Sub-sector Profiles: Index
[ Introduction | Significance | Structure | Performance | Employment | Investment ]
[ Trade Performance | Challenges/Opportunities | Association | Statistics | Contact ]

The Canadian Bottled Water Industry

Introduction

The Canadian bottled water industry has been growing rapidly over the past decade. Many Canadians drink bottled water on a regular basis. On average Canadians consumed 21.2 litres of bottled water per year in 1997 (Western Grocer Magazine, March/April, 1999). Total value of shipments increased six times in ten years to about $337 million in 1997.

The boom in consumption of bottled water has moved the product beyond the niche market and into the mainstream as bottled water has become a basic staple to many Canadians. Many people drink bottled water today simply because they prefer the taste.to that of tap water or perceive it to have more purity. Most bottled water production facilities in Canada use the ozonation method which leaves no chemical residual aftertaste or odour. Other reasons behind the explosion in bottled water consumption in Canada are: consumers' passion for fitness which guides them to fewer caloric beverages; increased accessibility of bottled water via convenience stores, gas stations, supermarkets, food service outlets, vending machines and hotels; and marketing designed to convince the public of the purity and safety of bottled water.

With respect to regulations, in Canada bottled water is regulated under the Food and Drugs Act and Regulations as a food product. The Food and Drugs Act creates identity standards, provides a basis for labelling requirements and establishes the safety parameters for bottled water and all other food products. Manufacturers and importers of bottled water are inspected and monitored by the Canadian Food Inspection Agency (CFIA) to help ensure that the products are safe and wholesome.

Significance

The bottled water industry is a small but rapidly growing sub-sector with a highly promising future. Although bottled water has moved from being a niche or specialty item to a mainstream product, milk and soft drinks sales still outweigh bottled water sales in terms of percent share of the market place. While the industry accounts for less than one percent of total food and beverage shipments and one percent of employment, bottled water products have tremendous growth potential.

The Canadian industry has 71 bottlers producing shipments valued at $337 million, of which more than half was exported in 1997. (See Figure 1) In 1997 exports reached $200 million for the first time. Exports increased to $256.6 million in 1999.

In 1997, the Canadian industry supplied $165 million or 86% of the total Canadian market for bottled water of $192 million. As well, Canadian bottlers exported $206 million of bottled water which accounted for 61% of their shipments of own manufacture.

The bottled water industry boom began in the early 1980s and has shown explosive growth since then. Annual consumption rose from 527 to 703 million litres per year between 1995 and 1998 (Canadian Bottled Water Association, CBWA, 1999). This rise in per capita consumption exceeds that of many other beverages during the 1990s, such as coffee, tea, apple juice and milk. The product is well positioned, given its healthy image, to maintain its current growth pattern and to offer strong competition to other beverages.

Figure 1: Imports, Exports and Domestic Shipments, 1997

The purchase cycle for bottled water bought through traditional grocery channels is 26 days and per house spending through these channels is estimated at $12.19 per year. These figures exclude water brought into the home from non-grocery outlets or delivered door-to-door. (AC Nielsen Homescan, 1999).

Structure

The majority of bottling plants are located in the provinces of Quebec, Ontario and British Columbia. According to the CBWA, in 1998 the breakdown for total production of bottled water was 240 million litres in Quebec, 191 million litres in Ontario, 163 million litres in British Columbia, 28 million litres in Atlantic Canada and 85 million litres for the rest of Canada (the prairie provinces and the territories).

Over the past few years there has been increasing merger and acquisition activity as bottlers continue to consolidate their businesses. The maturation of a number of Canadian companies, along with Canada's competitive advantage with regard to water sources, has attracted large international beverage companies to seek Canadian manufacturing and distribution facilities. Competition has intensified as soft drink giants have also entered the market with their own brands. Over the years, they had been distributors of other bottled water brands. Now that they have their own brands, which are sold at extremely competitive prices, there is a new source of competition in this PET bottled water segment.

With more consolidation in the retail sector as well as increased emphasis on private label food and beverage products, there has been a significant increase in private label bottled water products in the North American market.

Thus, much of the industry's growth has not required additional investment in advertising and promotion by bottlers.

There are 71 bottlers and 206 wholesalers and distributors nationwide. Hidell-Eyster International, a technical water consulting firm, estimates that, in terms of volume, still water accounts for 93% of the Canadian bottled water market. Sparkling water accounts for the remaining 7%.

Within the bottled water business there are two distinct industry segments. The largest by volume is the eighteen-litre or returnable container water business. These bottlers supply to offices, homes and supermarkets. These products are sold as an alternative to tap water and other beverages. According to Hidell-Eyster International, this segment accounted for 48% of the volume of the flat bottled water industry in 1997. Sales in this category have been solid and annual growth has been consistent at 5%. The main factor which has fuelled the growth of this segment is increased public perception about the use of chlorine and the resulting chlorine by-products that remain in municipal water supplies.

Smaller formats range from 250 ml to five litres and packaging could include custom glass, polyethylene terephthalate (PET plastic) or aluminum cans. These products are available through supermarkets, convenience stores, drug stores, vending machines, restaurants and hotels. The convenience size PET segment accounts for 24% of the market. Reasons for the rapid growth of the PET bottled water segment stem from Canada's success as a major exporter of bottled water and the public's choice of bottled water as an alternative refreshment beverage.

The remaining 28% is packaged mainly in partially transparent vinyl bottles, which is a type of packaging that the industry is phasing out for esthetic reasons.

Performance

Domestic market demand has grown to the point where there are now more than 100 different brands of bottled water available in Canada, of which approximately 20% are imports. This brand proliferation has resulted in the segmentation of bottled water products into three price categories : premium brands, regularly-priced brands and private label brands. In 1997, the average retail price of a one litre bottle of water was $1.19 or $15 for a delivered 18-litre bottle. By offering consumers a wide range of choices, the industry is better positioned to compete with other beverages in the market place.

The growth in domestic market demand for bottled water has considerably outstripped population growth in the country in the 1990s, increasing from $60 million to $191 million during the 1988-98 period.

Industry shipments have grown from a total value of $44.7 million in 1988 to $337.3 million in 1997, almost eight-fold in nine years. The Canadian market for bottled water grew 10% in 1998, the fastest growing component of all beverages (CBWA, 1999). The total number of bottling plants almost doubled between 1988 and 1997 to 71, and employment in the sector more than tripled from 510 in 1988 to 1571 in 1997.

Employement

Along with strong increases in production, Statistics Canada indicates that there has also been a significant increase in employment (see Figure 2) in the bottled water industry. Employment grew from 500 employees in 1988 to nearly 1600 by 1997. The CBWA feels that Statistics Canada employment data is conservative and that there were about 3000 direct jobs in 1999 according to an industry survey.

Figure 2: Total Dollar Value of Bottled Water Shipments and Total Number of Employees from 1988 to 1997

Statistics Canada production and employment data would suggest that the increase in the industry size has generated some economies of scale. Productivity, as measured in terms of output per worker, has improved over the last ten years since shipments increased over 500% while employment increased only 200%.

Investment

Investment data specifically for the bottled water industry is not available. Investment information that is available, which includes both soft drinks and bottled water, indicates that capital expenditures increased on average 9% annually. Given strong growth in domestic and export markets, bottled water capital expenditures have had to grow to keep pace with demand. This would suggest that annual new capital expenditures in the industry have increased at an annual rate of 9%-10% through most of the 1990s.

Trade Performance

Between 1988 and 1999, Canada switched from being a net importer to a net exporter of bottled water. Bottled water exports have multiplied from $4.6 million in 1988 to $256.6 million in 1999, peaking at $281 million in 1998. (See Figure 3.) The United States is the number one export market for Canadian bottled water (94.2% of Canadian exports in 1999), with sales also to Japan, Taiwan, Mexico and the United Kingdom.

Exports of Canadian bottled water to the U.S. represent a success story, increasing from 4.8 million litres in 1988 to 492.3 million litres in 1999. As well, market share grew from 2% in 1988 to 30% in 1998, placing Canadian imports second only to France, which supplied 60% of the imports in the U.S. market. A number of factors have contributed to Canada's export success in the U.S. First, Canada's image as a pristine environment with pure water resources has created a positive consumer perception. As well, two large Canadian companies have put considerable resources toward advertising and marketing. Finally, the exchange rate of the Canadian dollar has favoured export development, as has the international harmonization of standards for bottled water.

Imports of bottled water have increased from $19.8 million in 1988 to $30.8 million in 1999. In 1991, consumers moved away from imported products to other bottled waters due to a benzene crisis and worldwide recall. Consistently, more than 90% of imports were from Western Europe and most of these were from France and Italy.

The industry appears to be competitive in the North American market and is well positioned to exploit its excellent sources of raw material. Evidence of its competitive position in the North American market can be seen in its positive and dramatically improving trade balance with exports growing considerably faster than imports, even without tariff protection from U.S. products. The industry also appears to be competitive against European imports which also have no tariff protection under Most Favoured Nations (MFN) status.

Figure 3: Total Canadian Bottled Water Imports and Exports, 1988 - 1999

Issues, Challenges and Opportunities — Toward the Next Century

Issues

The Canadian bottled water industry faces a number of issues. These include public perception of levels of water taken at spring sources, contamination, usage of municipal water, harmonization of federal government standards with those of the United States Food and Drug Administration and the development of international standards under the authority of the Codex Alimentarius Commission.

These issues are complicated by the fact that different levels of government are involved in the water industry. Different provinces have different policies, some of which are more formally established than others.

Water Source Currently, bottled water companies own or lease land with a source and have provincial licences, subject to renewal, to take water. These companies monitor their sources but have neither the responsibility nor the ability to influence water protection beyond their sources. This means that individual companies are vulnerable to groundwater contamination that may seep into their sources from surrounding areas. They are also vulnerable to changes in usage policies and licencing requirements by provincial governments.

Stewardship Role Some provincial governments would like companies to take more of a stewardship role with regard to monitoring and protecting aquifers they use. As a further issue, conflict has arisen between certain municipalities and bottled water companies who do not bottle at source and therefore do not provide significant economic return to the communities where the sources are located. The municipalities would like these companies to pay communities for the water resources they use; however, the municipalities do not have the jurisdiction to enforce payment. Implementation of policies in either of these areas would place more financial burden on companies and affect their competitiveness.

Environmental Concern Environmentalists are concerned about the extraction of water from lakes, streams and wells for shipment elsewhere. They feel that, over the long term, extraction from these sources may reduce the water table in the vicinity. This is one of the issues which alarm residents when bottlers arrive in their area.

Challenges

Like all food and beverage processors, bottlers are assessing how to deal with the emergence of E-commerce. The bottled water industry will have to determine if it can effectively use this medium to increase efficiencies through business-to-business solutions and the development of web-based marketing strategies.

Opportunities

The industry expects double digit annual growth for the next five to ten years as consumers become more concerned about the quality of municipal water. In addition, innovation such as a patented process that allows water to absorb more oxygen than average potable water may also attract additional consumers to this product category.

More competition is expected in the market. However, the industry is still small and significant growth is expected. According to CBWA, Canadians consumed 21.2 litres per capita in 1997 compared to 44 litres in the US, 100 litres in Germany, 135 litres in Italy and 130 litres in France. Bottled water sales in Canada can be expected to have stronger growth than sales in some of the more developed markets in the next five to ten years.

The flat bottled water market is comprised of two types : spring water and processed water.

Spring water is potable water obtained from an underground source and not from a public community water supply. It does not contain any coliform bacteria, nor is its composition modified through the use of any chemicals.

Processed water is water taken at a municipal source which then may have treatment such as osmosis, demineralization or remineralization to obtain a desired mineral content.

In the next five to ten years most of the growth in the industry will likely be in the processed water segment market rather than the spring or glacial water segment. Because groundwater is sometimes contaminated, consumers may associate spring water with contamination as well. This public perception could create a marketing opportunity for the processed water segment.

Industry Association

The Canadian Bottled Water Association (CBWA) was established in 1987 to promote the orderly development of the industry and to work with various regulatory bodies to ensure the highest possible quality standards for Canadian bottled waters. Current membership stands at 140 bottling, distribution and equipment companies. CBWA members produce approximately 85% of the bottled water sold in Canada.

The CBWA is the Canadian Chapter of the International Bottled Water Association (IBWA) headquartered in Alexandria, Virginia. Membership in the CBWA requires companies to adhere to standards adopted by the IBWA in the form of a Model Code quality assurance program. The program includes submission to an annual unannounced plant inspection administered by an independent organization. The inspection audits quality and testing records, reviews all areas of plant operation and checks compliance with federal and provincial regulations.

Canadian Bottled Water Association
Elizabeth Griswold
70 E. Beaver Creek Road
Suite 203-1
Richmond Hill, Ontario
L4B 3B2
Tel: (905) 886-6928
Fax:(905) 886-9531
Internet Site: http://www.cbwa-bottledwater.org
E-mail: ecgriswood@aol.com

Departmental Contacts

Campbell Robertson
Food Bureau
Market and Industry Services Branch
Agriculture and Agri-Food Canada
930 Carling Avenue, 5th Floor
Ottawa, Ontario
K1A 0C5
Tel: (613) 759-7519
Fax: (613) 759-7480
Courriel : robertsonc@agr.gc.ca

Faye Wu (co-author)
British Columbia Regional Office
Market and Industry Services Branch
Agriculture and Agri-Food Canada
620 Royal Avenue, Suite 204
New Westminster, British Columbia
V3M 1J2
Tel: (604) 666-6344
Fax: (604) 666-7235
Courriel : wuf@agr.gc.ca

The Canadian Bottled Water Industry

Date Modified: 2004-06-02		Important Notices
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