IBWA 2016 U.S. Bottled Water Market Market Trends November 9, 2016
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U.S. Bottled Water Market Trends The Agenda Overview of U.S. Beverage Market U.S. Bottled Water Market Projections -3-
Overview of U.S. Beverage Market State of the Industry The Good and the Bad Beverage Headlines Liquid refreshment beverage market growing for third consecutive year in 2016, led by bottled water and niche categories Carbonated soft drinks declining once again in 2016, which will be its 12 th consecutive year of volume declines Bottled water will surpass carbonated soft drinks by end of 2016 or beginning of 2017 on volume basis Most mass market categories other than bottled water continue to struggle Wine and spirits lead alcohol growth in 2016, and beer is experiencing essentially flat performance -4-
Overview of U.S. Beverage Market The economy is greatly improved with unemployment below 5% and modest GDP growth; improvement had been slow due to severity of the recession Quarterly GDP Change 2011 Q2 2016 Unemployment Rate 2000 Q2 2016 10% 9.6% 9.3% 9.0% 8% 8.1% 7.4% 6% 4% 4.0% 5.8% 4.7% 6.0% 5.5% 5.1% 4.6% 4.6% 5.8% 6.2% 5.3% 4.9% 4.8% 2% 0% 2011 2012 2013 2014 2015 2016 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Q1 16 Q2 16 Source: Beverage Marketing Corporation; Bureau of Economic Analysis, Department of Commerce, Department of Labor -5-
Overview of U.S. Beverage Market Gasoline prices are almost a dollar a gallon lower than last year but to date have only had a modest impact on beverage consumption Consumers have bought cars and other delayed purchases but also continue to save Thriftiness under changing economic times is now the new norm Gasoline Prices 2010 2016 Q3 $5 $4 $3 $2.77 $2.87 $2.92 $3.32 $3.87 $3.81 $3.72 $3.68 $3.66 $3.65 $3.67 $3.74 $3.65 $3.46 $3.59 $3.44 $3.36 $3.56 $2.93 $2.76 $2.69 15Q3 16Q3: -13.8% Growth $2.78 $2.26 $2.35 $2.32 $2 $2.34 $1.99 $1 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration
Overview of U.S. Beverage Market Consumer sentiment surpassed pre-recession levels in 2015 for the first time, and remained stable, but somewhat uneven through the first three quarters of 2016 Annual U.S. Consumer Sentiment Index 1995 Q3 2016 107.6 103.2 104.6105.8 92.2 93.6 89.2 89.6 87.6 95.2 88.6 87.3 85.6 76.4 79.2 84.1 92.9 91.6 92.4 90.3 63.8 66.3 72.6 68.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 16 Q2 16 Q3 16 Source: Thompson Reuters/University of Michigan -7-
Overview of U.S. Beverage Market The U.S. beverage market has experienced accelerating growth since 2014, and may be poised for steady consistent growth in the coming years Coming out of the recession, performance had been more mixed U.S. Total Beverage Market* 2010 1H 2016 1.6% 1.7% 1.9% Volume Change 0.7% 1.1% -0.1% -0.1% 2010 2011 2012 2013 2014 2015 1H 16 * Excludes tap water Source: Beverage Marketing Corporation -8-
Overview of U.S. Beverage Market Beverage revenues have outperformed volume and been consistently positive, but the differential versus volume growth is narrowing U.S. Total Beverage Market* Volume and Wholesale Revenue (Millions of Gallons and Wholesale Dollars) 2010 1H 2016 3.7% 3.1% 3.1% 2.4% 2.5% 2.7% Change 0.7% 1.4% 1.6% 1.6% 1.1% 1.7% 1.9% 0.8% -0.1% -0.1% 2010 2011 2012 2013 2014 2015 1H 16 10/15 CAGR Volume Wholesale Revenue * Excludes tap water Source: Beverage Marketing Corporation -9-
Overview of U.S. Beverage Market In 2015, refreshment beverages led by bottled water and some niche categories grew fastest, and this trend has continued into 2016 U.S. Beverage Market 2015 2.9% Volume Change Bottled Water CSD Energy Drinks Fruit Bevs RTD Coffee RTD Tea Sports Drinks VA Water -0.2% Hot Coffee Hot Tea Milk 0.5% Beer Spirits Wine -5.1% Refreshment Beverages Traditional Beverages Beverage Alcohol Tap Water P: Preliminary Source: Beverage Marketing Corporation -10-
Overview of U.S. Beverage Market Tap water consumption declined in each of the last two years and is likely to decline once again in 2016, a reflection of an improving economy After many years of declines, tap water consumption increased during the recession Estimated Tap Water Volume Growth 2000 2015 25% 23.7% 20% 20.0% 15% 10% 5% 7.6% 6.3% 0% -5% -10% -0.5% -6.6% -4.0% -5.3% -9.4% -11.5% -15% '00/01 '01/02 '02/03 '03/04 '04/05 '05/06 '06/07-2.7% 1.2% -4.4% -0.7% -5.1% '07/08 '08/09 '09/10 '10/11 '11/12 '12/13 '13/14 '14/15 Source: Beverage Marketing Corp. -11-
Overview of U.S. Beverage Market Since 2010, bottled water has increased its share of stomach by more than 5 share points, while CSDs have continued their decline Volume Share of Stomach by U.S. Beverage Segment Billions of Gallons 2010 1H 2016 100% = 59.3 100% = 61.7 100% = 31.0 Tap/Others Value-Added Water Energy Drinks Wine/Spirits Sports Bev Fruit Beverages Tea Milk Coffee Beer 12.8% 12.7% 12.1% 0.6% 0.8% 2.1% 1.0% 0.8% 1.0% 0.8% 2.2% 2.1% 2.1% 2.4% 2.3% 6.0% 5.0% 4.9% 6.0% 6.0% 6.0% 10.6% 9.2% 9.1% 10.0% 10.8% 10.7% 10.9% 10.4% 10.7% Bottled Water 14.8% 19.1% 20.5% CSDs 23.3% 20.4% 19.8% Source: Beverage Marketing Corp. -12-2010 2015 1H 16
Overview of U.S. Beverage Market Most non-alcoholic beverage categories grew in 2015, and niche categories generally outperformed large traditional categories 2015 Category Winners and Losers WINNERS* LOSERS** Bottled Water RTD Coffee RTD Tea CSDs Milk Fruit Beverages Sports Drinks Energy Drinks Value-Added Water * Volume increases ** Volume declines -13-
Overview of U.S. Beverage Market More categories experienced improved performance in 2015 even when they declined 2015 Beverage Report Card IMPROVED Bottled Water CSDs WORSENED Energy Drinks Fruit Beverages Milk RTD Coffee RTD Tea Sports Drinks Value-Added Water -14-
Overview of U.S. Beverage Market New product introductions have mostly been on the rise after declining in 2009 due to the recession in the beverage industry New Beverage Product Introductions 2001 2015 3.8 3.9 4.0 4.4 4.7 4.5 4.3 Thousands of SKUs 1.7 1.6 2.0 2.9 2.6 2.6 3.2 2.7 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Beverage Marketing Corp.; Mintel -15-
Overview of U.S. Beverage Market Despite negative publicity on CSDs and other full-calorie refreshment beverages, caloric intake from refreshment beverages has been steadily declining over the last decade The growth of bottled water and lower-calorie options have contributed to the caloric decline U.S. Refreshment Beverage Calories Per Day 1990 2015 251.6 263.0 243.7 238.0 Calories Per Capita Per Day 212.5 230.3 222.7 214.8 212.2 208.1 205.2 201.1 200.6 200.5 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Beverage Marketing Corp. -16-
Overview of U.S. Beverage Market Carbonated soft drink volume declined for the 11th consecutive year in 2015 and is on pace to decline once again in 2016 Volume declines in the first half of 2016 are relatively consistent with 2015 Volume dipped to 12.6 billion gallons in 2015 0.0% Carbonated Soft Drink Volume Growth 2010 1H 2016-1.0% -1.0% -1.0% -2.0% -1.8% -1.8% -1.5% -1.6% -2.2% -3.0% -4.0% -3.2% 10/15 5-Yr CAGR -1.9% -5.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -17-
Overview of U.S. Beverage Market Fruit beverage volume has been declining in recent years because products are relatively expensive and high in calories 0.0% Fruit Beverage Volume Growth 2010 1H 2016-1.0% -1.1% -2.0% -1.9% -3.0% -2.8% -2.7% -2.9% -2.8% -4.0% -3.4% 10/15 5-Yr CAGR -2.7% -4.2% -5.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -18-
Overview of U.S. Beverage Market Sports drink consumption continues to grow but at a more modest pace 10.0% Sports Drink Volume Growth 2010 1H 2016 8.0% 6.0% 7.6% 5.5% 10/15 5-Yr CAGR 3.8% 4.0% 2.0% 2.3% 0.6% 3.0% 3.9% 1.5% 0.0% -0.2% -2.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -19-
Overview of U.S. Beverage Market Energy drinks are experiencing solid growth in the first half of 2016, but at a slower pace than 2015 Energy Drink Volume Growth 2010 1H 2016 20.0% 18.0% 17.2% 16.0% 14.0% 12.0% 14.3% 10/15 5-Yr CAGR 10.4% 10.0% 8.9% 8.0% 6.0% 5.5% 6.4% 6.7% 5.3% 5.9% 4.0% 2.0% 0.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -20-
Overview of U.S. Beverage Market RTD tea category growth has been consistent in a range of 3%-5% since 2014 In recent years, the category has benefited from its innovation and healthy positioning RTD Tea Volume Growth 2010 1H 2016 6.0% 5.3% 5.3% 10/15 5.0% 4.5% 5-Yr CAGR 3.9% 4.0% 3.9% 4.1% 3.3% 3.6% 3.0% 2.0% 1.0% 0.7% 0.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -21-
Overview of U.S. Beverage Market RTD coffee has experienced continued solid growth since the recession, and is likely poised for more growth in the coming years Nevertheless, the category remains the smallest of traditional LRB categories 20.0% RTD Coffee Volume Growth 2010 1H 2016 18.5% 18.0% 16.0% 14.0% 13.1% 10/15 5-Yr CAGR 11.5% 12.0% 10.0% 7.8% 10.0% 10.7% 10.6% 7.9% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -22-
Overview of U.S. Beverage Market Fluid milk volume continues to decline impacted negatively by competition from other categories, especially dairy alternatives Declines have been in excess of 1% since 2010 Pricing can often mean the difference between category growth and decline Milk Volume Growth 2010 1H 2016 0.0% 0.1% -1.0% -0.6% -0.3% -2.0% -1.7% -1.6% -1.4% -2.3% -3.0% -3.2% 10/15 5-Yr CAGR -2.0% -4.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -23-
Overview of U.S. Beverage Market The beer category has experienced lackluster performance over the last five years Craft beers have been the category s greatest bright spot 2.0% Beer Volume Growth 2010 1H 2016 1.2% 1.0% 0.7% 0.9% 0.8% 0.4% 0.3% 0.0% -1.0% -1.3% -0.9% 10/15 5-Yr CAGR -0.1% -2.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -24-
Overview of U.S. Beverage Market Wine and spirits have experienced consistent growth in recent years Both have outperformed beer over the last five years Wine and Distilled Spirits Volume Growth 2010 1H 2016 6.0% 5.0% 5.3% 10/15 5-Yr CAGR Wine 2.1% Spirits 2.2% 4.0% 3.5% 3.1% 3.3% 3.1% 3.2% 3.0% 2.0% 2.2% 1.4% 1.3% 1.1% 1.4% 1.7% 1.9% 2.4% 2.2% 1.0% 0.7% 0.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corporation -25-
U.S. Bottled Water Market Trends The Agenda Overview of U.S. Beverage Market U.S. Bottled Water Market Projections -26-
U.S. Bottled Water Market State of the Industry Bottled Water Headlines Most successful mass-market beverage category in the U.S. Every segment has grown in each of the last three years, and are all growing again in 2016 Projections show bottled water will surpass CSDs by the end of 2016 or beginning of 2017 With exception of retail PET segment, pricing is strong Pricing is at all-time low for retail PET Category is best positioned since pre-recession -27-
U.S. Bottled Water Market Over the last 40 years bottled water has been the biggest success story of the refreshment beverage marketplace Since 1976, bottled water has grown at a CAGR of 9.4%, outdistancing every other beverage category U.S. Bottled Water Market 1976 2015 (Millions of Gallons) 14,000 11,768.7 12,000 39-Yr CAGR 9.4% 10,000 7,539.1 8,000 6,000 4,000 3,093.1 2,000 1,223.9 354.3 0 1976 1985 1995 2005 2015 Bottled Water Per Capita Year Gallons 1976 1.6 1985 5.1 1995 11.7 2005 25.4 2015 36.6 Source: Beverage Marketing Corporation -28-
U.S. Bottled Water Market Modest pricing increases in carbonated soft drinks coupled with significant pricing declines in bottled water have contributed to respective category performances Wholesaler Dollars Per Gallon Indexed to 2000 150 2015 Absolute Price $4.18 140 130 120 Index 110 100 90 80 70 $1.22 60 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CSDs PET Single Serve Bottled Water Source: Beverage Marketing Corp. -29-
U.S. Bottled Water Market Bottled water volume has rebounded since the depths of the recession with accelerating growth in recent years The category is aided by its positioning as the ultimate health beverage Additionally, it has gotten a boost from aggressive pricing Bottled Water Volume Growth 2010 1H 2016 10/15 10.0% 5-Yr CAGR 6.1% 8.0% 7.4% 7.9% 8.6% 8.2% 8.4% 6.5% 6.0% 4.0% 4.7% 4.0% 2.0% 0.0% '10/11 '11/12 '12/13 '13/14 '14/15 Q1 15/16 Q2 15/16 1H 15/16 Source: Beverage Marketing Corp. -30-
U.S. Bottled Water Market On a quarterly basis, the bottled water category has shown consistently strong growth since 2011 Growth in the first half of 2016 has been relatively consistent with 2015 growth U.S. Bottled Water Market Quarterly Volume Growth 2013 1H 2016 10% 9.8% 8% 8.2% 6.9% 6.8% 7.6% 6.7% 6.9% 8.3% 8.6% 8.2% 8.4% Growth 6% 4% 4.7% 4.8% 4.9% 4.5% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2015 2016 Source: Beverage Marketing Corporation -31-
U.S. Bottled Water Market Total bottled water revenues in 1H16 have grown at 1% greater rate than volume U.S. Bottled Water Market Quarterly Revenue Growth 2013 1H 2016 12% 11.5% 10% 9.7% 9.9% 9.3% 9.6% 8% 8.0% 7.2% 7.3% Growth 6% 4% 5.9% 4.7% 4.0% 6.3% 5.4% 6.2% 2.6% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2014 2016 Source: Beverage Marketing Corporation -32-
U.S. Bottled Water Market Nestle Waters remains the leading bottled water company with a 30% share in 2015 Private label powerhouse Niagara has gained the greatest share in the last five years U.S. Bottled Water Market Leading Companies by Volume Share 2010 2015 Source: Beverage Marketing Corporation -33-
U.S. Bottled Water Market While stable, PET water pricing continues to be historically aggressive and is likely to remain so into 2017 Every-day pricing has been as low as $2.49-2.99 for 24-packs at retail Advances in Supply Chain Costs High-speed bottle filling in a range of 16-18 million cases per year per line Stable resin costs, which are likely to continue at least through 2017 Continued bottle light-weighting -34-
U.S. Bottled Water Market The growth of private label, in part, has resulted in purified water now outselling spring water in retail PET category Retail PET Bottled Water by Source 1995 2015 1995 2005 2015 Source: Beverage Marketing Corporation -35-
U.S. Bottled Water Market While branded water outsells private label in the retail PET segment, private label has made significant inroads over the last five years U.S. Retail PET Water Market Branded vs. Private Label 2010 2015 Source: Beverage Marketing Corporation -36-
U.S. Bottled Water Market Value-added waters of all types are now proliferating and gaining traction in all parts of the country These premium value, craft type waters are adding additional benefits to consumers water experience Alkaline Water Essence Water Structured Water Plant Water Essentia Hint Penta Trader Joe -37-
U.S. Bottled Water Market Revenue continues to grow faster than volume in the retail bulk segment U.S. Retail Bulk Water Market Quarterly Revenue Growth 2013 1H 2016 10% 9% 8% 8.2% Growth 7% 6% 5% 4% 3.0% 5.9% 3.4% 4.7% 5.2% 6.4% 3.9% 5.3% 4.6% 3% 2.5% 2.4% 2.6% 2% 1% 0.6% 0.7% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2014 2016 Source: Beverage Marketing Corporation -38-
U.S. Bottled Water Market HOD revenue has generally grown slightly faster than volume, but in the first half of 2016 pricing and volume have increased at a similar pace Rising input costs have brought about slightly higher prices U.S. HOD Water Market Quarterly Revenue Growth 2013 1H 2016 7% Growth 6% 5% 4% 3% 4.9% 3.6% 5.8% 5.3% 4.3% 5.7% 5.4% 5.5% 4.6% 4.8% 4.5% 4.7% 3.9% 4.3% 2% 1.6% 1% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2014 2016 Source: Beverage Marketing Corporation -39-
U.S. Bottled Water Market Revenue growth has slowed for vended waters and was essentially even with volume growth for the first half of 2016 U.S. Vended Water Market Quarterly Revenue Growth 2013 1H 2016 7% 6% 5.8% 5.8% 6.1% Growth 5% 4% 3% 2% 1.6% 1.4% 1.3% 2.9% 4.7% 2.2% 2.9% 4.1% 4.2% 3.1% 2.1% 2.6% 1% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2014 2016 Source: Beverage Marketing Corporation -40-
U.S. Bottled Water Market Revenue is generally outpacing volume growth for domestic sparkling water in the first half of 2016 U.S. Domestic Sparkling Water Market Quarterly Revenue Growth 2013 1H 2016 50% 43.6% 40% 37.9% Growth 30% 20% 14.0% 32.1% 27.0% 28.6% 18.7% 20.1% 21.6% 21.4% 20.4% 10% 11.1% 8.9% 11.3% 3.9% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 2013 2014 2015 2016 Source: Beverage Marketing Corporation -41-
U.S. Bottled Water Market Trends The Agenda Overview of U.S. Beverage Market U.S. Bottled Water Market Projections -42-
Projections In the future, the marketplace will be characterized by numerous high-value, low relative volume opportunities Alc Pouches Hard Cider Coconut Water Almond Milk (2010-2015 CAGR) High Growth Enhanced RTD Teas SPFJ Malternatives RTD Coffee Craft Beer 20% 10% Energy Projected Value -43- SS Dairy Drinks $250M Enhanced Fruit Drinks Flavored Water Prem CSDs Soy Organic Juices $500M Tequila Bulk/HOD Water $1B Enhanced Water Straight Whiskey Sparkling Wine Vodka $5B 0% Fruit Drinks RTD Teas Sports Drinks -5% PET Water 100% Juice Low Growth $10B Diet CSDs Imp. Beer Table Wine $25B Milk $35B $50B Reg CSDs
Projections 2016 and 2017 Liquid Refreshment Beverage Projections LRB Category 2016(P) 2017(P) Value Added Water +14.0% +15.9% RTD Coffee +11.5% +11.0% Bottled Water +7.8% +7.3% Energy Drinks +7.5% +7.0% RTD Tea +3.7% +4.1% Sports Drinks +2.5% +3.2% Carbonated Soft Drinks -1.7% -1.5% Fruit Beverages -2.5% -0.9% TOTAL LRBs +2.7% +3.0% P: Projected Source: Beverage Marketing Corporation -44-
Projections The timeline for bottled water to become the #1 beverage category continues to contract, with late 2016 or early 2017 becoming a target date Bottled water s solid steady growth coupled with the continued slide of carbonated soft drink sales are responsible for the shift in consumption patterns 18000 15000 Projected Water & CSD Growth Millions of Gallons 2010 2020P Flavored Water Enhanced Water 12000 CSDs 10-Yr CAGR: -1.6% 9000 Premium Retail PET Waters 6000 3000 Bulk, HOD, Vended, Sparkling, Imported Waters 0 2010 2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P 2020(P) P: Projected Source: Beverage Marketing Corporation -45-
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