 5.8 billion liters of waters abroad and 253 million liters in the United States and Canada from 2007 to 2012. Pepsi’s water sales in North America actually declined by 636 million liters over that period, but it still sold 4.7 billion liters overseas, according to Euromonitor.

Both companies’ soda sales fell in North America over that time but grew internationally. Volume sales of soda, however, may be deceptive. “The volume growth is there, but when we’re talking about international markets like China, India and Latin America — prices are lower,” said Jonas Feliciano, an industry analyst at Euromonitor.

The TalkingRain Beverage Company, a bottled water business that started in the Pacific Northwest, is getting out of the plain water business altogether because the economics are so bad. “The water business has become very commoditized,” said Kevin Klock, its chief executive. “Folks in that business have to produce high quantities at fast speed in very light bottles, and it requires a huge investment to be in that game.”

TalkingRain makes Sparkling ICE, a bubbly water that comes in flavors like kiwi strawberry and blackberry with no calories and “vitamins and antioxidants.” The brand had developed strong consumer loyalty in the company’s back yard, consistently generating about $10 million in sales a year when Mr. Klock decided to bet big on it after taking the helm in 2010.

Last year, TalkingRain sold $200 million worth of Sparkling ICE, and sales this year are on track to exceed $400 million, Mr. Klock said. “There’s a large market out there that wants something sparkling, something flavored, something without a controversial sweetener, and we hit that market,” he said.

Now Pepsi and Coke are scrambling to dip their toes into it, too. They are fighting back with investments in flavored and enhanced waters and, in Coke’s case, packaging. Dasani, Coke’s primary water business, comes in the company’s PlantBottle, at least 30 percent of which is made from plant materials.

“First, consumers who purchase Dasani are looking for a high quality product that delivers a high quality taste time and time again,” said Geoff Henry, brand director of Dasani. “Beyond what the brand stands for, we are looking to lead in packaging and sustainability because those things also matter to our consumers.”

On Thursday, Coke introduced its first sparkling Dasani drinks in four flavors, and Pepsi is expected to take the wraps off a premium bottled water product called OM this year, according to Beverage Digest.

Coca-Cola has also been successful with Smartwater, which was part of its $4.1 billion purchase of Glaceau, the maker of Vitaminwater. Smartwater is little more than distilled water with added electrolytes, but volume sales were up by 16.2 percent in the first half of this year, according to Beverage Digest.

Dasani also has introduced Dasani Drops, with flavors like cherry pomegranate and pink lemonade, which consumers add to the drink to fit their taste, a quality especially prized by millennials.

A bumper crop of flavor drops has been coming onto the market ever since Kraft introduced Mio in 2011. SweetLeaf and Stur, for instance, are Stevia-based sweeteners for water that impart flavor. Pepsi recently began selling Aquafina FlavorSplash drops.

Sales of most branded enhanced water, however, were down in the first half of 2013, and whether giving consumers the option to flavor plain water will change that equation remains to be seen. Vitaminwater’s volume sales slid 17.3 percent, for instance, while SoBe Lifewater, a line of flavored waters owned by PepsiCo, dropped 30.3 percent, according to Beverage Digest.

On the other hand, Nestlé and bottlers like Niagara, which carry lower prices, saw sharp increases in volume sales of their enhanced waters.

“Is it a great idea? Not necessarily,” Mr. Faucher said of the big companies’ push into enhanced waters. “Do they have much of a choice? Not necessarily. People want variety and so Coke and Pepsi are going where the opportunity is. There aren’t a lot of other options.”

 

Color of Affordable Care

By NANCY FOLBRE

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

Shortly after House Republicans shut down the federal government in an effort to halt implementation of the Affordable Care Act, Sabrina Tavernise and Robert Gebeloff of The New York Times reported that many Republican-controlled states have already strangled an important feature of the legislation by denying extension of Medicaid eligibility to the working poor.
Since the federal government committed to shouldering most of the cost of such extensions, the officials running these states seem to be cutting off their own noses to spite their faces. Then again, perhaps the noses they are cutting off are not their own.
Neither Republican officials nor their most valuable constituencies need help paying for health insurance. When they say they oppose government spending what they really mean is that they oppose spending on programs like Medicaid that – unlike universal programs such as Social Security – target low-income families.
The disparate racial impact is striking: 68 percent of poor and uninsured blacks live in states that are not extending eligibility, compared with 58 percent of poor and uninsured persons in other racial categories.

The concentration of negative effects in Southern states that also represent the stronghold of Congressional opposition to the law itself is not surprising. This episode of political history fits neatly into an established line of research that shows how federal efforts to extend protections to the disadvantaged have repeatedly fallen prey to a toxic blend of racial and regional politics. From civil rights to health insurance, white political leaders from states with large numbers of African-Americans — especially but not exclusively in the South — have cast new federal protections in apocalyptic terms and mounted a powerful opposition.
In her pioneering book “The Color of Welfare,” published in 1994, the sociologist Jill Quadagno persuasively documented the race-based politics that sent the United States down a policy path very different from that of other affluent countries, blocking the federal extension of most universal social programs other than Social Security and Medicare and giving states significant control over means-tested programs targeted at the poor. This control allowed politicians in Southern states to restrict benefits for low-income families, whatever their color.
A host of academic studies have explored the impact of intersections between race and class, noting, for instance, that in states with larger black populations race becomes more salient to the politics of social provision, altering the dynamics of social and political trust. Poor whites are promised protection against labor market competition or higher taxes in return for acquiescence with policies that restrict the social safety net.
As the Stanford economist Gavin Wright shows in his new history of the Civil Rights Movement, “Sharing the Prize,” Southern whites often overestimated the costs – and underestimated the benefits – that integration would bring them.
In “Disciplining the Poor,” an analysis of welfare reforms introduced in the mid-1990s, Joe Soss, Richard C. Fording and Sanford F. Schram demonstrate that states with a large number of African-Americans (especially but not exclusively in the South) imposed particularly stringent rules on access to public cash assistance, as well as keeping benefit levels extremely low.
In “Taxing the Poor,” Katherine Newman and Rourke O’Brien show that state income and sales taxes in the South are far more regressive than those in other regions of the country, penalizing all low-income families.
Overt racism and outright discrimination now elicit strong social disapproval, but racial bias takes a more subtle, coded form. In “Why Americans Hate Welfare,” Martin Gilens documents a tendency for Americans to systematically overestimate the percentage of public welfare spending going to blacks. His content analysis of pictures accompanying stories about poverty in three major newsmagazines between 1967 and 1992 showed that the frequency with which African-Americans were depicted far exceeded their actual representation in the population.
An Associated Press survey of racial attitudes conducted immediately before the presidential election last year clearly suggests that most Americans try not to discriminate, but that racial loyalties shape their perceptions of economic benefits.
When asked if President Obama’s race affected the likelihood they would vote for him, 80 percent of respondents said no. Yet 28 percent of respondents believed that his policies had made black Americans better off, compared with only 15 percent who believed they had made white Americans better off.
I don’t know of any analysis of the president’s economic stimulus program – or any other policy – purporting to show that blacks benefited more than whites. Indeed, the comparison itself is oddly optimistic, because neither black nor white Americans outside the top 1 percent of the population have enjoyed significant increases in family income since 2009.
Respondents predisposed to believe that a black president will try to benefit blacks more than whites are likely to view the Affordable Care Act through a racial lens, which helps explain the results of a recent Pew survey showing that almost 91 percent of blacks currently approve of the law, compared with 29 percent of whites.
This approval gap overshadows the effect of factors directly relevant to eligibility for assistance. Among those with annual family incomes of less than $50,000, 50 percent currently approve of the law, compared with 38 percent of those with higher incomes (who are less likely to benefit from it).
It’s important to note that many people who don’t approve (about 17 percent, according to a recent Kaiser Foundation poll) feel the Affordable Care Act doesn’t go far enough in reforming the way we pay for health care. Further, the complexity of the legislation makes it difficult for individuals to predict its economic consequences (the Pew survey reported that only 25 percent of poll respondents said they had a very good understanding of how the law would affect them).
Controversy and confusion make it easier for politicians to prey on pre-existing prejudices that serve their own interests better than those of their least influential constituents, as became apparent in the first stage of the civil rights movement.
This movement has yet to reach its final stage. Access to affordable health insurance should be considered a civil right for everyone.

What Unemployment Would Have Been Like.

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• One of the reports that the Federal government was not able to issue last Friday, as a result of the partial government shutdown, was the unemployment report for September 2013. The following essay is a speculation on what the report would have been like.
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• Kathleen Madigan

156,000: The numbers of jobs added in September, according to an amalgamation of several private sources of labor market data.
Like the National Zoo’s panda cams, the Bureau of Labor Statistics‘ jobs report was a victim of the government shutdown.

Absent the BLS report, other data, mostly from private sources, offer hints about last month’s job markets. The cumulative result: probably no surprise pop in payrolls or unexpected worsening in unemployment.
Three sources give estimates on private hiring using different ways to arrive at their numbers.
Automatic Data Processing reported a gain of 166,000. Job search engine Bright.com said 164,000 jobs were added. While the Liscio report still has not made an official estimate, its survey “is consistent with another 150,000 increase in private employment.”
Trimtabs Investment Research said the total U.S. economy added 159,000. Using all four estimates and adjusting for government layoffs that have averaged 5,000 a month so far in 2013, total payrolls look to have grown by just 156,000 in September, far less than the 181,000 projected by economists.
Perceptions of the labor markets, however, offer a more positive spin for September, with one big exception.
Consumers clearly perceive job prospects were better in September than in August, a trend that suggests the jobless rate held at 7.3% or fell slightly.
The Conference Board reported more people last month thought jobs were “plentiful” and fewer thought jobs were “hard to get.” In the latest consumer poll done by the Royal Bank of Canada, the employment index rose to the highest level since October 2007 and the share of consumers who worry about losing a job fell to the lowest since the survey started in 2010.
Among businesses, though, sentiment is more mixed.
On the plus side, the drop in jobless claims means businesses are laying off fewer workers. On-line help-wanted advertising jumped in September, the Conference Board says. And the Institute for Supply Management‘s employment index for manufacturing showed an increase in factory hiring.
However, another ISM datapoint is the big exception to the demand for labor. The job index for non-manufacturers–mainly service providers but also the construction and public administration sectors–was unexpectedly weak in September. That is worrisome since non-manufacturers employ the lion’s share of U.S. workers.
It is unclear when the September payrolls report will be released. And if politicians don’t come to a budget agreement soon, the October payrolls survey could run into trouble.
What is important to keep in mind is that–for all the hoopla and market attention paid to it–the first print of the payrolls number is not the final word. The BLS revises data two months back. Then it conducts annual and benchmark revisions that can completely change what we thought we knew about the labor market.
For instance, when the BLS first reported only 88,000 jobs were created in March, it triggered fears of a spring slump. The twice-revised number now shows a more respectable 142,000 jobs added.