Home Water Coolers:
A New Status Symbol

Nov. 21, 2002 -- Want your own water cooler?

The once-sleepy water-delivery business is attracting greater attention from big beverage industry companies, and that could mean more options for thirsty consumers. Groupe Danone SA, already the biggest international player in the field, confirmed that it will acquire Sparkling Spring Water Holdings Ltd., a Canadian competitor. Nestle SA has been acquiring some regional U.S. companies. And both Coca-Cola Co. and PepsiCo Inc. have taken a look at the business in recent months, although neither has jumped in.

There could be a trickle-down effect. Intensified competition among all these deep-pocketed companies could make it easier for more consumers to get a new kitchen status symbol: the home water cooler. The big water companies are expected to reach more areas of the country and to offer better service.

Indeed, Nestle has in the past year started offering delivery service through a Web site. Customers can punch in their ZIP Codes to find a distributor, then order and pay online. Suntory's water delivery company, offers a similar service, and Danone operates its own Web site for ordering water.

Until now, the cooler has been overshadowed by a more dynamic and fashionable segment of the business: bottled water. The thirst for water took off in the early 1990s in the U.S. with Danone's chic Evian brand, and it has since become a $6.5 billion industry, growing at 30% a year.

But increasingly, health-conscious consumers are looking for a regular source of branded pristine water at home. Joyce Granik, a homemaker in Bedford, N.Y., spends about $20 a month for a dispenser and two five-gallon bottles. She prefers dispensed water because her tap water is "hard," and "I just find I drink a lot more water when I have the cooler," she says.

Despite its image as an indulgence for the affluent, water-cooler service isn't hugely expensive. A five-gallon bottle costs on average $5 to $9 a month, with dispenser rental an average of about $11 a month, with prices varying by region. Dispensers for the bottles range from an inexpensive ceramic crock that sits on an oak stand, to a cooler with hot and cold water taps. Some people even choose to buy their own dispensers at discount retailers.

Other potential innovations: Industry consolidation could lead to more marketing of water coolers by brand, automated features that tell a company when your water cooler is low, and the delivery of other beverages. Already, Nestle offers individual-size bottles of its spring waters and Perrier to its customers. Vermont Pure Holdings Ltd. offers to deliver everything from candy to Joy detergent along with the water.

Retailers hope the U.S. will follow Europe, where home and office delivery sales are growing as much as 40% a year, says Michael Bellas, chairman and chief executive officer of Beverage Marketing Corp., an industry consultant. Growth has been slower so far in the U.S. Beverage Marketing estimates it will be 2.5% this year. The difficult economy has slowed growth, with offices closing or cutting costs.

"Consumption in the U.S. is very low," says a Danone spokesman, who adds that the company's aim is to be "a bigger player in every home and office delivery market." Lehman Bros. advised Danone on the latest deal, and J.P. Morgan Chase advised Sparkling Spring.

The chance to tap into a new sales channel -- homes and offices -- prompted Coke and Pepsi in recent months to explore some possible transactions. Last spring, Coke toyed with the idea of a deal with Danone, involving the French company's McKesson delivery business, the third largest in the country. The idea was that Coke could add on home or office delivery of cases of its other products, from Coke to lemonade. But Danone chose not to sell McKesson.

And Pepsi explored the possibility of a deal with Sparkling Spring, according to people familiar with the talks. A Pepsi spokesman declined to comment, except to say, "We're constantly considering new ways to better serve our consumers and retail customers."

If Coke and Pepsi were to get into the market, those companies' marketing prowess would help them reach more households, says Tim Fallon, chairman and chief executive of Vermont Pure. "The penetration would rise as they do more traditional marketing."

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