Bottled water in demand despite economy, critics
Posted on Sunday, July 27, 2008
Mountain Pure Water Co. is gushing with growth as the bottled water industry continues to expand.
The Little Rock-based company bought BIOTA Brands of America Inc. ’s Colorado facilities for about $ 2. 6 million at a July 16 auction. It also opened a bottling plant in Palestine, Texas, a couple of weeks ago.
And it invested in February in a $ 3 million machine that creates preforms, which look like little plastic test tubes that are heated and blown by another machine into bottles.
Some businesses continue to expand even in times of economic turmoil, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville.
“In fact, often in an economic downturn, it is a chance for companies that are well-capitalized to sweep in and get some good deals,” she said.
The water-bottling industry is still young after a decade of rapid growth, according to the International Bottled Water Association, a trade organization based in Virginia. There are about 300 water-bottling companies in the United States and there is lots of room for consolidation, said association spokesman Tom Lauria. Private equity firms are buying into water companies as good investments, he said.
According to the Beverage Marketing Corp., bottled water ranked No. 2 behind nonalcoholic carbonated beverages as the largest commercial beverage category by volume in 2007. More than 8. 8 billion gallons of bottled water were sold, a 7 percent increase over the previous year. That equals about 29 gallons per person — double the amount per person consumed a decade earlier.
Bottled water started to become popular in the 1980 s as part of a health movement, said Michael Cervin, senior editor for bottledwaterweb. com, an online trade journal. By the end of that decade the industry was experiencing doubledigit growth and had expanded from its original, purely healthconscious audience to people who drank it for convenience, cachet or taste. At the current rate of growth, bottled water should surpass carbonated soft drinks in 2015, according to the Beverage Marketing Corp.
ARKANSAS WATERS Mountain Pure, which bottles about 200, 000 gallons of water a day for companies like Wal-Mart and Dollar General, does about $ 30 million in sales annually and is profitable, according to owner John Stacks. Coca Cola Co. ’s Dasani, which is the second-biggest U. S. bottled-water seller, behind PepsiCo’s Aquafina, bottles about 1. 8 million gallons of water each day. That includes the Little Rock Coca-Cola distributor, which bottles about 21, 575 gallons each day. Aquafina said that it couldn’t provide gallon figures. Mountain Pure employs about 170 in its plants, including one in Mississippi that it bought about three years ago.
Bottled water, however, has a much longer history in Arkansas. Mountain Valley Spring Co., which dates to 1871, was the country’s first company devoted exclusively to selling bottled water.
The Hot Springs-based company, which declined to provide sales or gallon figures, is considerably larger than Mountain Pure, said Breck Speed, chairman and chief executive officer. It markets spring water, sparkling and still. It has a different customer base, he said, and competes with water brands like Fiji and Evian.
Mountain Valley also owns the Clear Mountain Spring Water brand, which gets its water from Mountain Valley. Steve Gray, chief operating officer, said Clear Mountain distributes between 2, 000 and 2, 500 5-gallon glass or plastic water jugs, its primary product, every day from its Little Rock distribution facility. Clear Mountain sells some smaller plastic bottles, as well. Mountain Valley sells 5-gallon glass jugs of water as well as smaller sizes in plastic and glass. Mountain Pure offers 2. 5-gallon containers and smaller bottles, all in plastic. Speed agreed with the assessment that the economic downturn has not affected the industry. He said his company is still seeing healthy growth.
MOUNTAIN PURE About 80 people work at Mountain Pure’s bottling facility in Little Rock along Interstate 30 at the Scott Hamilton Road exit. Most of the water processed for bottling comes from the city as tap water, but the firm also trucks in about 36, 000 gallons of spring water from Hot Springs each day. While there are three types of water bottled by the plant, they all sell for about the same price despite different levels of work required before bottling. Spring water is trucked in, then ozonated — which kills all bacteria — and filtered, as is the municipal water from Little Rock, which is called purified water. Distilled water is made by boiling the water and removing all minerals and other materials — a process that takes about three gallons of water to make two gallons of distilled, Stacks said. “It takes that much out,” he said, the rest of which goes into the Little Rock wastewater system. Each type of water makes up about a third of the firm’s business. Mountain Pure does all of its own bottling, from obtaining raw resin, a petroleum-based product used to make plastic, to the finished product, boxed up and ready to ship.
The raw resin goes into a machine that creates preforms, 3. 5-inch plastic widgets with a narrow diameter that makes them resemble test tubes with bottle mouths. Those are heated and blown up by other machines into bottles.
“This market is very competitive,” Stacks said. “It really doesn’t allow you room to buy someone else’s bottle and fill it. You have to be integrated.” The price of resin has increased from 30 cents a pound to 90 cents as the price of oil has gone up. Investments in new machinery have allowed the company to go from 20 grams of plastic per bottle to 13. 5 grams, which also is better for the environment, Stacks said.
“That has reduced waste by about 40 percent, and reduced costs as well,” Stacks said.
Joe Doss, president and chief executive officer of the International Water Bottling Association, said that “lightweighting,” or using less plastic, is an industry trend that started about five years ago.
Some companies are turning to railroads to ship the finished product rather than trucks, to save some money on transportation, Doss added.
Mountain Pure fills the bottle with water, slaps a label on it and ships it off. Among the brands is “Great Value” water for Wal-Mart stores in an eightstate region, Stacks said. “Most of our business is running someone else’s brand,” he said.
BUILDING OUT As part of Mountain Pure’s growth and ecological outlook, it bought the BIOTA facilities, which make biodegradable bottles using a corn base. BIOTA’s production line makes the “world’s first compostable bottle,” according to the company’s Web site. It takes about 12 weeks for the cornbased bottles to decompose in a compost pile, it says. Court Stacks — who is John Stacks’ son and general manager of Mountain Pure — made the decision to buy BIOTA, but said he hasn’t decided what they will do with it.
According to GoIndustry-DoveBid, the company that conducted the auction, the BIOTA facilities in Ouray, Colo., include a bottling facility on 3 acres. Most likely, Mountain Pure will either sell the facility to another company or investor or move the equipment to a different location, Court Stacks said.
John Stacks said BIOTA’s location is problematic, and he’s not yet sure if the biodegradable bottles will prove sturdy enough to make them durable. It only costs about 3 cents more per bottle to use biodegradable materials, but he’s not sure customers will pay extra to help the environment.
Cervin, the bottledwaterweb. com editor, said: “Unfortunately the bottled water industry is the one that has sort of been demonized for producing a large carbon footprint, when in reality there are a lot of plastics out there. On the other hand, the majority of bottles are still made out of plastics.” Completely biodegradable bottles would have a market, Cervin said, and customers would pay a few cents extra for the bottles.
In addition to making lightweight bottles, companies are turning to recycled plastic for their bottles, he said.
The industry has “been criticized for being environmentally unfriendly,” said Speed, the Mountain Valley executive. Glass and plastic are recyclable.
His company has switched to using 25 percent recycled plastic for its nonglass bottles.
“One of the ways to create recycling is to create some economic demand for that stuff coming back,” Speed said.
Speed’s company and Mountain Pure made it clear that showing concern for the environment is an important factor in keeping the growth going.
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