I hope the following article out on Reuters isn't wholly accurate. I can see the logic of what's being reported, however. According to the item, Wal-Mart Stores, Inc. (NYSE: WMT) could be reducing the valuable real estate in its stores that is devoted to bottled water from popular brands. This includes The Coca-Cola Company's (NYSE: KO) Dasani and PepsiCo, Inc.'s (NYSE: PEP) Aquafina. This observation is being sourced to analyst Bill Pecoriello of ConsumerEdge Research. He believes that Wal-Mart might be trying to focus on the value consumer by offering more shelf space to generic brands.
There is a serious ring of truth to this. We've heard about Wal-Mart and its love of the private-label strategy. The economy has been so hard on the consumer, and the retail giant sees opportunity in leveraging the science of price elasticity. Why invest in higher-priced products when consumer confidence is low and people are so conscious of what things cost?
Well, if you're a shareholder of either Coke or PepsiCo, or both, you need to worry about this. The fact that the water segment is being targeted is particularly troubling. I own shares of Coke, I've owned them since the late '90s, I've followed the company and its portfolio closely for a long, long time. Believe me, carbonated beverages are having a tough time growing. People aren't drinking the flagship products -- namely Coke and Pepsi -- like they used to. They're going after healthier alternatives such as waters and juices. Both Coke and Pepsi need to do well with Dasani and Aquafina since those products are being counted on to replace a lot of the growth that has been lost in the carbonated stuff.
If Wal-Mart truly is devoting less shelf space to these brands, then the big-brand beverage names need to get out there and market the heck out of their products. They need to attack the private labels head on. Figure out some creative way to say that Dasani and Aquafina are worth the extra dough. Believe me, it's tough. I myself sometimes try to steer friends to Dasani (again, I own KO). Know what one colleague always tells me? He says "I get whatever's cheapest that week." Great, thanks a lot, pal!
Now, I wouldn't necessarily say that investors should sell their Coke or PepsiCo shares solely on this news item, but I believe shareholders do need to follow this story (assuming it further develops). Wal-Mart isn't just some retailer. It's the retailer. Wal-Mart can really screw up the distribution plans of any supplier. So, I hope Coke and PepsiCo take this issue very, very seriously. They better be out there lobbying Wal-Mart hard. Of course, Wal-Mart could be doing this merely to get some better pricing from the two major vendors. Price deflation is all the rage, as we know. Question is, can brand equity trump price, especially when it comes to something as simple and ubiquitous as water? It's going to be tough, Coke and PepsiCo. Get your best people on it...
Disclosure: I own Coke; positions can change without notice.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
4-17-2009 @ 8:47PM
jstaben said...
Yeah waste your money on stupid bottled water. That's smart. Buy a freaking refillable bottle and get a water filter. Quit dumping your empty bottles in our landfills you lazy sons-o-bitches
4-17-2009 @ 8:49PM
Chuck said...
Drink Tap Water ! ! ! ! Or use a filter on your refrigerator/tap water supply....
4-17-2009 @ 9:11PM
susan said...
I will not drink bottled water UNLESS the bottle states that it comes from a spring. Everthing else is TAP WATER that has been filtered again!!
4-18-2009 @ 12:01AM
blogs11111 said...
Just get a filtered pitcher and use tap water. Saves alot on cost of drinking water and all the plastic is not good for the environment, not to mention they use petroleum to produce those plastic bottles.
4-18-2009 @ 4:14AM
Taking A Gossip Break said...
I think Coke will save its position in the beverage market with its vitamin water. So what if i has sugar in it. Its loaded with vitamins, particularly huge doses of vitamin C which is always a good thing and lots of B. I'm enjoying a glass of "essential" vitamin water right now.
4-18-2009 @ 6:04AM
al coholic said...
When I see a person buying bottled water I can't help but catagorize him or her as one with no respect for money.
4-18-2009 @ 6:38AM
michas_pi said...
The United States has the safest water supplies in the world.
Yet there are people that only drink bottled water.
*sigh*
4-18-2009 @ 10:27AM
Linda said...
WHen I see someone telling me what to spend my money on, I see someone who has no business in my bank account. People drink alcohol, smoke cigarettes, OVEREAT and are obese. #5 . If I want to buy a case of bottled water and reuse them for my kids lunches or just to have a quick bottle on hand instead of soda (I am diabetic) It's really none of your business. We are healthy, don't overeat, don't smoke and don't drink.
4-18-2009 @ 12:10PM
John said...
this article makes me want to put down the bottle water and crack open a beer!!!!!!!!!!!!!!!!!!!!!
4-18-2009 @ 12:37PM
h0mi said...
I don't get buying bottled water for the home given that water filters (brita/pur, whole house, fridge filters, etc.) are available and cheaper in the long run but while out and about, buying bottled water seems to make sense to me- it's convenient and it's not like there are lots of (clean/hygenic) water fountains all over the place.
4-20-2009 @ 12:49AM
ddpatterson.1 said...
only coke and pepsi shareholders give a crap, buy a water purifier and get over it, even the label on most "bottled water" clearly states that it comes from municipal water supplies, not from all these imaginary pure springs. equate the cost of bottled water per gallon to gas-1 pint of water-1.09 times 8 pints to a quart, 4 quarts to a gallon, huh 34.88 a gallon-gas at 3.00, not to shabby a profit for tap water.
4-24-2009 @ 3:13PM
roudy11z said...
Well Steve you have really stirred us up so to speak on this bottled water issue.I would say that as I understand it that all bottled water is distilled or processed similar to what the cities do with theirs. So it does not matter weather its from a spring or not. The key to it is that most of it or 90% does not come from springs.I was told this by one of the bottlers and if you will look on the side of the bottle it will say this.That being said I own Pepsi or (PEP) as well as Wal-Mart (WMT). I am not worried and I don't think it will make a pimple on a fly's behind worth of difference. I'm will to bet on this if there are any takers. Good article!RoudMan