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What does rise in bottled water sales mean to sports marketing?

Late this year or early next, aquatic history will be made: Sales of bottled water in America will exceed those of carbonated soft drinks for the first time.

Nice to see Americans thinking — and drinking — healthier. Still, we were curious what that will mean for the sports industry, to which Coke and Pepsi have been sugar daddies for more than 100 years.

According to research from Beverage Marketing Corp., New York, bottled water sales have been growing at an average of 6.6 percent over the past three years. BMC projects a 7.9 percent sales increase in 2016 and continued growth for the next five years. At the same time, carbonated soft drink sales have been declining at between 1 and 2 percent annually.

The St. Louis Cardinals offer team-branded water at the ballpark and in stores.
Photo by: TAKA YANAGIMOTO / ST. LOUIS CARDINALS
At many sports venues, bottled water has been outselling soda, especially full-calorie soda, for some time. However, you see water signage at pro stadiums about as often as a full solar eclipse. Traditional media reflects the same pattern: Soft drink brands are huge buyers; on the other hand, as the market has grown, water marketers have spent on supply chain, distribution and packaging.

Even as water sales surpass those of carbonated soft drinks, sports marketing expenditures won’t rise much. Water-category dynamics are as dissimilar from carbonated soft drinks as Pepsi is from Aquafina. So don’t expect a Poland Springs naming-rights deal any time soon. The biggest reason is margin. Marketing expenditures are normally a function of profit and water doesn’t compare favorably in that regard.

“Margins have gotten better for water, but they are still tiny compared to soft drinks,” said Los Angeles Rams CMO Bob Reif, who did a co-branded Rams/Deja Blue bottled water deal four years ago.

Another important category dynamic: Given its history as perhaps the definitive parity product, brands are far less important to water than soda.

“Brand is a huge influencer on [carbonated soft drink] sales, so there is a lot of [marketing] spend behind that from the Cokes and Pepsi,” said Gary Hemphill, managing director of research at Beverage Marketing Corp. “With water, price is clearly the most influential purchasing factor.”

Hemphill’s research also reveals that Coke’s Dasani and Pepsi’s Aquafina water brands aren’t close to being the market leaders in water as they are in soft drinks. Value brands like Niagara and Nestlé’s Pure Life control close to 47 percent of the market. Dasani and Aquafina combined have less than 15 percent. So, short of buying share with a big marketing spend — unlikely in a low-margin category — a sports marketing assault by Coke and Pepsi aimed at the water market seems unlikely. That’s especially true since bottled-water prices have declined over the past decade, while soda prices have increased.

Of course, keeping water as part of an overall portfolio is still important for the big brands.

“Coke was adamant about having water as part of [an overall beverage] deal, and we sell a lot in the park. But they do not promote it,” said a marketer at an East Coast MLB team.

“Water outstrips soft drinks in a lot of venues, but the premium for us is having the ability to sell everything we can at venues — whether that be water or soft drinks,” said John Cordova, Coca-Cola director of sports transaction management. “Smart Water has used Tom Brady as a celebrity endorser, but I don’t know that there has ever been a water brand here that had a strategy to promote against sports properties. The marketing piece is always going to be against soft drinks. That’s just a function of brand strategy.”

AEG has had a comprehensive Coke deal across 20 of its buildings since 2007. Russell Silvers, senior vice president of AEG Global Partnerships, sees the preponderance of spending against carbonated soft drinks continuing. “That’s been the case since the beginning of sports sponsorship, it’s something the big beverage companies and consumers are accustomed to,” he said.

However, it can change. At events where hydration is critical, like AEG’s Amgen Tour bicycle race or the All-Star Chef Classic culinary competition, Dasani gets top billing.

Randy Bernstein of Premier Partnerships, Santa Monica, Calif., recalls doing a Rose Bowl deal some years back in which Fiji Water was sold in clubs and suites, while Arrowhead water was offered in the cheaper seats. “The Cokes and Pepsi will want to keep full-portfolio deals, so it should be interesting to see if [water] does develop broadly into its own rights category,” he said.

Reif added, “As water sales grow, you’ll see more soft marketing dollars — on pack, changing [out] truck wraps and the like — but I don’t anticipate bidding wars to be the official water soon.”

If anyone will throw marketing dollars at the category it’s the brands that adopted high-end positioning. Evian backs an LPGA Tour event; it also sponsors Wimbledon and is in its 31st year as a corporate patron of the U.S. [Tennis] Open, which also includes on-court branding and exclusivity at concessions.

“The bottled water market has matured and segmented into mass market and luxury,” said Deanne Pownall, U.S. Tennis Association managing director of partnership marketing. “The U.S. Open gives them luxury brand cachet and we hit the active health-conscious consumer they’re targeting.”

As water has become a bigger category, some properties are unwinding it as part of an omnibus beverage deal. The New York Yankees and Boston Red Sox have had Nestlé’s Poland Spring brand as a sponsor for some time, despite having separate Pepsi and Coke sponsorships, respectively.

“More and more teams are trying to split the category,” said a senior NBA team marketer, whose team has a comprehensive Coke deal. “You’ve got to decide whether to risk your relationship with a big partner.”

Other teams are finding new ways for water to seek its own level. Through a deal with Kroger, a sponsor for more than 60 years, the Cincinnati Reds have a Reds-branded water for sale at Great American Ball Park and at the grocer, along with Reds-branded potato chips, peanuts, soft pretzels, Italian ice and hot dog buns.

The St. Louis Cardinals are in their second year of offering Cardinals-branded water, both in park (half-liter and a 700-milliliter “sport bottle”) and at a variety of grocers and convenience stores. The product is promoted through Cardinals radio, TV and stadium signage.

Nestlé’s Ice Mountain had category rights previously with the Cardinals, but the team decided the numbers looked better for their own deal that leveraged dairy manufacturer Prairie Farms distribution and Premium Water’s product.

“We knew [Prairie Farms] had great disruption capabilities and we knew how much Delaware North could sell in-stadium, so we didn’t see much risk and we had good relationships with different grocers and c-stores, so we decided to put our toe in the water,” said Tony Simokaitis, a senior account executive with the Cardinals’ corporate sales department, who doubles as director of scoreboard operations.

“In park, and to some degree at retail, everyone loves the sport bottle,” Simokaitis added. “We can compete as a novelty [at retail], but as a rule, consumers buy water in bulk. To most of them, water is still water.”

Terry Lefton can be reached at tlefton@sportsbusinessjournal.com.

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