The future of Coca-Cola and Pepsi depends on this unexpected beverage
In the next few years, bottled water will likely overtake carbonated-soft-drink sales. However, instead of panicking, Pepsi and Coke are investing.
On Monday, PepsiCo CEO Indra Nooyi said on Monday that less than 25% of the company's global sales are from soda. In comparison, nutritious items such as fruits, water, and unsweetened tea also now make up 25% of the company's sales.
"[Pepsi has] been future-proofing our product portfolio, reshaping it to capitalize on consumers' increasing interest in health and wellness," Nooyi said in an investors' call.
At the top of the list: bottled water.
US consumption of bottled water is about to overtake soda, according to Euromonitor data, reports Quartz.
Water is currently one of the hottest beverages in the nonalcoholic-drink market, with consumption of water brands Dasani, Aquafina, and Poland Springs increasing in volume from 6.5% to 11.4% in 2015. For comparison, the amount of Coca-Cola consumed by Americans dropped by 1% by volume, while Pepsi Cola dropped 3.2%.
When it comes to nutrition, nothing has a better reputation than bottled water. That flawless image fits perfectly into PepsiCo and Coca-Cola's hopes for a reputation makeover in 2016, after sugar-related concerns drove soda sales down and negative headlines up in 2015.
See Coca-Cola through the years:
However, the beverage isn't without its critics.
"Bottled water is the marketing trick of the century," writes John Jewell in The Week.
Companies selling bottled water, he argues, have managed to convince Western consumers that buying water is a healthier choice than sugary soda.
According to Jewell, the comparison is a case of false equivalence. Bottled water isn't simply an alternative to soda — it's an alternative to the much more inexpensive and eco-friendly tap water.
"The purchase of bottled water allows us to communicate our uniqueness and the care we have for bodies and the environment," writes Jewell.
This nutrition-minded and independent sense of self is exactly what soda giants like Pepsi and Coke are currently trying to tap into.
However, while bottled water can cost 2,000 times as much as tap water, the beverage yields surprisingly low profit margins for companies. So these beverage giants are not only investing in simple bottled tap water — the most straightforward marketing trick in existence — but also new, pricier takes on the classic H2O.
Earlier this year, Pepsi debuted new sparkling Aquafina flavored waters. The drinks were the "official hydration sponsor of New York Fashion Week" this spring, a glitzy title that continues the elevation of the most basic beverage. At the same time, Coca-Cola has rolled out sparkling Smartwater, with actress Jennifer Aniston as spokesperson.
Bottled water is a $13 billion business that, logically, doesn't need to exist. It is also an industry that won't stop growing. As Americans turn away from soda, that's exactly the kind of beverage companies like Pepsi and Coke need in their portfolio.
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