Coca Cola (NYSE:KO)
Historical Stock Chart
1 Month : From Jun 2019 to Jul 2019
By Jennifer Maloney
The latest front in the soda wars: high-tech water fountains.
Longtime rivals Coca-Cola Co. and PepsiCo Inc. are dotting college campuses and workplaces across the country with machines that dispense cold, filtered water -- and can add bubbles and flavors on demand. But the customers have to supply the bottles.
The soda giants are among the biggest bottled-water sellers in the country, with brands such as Dasani, Aquafina, smartwater and Lifewtr -- all packaged in PET, the plastic used to make soda and water bottles. Attitudes toward plastic waste are shifting, though, so the two companies are planning for a future where single-use plastic bottles may be banned.
The new dispensers are part of broader efforts at both companies to respond to the mounting public concerns about plastic waste. PepsiCo last year bought SodaStream -- a maker of countertop machines that carbonate tap water -- in a $3.2 billion deal. And PepsiCo's Drinkfinity brand sells reusable plastic bottles with capsules that add flavors to water. Coca-Cola, meanwhile, is rolling out 100% recycled plastic bottles in Western Europe and is exploring adding an aluminum option for its Dasani water brand in North America. Both companies have pledged to help increase plastic recycling rates.
A wave of bans on plastic straws last year demonstrated a sharp turn in public opinion against single-use plastic. The momentum has continued into this year, with the European Union in March voting to ban 10 single-use plastic products including cutlery, plates and cotton-swab sticks. Earlier this month, Canada said it planned to ban single-use plastics such as bags, straws and stir sticks as soon as 2021. Now the beverage giants are preparing for the possibility that U.S. states could begin banning plastic bottles, as a few municipalities already have done.
Even if lawmakers don't ban plastic bottles, executives at both Coca-Cola and PepsiCo said, they are seeing consumers choose reusable bottles over single-use plastic, a trend they expect to continue.
"These behaviors are manifesting first in... colleges, universities and workplaces," said Scott Finlow, chief marketing officer for global food service at PepsiCo. "We believe that will continue to increase and grow."
Water has been a bright spot for both companies in recent years, helping to offset slower growth in their core soda businesses. Coca-Cola's U.S. sales volume of still and sparkling bottled water rose 2% last year while PepsiCo's increased 4.6%, according to industry tracker Beverage Marketing Corp. Bottled-water consumption in the U.S. is now outpacing soda consumption.
Coca-Cola's Dasani PureFill station was conceived in 2016 in an innovation competition among the company's staff. Coke has piloted the machine on college campuses for the past two years and this fall will expand it to more schools as well as zoos and aquariums.
So far, the most popular option has been the free one: chilled, filtered water. "People just like really good water," said Lauren Radow King, Dasani's brand director for North America. "Sometimes these units will be placed right beside a traditional water fountain. And you'll actually see people line up to get water from these machines."
But the company also has found that many students are willing to pay a fee of 5 cents per ounce to add flavors or bubbles or both. Consumers can pay directly through the app, use Apple Pay or, in some cases, swipe a credit card. In some cases, a 20-ounce pour comes out to roughly the same price as a 20-ounce bottle of Dasani. The PureFill station is blue, and about the size and shape of a traditional vending machine. Under the spout, there is a black-and-white outline of a water bottle, a visual cue that users must supply their own vessel. The machine's flavors include berry, lime and blood orange.
The dispensers from both soda companies connect to mobile-phone apps that can track users' water-consumption goals.
The PureFill station transmits data to the company on what people are ordering, when and where. For example, Coke expected students to be willing to pay for flavors and bubbles at the cafeteria, where they're already paying for lunch, but they've been surprised to find people willing to pay for a drink at the gym, too, Ms. King said. The company is still exploring pricing models for venues where it doesn't sell directly to consumers.
Coca-Cola's PureFill station transmits data to the company on what people are ordering, when and where. For example, Coke expected students to be willing to pay for flavors and bubbles at the cafeteria, where they're already paying for lunch, but it has been surprised to find people willing to pay for a drink at the gym, too, Ms. King said. The company is still exploring pricing models for venues where it doesn't sell directly to consumers.
"We absolutely believe that this is a tool in our tool box for addressing PET bans," Ms. King said. "I don't think any one of them is a silver bullet."
PepsiCo's device was launched in a pilot last year and is set to expand next month across venues similar to the PureFill's, as well as hotels, workplaces and stadiums. Its name hasn't been finalized but the company said that, in contrast to Coke, it had decided not to name the machine after one of its water brands. The dispenser has a simple and white-and-navy design, around the size of a water cooler. It also comes in a countertop version. Offering six flavors including peach and lemon mint, the device allows users to personalize the temperature, the intensity of the flavor and the level of carbonation.
Pricing for consumers will vary, depending on the venue. They can pay by credit card or mobile wallet such as Apple Pay. The company hopes eventually to allow users to pay through the accompanying app, and is working on adding an option for college students to pay with school meal plan points. PepsiCo will charge a monthly equipment fee for the unit, which will vary depending on the customer and agreement, and will sell separately the flavors, filters and carbon dioxide tanks needed to make the bubbles, the company said.
In workplaces where employers provide free drinks for their workers, the machine won't charge users. PepsiCo plans to offer scannable stickers that can be placed on a reusable cup or bottle so the machine can recognize each user and pour his or her favorite order. The beverage company also is working with S'well, a maker of sleek, reusable stainless steel water bottles, to develop a connected bottle that the PepsiCo machine can scan and recognize.
"You do see the cultural zeitgeist really changing," S'well founder Sarah Kauss said. "Single-use plastic is really becoming uncool....Brands are seeing the need to change as well."
Write to Jennifer Maloney at firstname.lastname@example.org
(END) Dow Jones Newswires
June 21, 2019 07:14 ET (11:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.