Is water washing full-price mega brands down the drain? Well, maybe so, given that major bottlers have lost consumer credibility to the degree that they can’t market product under their own brand names.
But let’s start at the beginning. As has been postulated in the Robin Report lately, harbingers of the “death of mega brands” are on the horizon. Chief among them is the slippage of Tide laundry detergent at the previously unassailable “high performance, high price” end of the category.
How so? Procter & Gamble is poised to introduce “Tide Simply Clear” detergent. Simply put, it’s a Tide entry into the lower-price end of the market. It’s reminiscent of P&G’s introduction of Charmin Basics and Bounty Basics a few years ago as an off-price version of its high-end paper products.
These price moves are intended to fend off the increasing popularity of off-price products that consumers perceive as performing just as well, or well enough, in product categories that aren’t edible. Increasingly, many consumers now see no reason to pay full price.
P&G’s use of a two-tier pricing system is a bit more nuanced than what Phillip Morris did on “Black Friday,” now some two decades ago. On that day, Marlboro’s retail price was cut by 20%, a move that previously would have been unthinkable since it was long presumed that an addictive product with a reputation of highest quality would always support price inelasticity. Not so. The price rollback helped protect Marlboro market share, but failed to provide any price shelter for the brand.
P&G’s approach is subtler in that it allows a thinly camouflaged line extension to bear the brunt of lowered price points, while the core product hangs on to its high-end price for as long as it can.
Can mega-brands hold on?
How long mega-brand owners can hang on to their high-priced products is the real question; a look at the packaged beverage sector offers a disquieting answer.
Mega-brand beverage producers Coca-Cola and Pepsi now own the largest share of the packaged beverage sector: carbonated soft drinks. Yet they’re under challenge by the increasing popularity of individual-serve bottled water in its various forms. In a way, consumers see bottled water as the anti-cola now that cola drinks that are increasingly seen as nutritionally empty and engines of obesity.
It isn’t difficult to project that before too long, bottled water will overtake soda as the largest-selling beverage category. Supporting that is the fact that sales of low- or no-calorie soda are fading at three times the rate of high-octane sodas. Packaging colas under the low-calorie rubric is no longer working. Indeed, the vey consumer segment at which reduced-calorie drinks are aimed is the one that is moving to bottled water.
Net effect: the entire soda category is fading at a faster rate than bottled water is growing.
Nonetheless, the big bottlers do successfully bottle water and together have retained a robust but fading market share of 60%. They’ve done that by nearly abandoning the use of their own brand names. Instead, they typically buy up regional water bottlers and market under the names of acquired brands.
Here’s how the big three bottlers go to market with water:
Coca-Cola’s chief bottled water brand is Dasani, but it also markets water under nearly countless brands around the globe, many country-specific. That brand alone produces $900 million in annual domestic sales.
Pepsi is bottler of Aquafina and several other water brands. Aquafina nets $880 million in sales.
Nestle is bottler of Poland Springs and scores of other brands, including global brand, Nestle Pure Life. Poland Springs sales are $560 million, Nestle Pure Life $930 million.
So we see that with the minor exception of one Nestle brand, no beverage bottler uses its own name on bottled water. It’s worth noting that the Nestle name isn’t tied to carbonated-soda bottling as are Coke and Pepsi.
Making the branded marketing challenge more complicated, bottled-water consumers see no difference among brands or in-store brands, meaning the cheapest water wins the sale. The big brands really don’t do well in that game. This level of brand agnostic preference is unique among packaged-goods categories. Incidentally, private label water racks up $1.7 billion in sales.
Are mega-brands in danger? If powerhouse names such as Tide, Coke, Pepsi and Nestle are losing credibility or pricing power — or both — to the degree that they can’t market directly under their own brands and must seek a substitute or a line extension, it’s hard to support the idea that such brands have much long-term equity at all.
Sure they’re in danger.