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May 25 2015, 08.45am GMT


Nestlé SA (VTX: NESN) is booming when it comes to bottled water. Recently, the company said that its water home-delivery business in the U.S. during the first quarter grew three times as quickly as their brick-and-mortar stores shipments last year.

Nestlé SA is expecting this momentum to continue.

For many years, trucks have delivered 5 gallon, 40 pound containers of water coolers to offices and houses at regular intervals. These orders were usually done through subscriptions and so customers were receiving monthly bills which were sent via mail. This however all came to a halt during the recession.

Nestlé is now saying that they see a major boost from customized online orders for its sparkling and still brands of water, including Perrier, Pure Life and Poland Springs. This comes after the company spent millions of dollars in order to upgrade its software.

A couple of years back, Nestlé also started offering a wider packaging mix which also included half-liter bottles. Since 2014, online shoppers could also make one-time orders, with 24 hour delivery times.

Interestingly, more shoppers are buying everything from wine to diapers online. As far as water is concerned, many don’t like how it tastes from the tap and more specifically, they don’t like carrying something heavy from stores. With water-delivery services like this, consumers don’t have to lift a 5-gallon jug, and they can now change orders as often as they like.

It is the convenience factor, the world is moving in this way, says Nestlé Waters North America president Tim Brown. The bottom line is that many consumers are willing to pay money for the convenience.

Nestlé also said that its home-delivery business avoided raising competition in stores, as more private label water brands which increased the bottled water prices have been dropping in recent years. The company says that consumers pay typically between $6-$7 for a 24 half-liter bottle case of water delivered to their homes; this is compared to paying around $5 or less when buying in-store.

Most of the buying for water home deliveries come from families, not so much single person households, said Tim Brown. He also estimates that the penetration of water deliveries to U.S. households is only around 2 percent. With consumers avoiding soda due to obesity and health concerns, evidenced through decreasing U.S. sales volumes over the last 10 years straight, bottled water makers are the ones benefiting the most.

Nestlé’s delivery business which is roughly split up between 1.5 million offices and homes, represents around 20% of $4 billion water sales in the U.S. last year alone. The company says that its U.S. water sales to small businesses and homes has increased 14% in terms of volume in 2014, this is compared to 7.8% at brick-and-mortar stores. Nestlé says that in the 1st quarter this year, its direct-to-consumer deliveries almost increased 21 percent, compared to 5.5% at retail stores.

Nestlé owns a delivery fleet of around 2,000 trucks for offices and homes which reaches 60% of the population in the U.S. Drivers make around 50 deliveries per day and track orders using hand-held devices. The average order is around $35, with about 20% of the amount going towards shipping costs. The orders carry a minimum of $20.

Beverage Marketing’s chief executive, Michael Bellas, expects that single-serve bottles that are bought outside of the homes will continue being the largest driver of industrial growth over the next couple of years. However, he also sees great potential for businesses like Nestlé and DS Services who have built huge customer bases from many years of 5 gallon jug deliveries. These companies have already gained entry into the home and the whole idea is to now leverage from that; it is a service business, according to Bellas.

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