Pure growth in a fluid sector

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Water is becoming big business as the region's fast growing population looks for healthier alternatives to soft drinks.

While sales of carbonated soft drinks suffer around the globe, with consumers increasingly looking for healthier alternatives to quench their thirst, it is perhaps not surprising that bottled water has moved in to fill the gap. And in the Middle East, with its rapidly growing population and hot climate, this is certainly no exception.

Numerous brands of water, from international players such as Nestle and Aqua Fina, to local heavyweights including Masafi and Al Ain Minreal Water vie for attention on store shelves in the region, while increasing sales of water in five-gallon ‘water cooler' bottles also continue to shake-up the market.

As marketing and sales director for the Middle East and North Africa at Nestlé SA, one of the region's biggest producers of drinking water, Elias Fayad is familiar with the bottled water segment and the five-gallon or HOD (home and office delivery) segment.

In the Middle East Nestlé SA has factories and distribution networks in Lebanon, Egypt, Jordan, Turkey, KSA, UAE, Qatar, Bahrain, as well as in Iran, with the operations managed from a head office in Dubai.

The company markets a range of water brands in the region, although the biggest by far is Nestlé Pure Life, which can be derived from either purified water or natural spring water depending on the market.

In the past few years, Fayad said Nestlé SA's water has experienced double-digit growth, outpacing average market growth. "The Middle East market is a very dynamic," Fayad said. "During the past five years we have seen a growth of 8% to 9% a year. We think this growth will continue and that bottled water will grow faster than other beverage categories. The water segment will be growing most in absolute terms in the beverage category."

The HOD segment represents more than half of Nestlé SA's water sales in the Middle East and North Africa region, although Fayad highlights smaller PET bottles, especially 500ml bottles as a particularly fast-growing market. "The HOD segment is very significant for our business in this region and it will continue to grow. In retail, the smaller PET formats - 500ml, 330 ml, 650 ml - will have the highest percentage growth. This is reflecting the convenience factor as people drink more on the go," Fayad said. "It will also be driven partly by people migrating from soft drinks." He added that Nestlé's biggest market is Turkey, followed by Saudi Arabia and the UAE.

In most of its Middle East and North African markets, Nestle Waters has its Nestlé Pure life and another brand. For example, in Jordan it has Ghadeer; while in KSA it has Al Manhal, although in the UAE, the company only has Nestlé Pure Life at the moment. In the next couple of years, Nestlé intends to expand its sales of Nestlé Pure Life and plans to do this by distributing its bottled water from a new production facility it is building in Jebel Ali, Dubai.

The current market leader in the UAE's bottled water sector is Masafi. The company has a market share of about 23% in GCC, excluding KSA, and is hoping to increase this when it enters the HOD sector with four-gallon, non re-usable bottles.

Masafi ruled out entering the five-gallon returnable HOD bottled sector because it thought it would tarnish the Masafi brand. However, it was also keen to take a slice of a growing part of the water sector. Masafi's four gallon bottles will fit mainstream water coolers and Masafi is also set to launch its own coolers. The bottles will be collected after use for recycling in non-food industries.

"Five-gallon bottles are a much bigger slice of the water consumption market," said Natascha Edelmann, head of marketing at Masafi. "Just by default we have to be there, but we also want to make sure we keep attributes that are inherent to the Masafi brand. We are a natural mineral water and we wanted to make sure this was reflected in the type of packaging we use." Edelmann added that by entering the HOD sector, Masafi hopes to increase its share of the total UAE water market to 15%, from 13%.

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