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.
People will continue looking for healthy alternatives to carbonated soft drinks and manufacturers will continue to add innovations. It’s a good trend, a healthy trend.
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%.
Masafi, which claims to have double-digit market growth in the region's water sector, is also eyeing another lucrative side of the bottled water market - flavoured water. Although this is currently a tiny part of the bottled water category, it is growing rapidly, as consumers who turn away from soft drinks look for healthy alternatives that also offer an interesting taste.
Masafi, which is competing with rival producer Volvic in this market, has already captured 10% of the market since it launched its flavoured range about six months ago. Masafi has flavoured waters including strawberry, peach and lemon, and has recently launched a new variety, mint and lemon, to cater more for the local palate.
In the next few years, Edelmann expects value-added water products to gain further market share. There are also likely to be further developments in the sector, which is likely to follow trends in the US and Europe where water products containing vitamins and various herbs have entered the market.
"I think we will see a continuation of the trends that we are seeing now," Edelmann said. "People will continue looking for healthy alternatives to carbonated soft drinks and manufacturers will continue to add innovations. It's a good trend, a healthy trend."
While Masafi is the dominant bottled water brand in Dubai, it is another well-established local player that has a majority of the market in Abu Dhabi. Al Ain Mineral Water, which was established in 1990, has a production plant in Al Ain.
"We are currently the number-two player in the market place in the UAE's bottled water category," said Fasahat Beg, general manager, Al Ain Mineral Water.
"We have about a 23% share behind Masafi, but more importantly we are the number-one player in Abu Dhabi and Al Ain where we have a 40% share. From a positioning perspective we are very popular among the Emirate community, with strong perceptions regarding the quality of our products."
He added that the bottled water market in the UAE is very competitive and that the total market including the water cooler bottles represents a volume of about one and a half billion litres a year.
Al Ain Mineral Water is now planning to increase its distribution outside Abu Dhabi and Al Ain. "Our new distribution focus will give more people the chance to find out what our loyal consumers already know - that Al Ain Mineral Water produces a great quality drinking water, of the highest international standards," he added.
Sam Shammas, of Oasis water, is also optimistic about the future of the water sector in the UAE and wider Middle East, partly because the UAE has a particularly high per capita consumption of bottled water. "The UAE has the highest consumption of water per individual, it even surpasses Italy which was previously known as number one," he said. "The market outside of the UAE is also evolving, however not at the same growth rate the UAE is due to several reasons; out of which, awareness of the water benefits and the fear of being dehydrated."
Amid increasing competition, Oasis is also launching new products and special offers. For example, at the start of August it launched a voucher scheme, the ‘Oasis Value Added Coupon Book', which can be purchased at retail outlets and gives consumer special offers and discounts on purchases of Oasis water. Oasis is also planning to launch a peppermint variety of its Blu sparkling water, for Ramadan.
While Oasis is already in the HOD sector, it is also introducing one-time-use four-gallon bottles. "It is the economical alternative for consumers who purchase the 1.5 litre bottle in cartons as they will be enjoying some savings," Shammas said. "There is the added benefit of ownership. The four gallon bottle is used only once by the consumer and then the bottle is collected by us to be sent for recycling.
"Knowing that the population in the UAE is supposed to multiply in the coming years, thus this means an increase in demand for bottled water, not to mention the increased awareness around drinking water and keeping the body hydrated. The market in the UAE is going to positively develop and reach its highest levels," Shammas added.For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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