October 26/Business Monitor International Ltd. (BMI) -- The latest results posted by leading bottled water producers Nestlé and Danone suggest that the category performed strongly over the last three months, hinting at a possible turnaround for this beleaguered sector. Danone reports that in the three months to the end of September 2010, its bottled water sales increased by 8.7% on a like-for-like basis, which was the strongest performance since Q407. Meanwhile, Nestlé reports that sales at its Nestlé Waters division registered organic growth of 4.3% in the nine months to the end of September. This growth was driven by increased demand in emerging markets and, more importantly, a return to growth in many of the developed markets in North America and Western Europe.

Both Nestlé and Danone have had their water units drag on their wider performance over the last two years. As a product where a substitute is available for virtually no cost, bottled water is clearly in a perilous position when consumers are looking to cut spending. Sales have also been hit by concerns about the product's ecological viability, with environmental groups successfully promoting tap water as equivalent in quality to many bottled water brands. This has prompted local governments in the U.S. to introduce legislation to limit bottled water use and promote tap water, and many schools, restaurants and religious groups have followed this example.

In an effort to address some of these concerns, both companies have attempted to source more bottled water locally. The two firms have also reduced the amount of packaging used for bottles and developed biodegradable packaging. This has been accompanied by increased marketing, with an attempt to highlight that bottled water is more environmentally sustainable than other packaged soft drinks and is also healthier.

BMI was initially sceptical as to how beneficial these efforts would be in improving the product's image. However, the results posted by Nestlé and Danone, albeit supported by better weather and particularly weak comparison period, suggest that the sector may be back on a growth path. While BMI would still expect the rate of growth in developed markets to be below that leading up to the economic downturn, when the industry generally did not face such fierce criticism from environmental groups, BMI now forecasts growth over the next five years in most of the world's important bottled water markets.

From the November 15, 2010, Prepared Foods E-dition