Water Retail Markup Challenge

Mike Cessario shares insights about the economics and market dynamics of the bottled water industry, revealing that despite common perception, water isn't as profitable as people might think due to various factors in the distribution chain.

• Bottled Water Market Size (US, 2019): $20 billion total

  • Still water: ~$15 billion
  • Sparkling water: ~$3.5 billion
  • Rest: Flavored and private label

• Distribution Channels

  • Convenience stores: 150,000+ locations
  • Grocery stores: ~30,000 locations
  • Restaurants/bars: ~1 million locations
  • Single chain performance example: Well-performing water brands can do $50M in sales just in 7-11

• Major Players

  • Aquafina (Pepsi): $1B+ revenue
  • Dasani (Coca-Cola): $1B+ revenue
  • Nestle (Pure Life): $1B+ revenue
  • Premium brands (Fiji, Evian): ~$500M revenue each

• Margin Reality

  • Industry target margin: 40%
  • Excellent performance: 50%
  • Minimum viable: ~30%
  • Retailers demand highest markup on water vs other beverages
  • Multiple layers eat into margins:
    • Retailer markup
    • Distributor markup
    • Results in lower supplier margins than expected

• Consumer Behavior

  • People pay more for convenience
  • Location-based pricing works (events, hot spots)
  • Retail markup example: Water bought for $0.14 can sell for $2-3

• Water Source Significance

  • Natural spring water has strict FDA regulations
  • Cannot alter original mineral profile and still call it spring water
  • Two main approaches:
    • Natural source (springs, mountains) - original mineral profile
    • Municipal water - stripped and remineralized artificially