Message in a Bottle
-By John Boley
Bottled water is a $600 million a year business in Australia and yet the nation’s consumption of bottled water is well below the average for developed nations. Australians consume some 12 litres per year, around one eighth of what an average Swiss or Austrian guzzles. This has nothing to do with whether tap water is potable, or whether a country has an abundance of springs, and (perhaps unfortunately for a certain stereotype) likewise it’s not because Australians are always imbibing the amber nectar instead. According to Henry Heng, chairman of Refresh Group, “Even though Australia’s consumption is low compared to other countries, 600 million dollars is a sizeable market. So there is still a lot of room for us to grow.”
So why do Australians, especially given their sporting nature and the local climate, drink so little bottled water? A major factor could be the easy access of clean water from the tap. It could also be the high price tag on bottled water in restaurants. Henry explained, “One of the things is culture. In Italy, for example, people who go to a restaurant order bottled water with their meal. It is not that the tap water is not drinkable; it is only because it is a habit. And the restaurants there don’t charge too much for bottled water. In Australia, unfortunately, restaurants are selling bottled water, which costs them less, at more than the price of soft drinks. There are some restaurants where if you ask for bottled water they add five dollars a bottle to your bill – just for a bottle of water. So because the price is so high, people consider other beverages.”
However, there is room for growth, much of it at the expense of carbonated soft drinks. “People used to drink soft drinks,” explained Henry, “but with the publicity about soft drinks containing so much sugar and how unhealthy it is, many of them go for a bottle of water instead. People nowadays are more health conscious.” The convenience of having bottled water when you need a drink has contributed to the growth of the industry.
The other reason why bottled water is selling so well is because of taste. Some people don’t like the taste of chlorine in their tap water. Unfortunately if tap water is not chlorinated, people can get sick with typhoid, dysentery, cholera or other illnesses. Bottled water is pleasant in taste.
Henry came to Australia from Singapore on a skills migration arrangement. Looking for a suitable investment, he teamed up with someone who had a business plan to develop a bottled water factory. “At that time, most of the bottled water factories were using spring water,” Henry explained, “but distillation was growing in other countries. So we reckoned that there was a niche market for distilled drinking water.”
Refresh started to market distilled water in Western Australia in 1997. The company grew phenomenally, moving twice within five years. Soon it became evident that the WA market had its limits. “We started to think, ‘Sydney and Melbourne are bigger markets, so why don’t we start up there?'” Acting according to plans, new Refresh factories were started up in Sydney in 2003 and in Melbourne two years later, months before Refresh listed on the ASX. Since then, three more factories have been acquired in Toowoomba, Queensland; Kalgoorlie, WA and Brisbane.
Each of these was bought mainly for the existing customer base, and the production facilities were converted to Refresh’s own US-derived steam distillation system. This process kills all bacteria and parasites and ensures the water is free from harmful minerals and chemicals. The vapour compression distillation process used by Refresh is patented and gives the company a significant cost advantage over other distillation methods. Henry said, “If you buy a bottle of Refresh anywhere in Australia, they all have the same superior taste because they are produced by the same brand of equipment and the same process. It is a consistent, homogeneous product. Whereas with spring water, even the same brand in different cities – because [the water is] from different sources – actually tastes different.”
Refresh is Australia’s largest producer of distilled drinking water with a capacity to produce more than 10,000 litres of distilled water per hour. Two-thirds of the company’s turnover is in the home and office delivery business. There are almost 200 suppliers in this sector nationwide so it is significant that Refresh is one of the only two who has multiple production facilities. Retail packs of Refresh Pure Water are also sold in Woolworths and the IGA Group of independent supermarkets as well as in many restaurants and delicatessens.
In order to cater for all tastes, Refresh also produces spring water for home and office deliveries. This is marketed under the Sunshower Springs label.
The market is characterised by a high degree of new product introductions. Many of the major players in the industry are expanding on their product range within the bottled water segment, producing two or three products in the segment. Often these products are at different price points, or are designed to appeal to particular segments of the market. This can be achieved through the addition of particular vitamins and minerals or by attractive or functional packaging such as pop-top bottles. Mild flavours are often also added, and the product is then marketed as a near-water.
The bottled water sector continues to grow at rates exceeding other beverage categories. Over the five years to 2010-11, IBIS World estimates that the bottled water manufacturing industry has grown at an annualised rate of 4.6 per cent to $575.5 million. This is partly due to the relatively high levels of promotional and advertising activity. Producers need to differentiate their product by branding and advertising so as to attract and retain consumers which would generally substitute readily between waters in the absence of marketing.
One highly successful method of promoting Refresh is offering consumers a taste comparison with other brands or other types of water. Henry said, “We put our products for trial at customer’s places and when they compare their previous water and Refresh’s water, they find that ours does taste better. We have managed to convert a lot of customers that way.” Spring water, he said, is ground water and “in Australia, much of the spring water is drawn from ground near farming land. We have customers who complain that when there is no rain, their spring water tastes bad. But our product is a consistent quality that we get throughout the year.”
Refresh also provides contract bottling of private labels. It has been packing for the WA Water Corporation since 2000. Many other companies use bottled water as a promotional product with their own custom-designed labels.
Distilled water has many commercial applications where a very high level of water purity is required. Water in 20-litre containers is used in dental and medical laboratories and surgeries in their autoclaves. For industries, Refresh supplies in containers ranging from 25 litres to 1,000 litres. “We are the biggest in that sector, actually,” said Henry. “There are a lot of engineering companies that need, say, 20,000 litres of water for hydrostatic testing of pipe welds. There are not many suppliers that they can buy it from. With its competitive price, Refresh is very strong in that area.” Refresh is not and is unlikely to be in the desalination business, though, which is a different technology with large-scale projects currently under way near major cities.
The message in the Refresh bottle is clear — it’s pure, it’s healthy and it’s worth the buy.
The post Refresh Group first appeared on Business In Focus Magazine.