Big Beverage Companies Eye Small Water Players

Includes: KO, PEP, PRMW
by: IPOdesktop

When health advocates and government officials started blaming soda and carbonated sugary drinks for making people overweight, Americans began turning to bottled water as a healthy alternative. The convenience of single-serve bottles and fancy labels have helped bottled water become as much of a staple in grocery carts as milk and eggs. (Think Fiji Water, Arrowhead, Evian, Poland Spring, Aquafina, Crystal Geyser, and on and on.)

Currently, Americans consume more than 29 gallons of bottled water per year, and as a runner, I count myself as part of that statistic.

Bottled Water Is A Big Business

When it comes to being health conscious, American consumers tend to lead the pack in spending for health, wellness, and anti-aging products. In fact, the U.S. is the world's largest consumer of bottled water, with sales totaling $11.8 Billion in 2012 -- a 6.7 percent increase from 2011.

For investors who are interested in the sector, consider the following:

  • US bans sugary drinks in schools, NY Times.
  • Bloomberg reported in April 2013 that, "Shares of water companies are beating those of gold and oil producers...."
  • The bottled water sector is growing twice as fast as the economy itself.
  • The industry is propelled by both celebrity involvement and health conscious consumers. (Total bottled water consumption in the U.S. hit an all-time high in 2012 of 9.6 billion gallons.)

Majors Acquire Smaller Players

With superstar celebrities like Jennifer Aniston, Mark Wahlberg, P. Diddy, Dr. Oz and famous athletes endorsing and touting healthy bottled water, it was no wonder that the nearly $75 billion soda industry became concerned that bottled water was cutting into their market share. As such, big players like Coke (NYSE: KO), Pepsi (NYSE: PEP), and Nestle began acquiring smaller players in the beverage sector.

Upon searching for smaller companies that might be acquisition candidates, there seem to be only four, two public and two private.

The two public vehicles are Primo Water (NASDAQ:PRMW), which IPO'd November 4, 2010 at $12, and The Alkaline Water Company.

Primo's stock reached a high of $16 on April 8, 2011, with a market capitalization of around $400 million. It currently trades around $2.30 with a market capitalization of $55, not good for early investors, who have lost 86% if they bought at $16.

The other company is The Alkaline Water Co (OTCQB:WTER), with a market capitalization of $53 million. WTER appears to have a differentiated alkaline water product, and is getting retailer shelf space in California, Arizona, and Nevada (Albertsons, Bristol Farms, Baron's Markets, and more than 100 convenience stores), according to recent press releases.

Getting shelf space for a new product is notoriously hard to do, without a very large pull-through advertising budget. If Alkaline Water sells-through its products and the company gets re-orders, then it would seem that it can expand beyond these regions and the company could grow itself into becoming a viable acquisition candidate for some of the majors in the business.

The two private companies are Aquahydrate and Evamor. Earlier this year, P. Diddy and Mark Wahlberg joint-ventured with Southern California-based Aquahydrate to promote its healthy alkaline water. Per the arrangement, P. Diddy and Wahlberg, who invested in the alkaline water company, will oversee business strategy along with CEO John Cochran, former President of Fiji Water.

Evamor is a bottled alkaline water brand that has partnered with and is the official sponsor of health guru Dr. Oz's Health Corps. Like Aquahydrate and The Alkaline Water Co., Evamor's alkaline bottled water claims to have numerous health benefits such as heartburn reduction, boosted metabolism, enhanced athletic performance, and improved complexion, among others.

It seems like the timing just might be right for investors interested in catching the wave of the bottled water sector. As consumers continue to make healthy choices buying bottled water over soda, it's hard to deny that this is a high growth sector that won't ever run dry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.