Move over fizzy drinks, there's a new favourite beverage in town - and it's a classic.
Fast-growing demand for bottled water will help Europe's food and beverage firms to offset declining growth in sugary drinks sales and other areas, according to a report from Moody's Investors Service.
Nestle, Danone and Coca-Cola are some of the major companies most likely to benefit from mindful consumers, who are increasingly shunning carbonated soft drinks and fruit juices and turning towards healthier options such as water, Moody’s said.
Boosted bottled water sales could even go as far as to offset declining demand in mature segments such as prepared dishes, frozen food and fresh dairy products.
Shifting towards higher-margin carbonated, flavoured or premium segments and away from still water could be the key to unlocking drinks companies' returns over the next couple of years.
The bottled water segment already represents 23 per cent of the global soft drinks market in terms of value, according to Euromonitor International, and is set to remain one of the highest growth categories in the next five years.
Moody's has warned that the fragmented water market will not contribute to companies' margin improvements in the next 12 to 18 months, despite a rise in volumes.
“A large number of small players and very high price competition mean margins tend to be lower than other food and beverage products [in the water segment], diluting overall group margins,” the report said.
Beyond the next 18 months though, “profitability should improve as companies’ investments in new and premium bottled water products begin to pay off”.
Senior credit officer at Moody's and co-author of the report Paolo Leschiutta said:
Increasingly health conscious consumers are drinking more water. As such, bottled water, which is nearly a quarter of the overall soft drinks market in terms of value, will help organic revenue growth in the drinks sector.
This will benefit Nestle and Danone, who are the two largest global players in the segment.
Growth in water sales is forecast to remain strongest in emerging markets.
This will particularly benefit Danone, Moody's said, as it has an established presence in China and Mexico - where concerns about the quality of public water supplies are driving demand for its Aquadrinks products.