Danone’s Watershed Moment Puts Mineral H₂O in the Spotlight

Amarone della Valpolicella, Châteauneuf-du-Pape, Gewurztraminer d’Alsace. None of these things is what the sommeliers at Danone are sampling when they criss-cross Europe. Instead, the French multinational food corporation has its own in-house specialists trained to sniff out the best in H₂O.

After last week, these so-called water sommeliers, whose palettes are finely tuned to spring minerals that give the otherwise tasteless, odorless liquid some natural pizzazz, are a bit more important. Danone pledged new investments in its bottled water business at a time when its chief rival, Nestlé, is looking to sell off a 50% stake in its equivalent unit.

Oh, Oh, Eau!

It all starts à la maison. Danone told Reuters last week that the European bottled water market grew 5% to $21 billion last year, with growth in motherland France of 7% and neighboring Britain of 9% leading the way. Its own water sales of $5.5 billion, which accounted for 18% of the group’s sales, rose 3.3% on the Old Continent. That outpaced a global 1.9% increase.

Growth in its water business has been uneven in recent quarters, but Danone sent a clear signal that it sees a clear-as-a-crater-lake business path for mineral water, given that consumer tastes around the world are set to continue a years-long trajectory away from sugary drinks. The company said it would invest $23 million to upgrade its Evian bottling facility and $9.2 million to preserve its Evian, Volvic, Badoit and La Salvetat mineral water sites in France. That’s not an especially huge amount of money in the grand scheme of things, but the symbolic doubling down is especially important:

• That’s because the mineral water industry in Europe has faced something of a crisis of confidence in recent years, as Nestlé’s water unit has faced a torrent of legal, regulatory and political scrutiny over allegations it used unauthorized filtration and treatment methods on water sold as “natural mineral water,” which by law must be untreated (Le Monde journalist Stéphane Mandard cheekily dubbed the all-encompassing scandal “our Watergate”).
• Nestlé, meanwhile, is trying to offload half of its water business in a shift away from capital-intensive, lower-growth segments. The Financial Times reported late last month that private equity shops CD&R, KKR and PAI are among the firms bidding for the stake, which could go for as much as $5.5 billion.

Three-Molecule Tasting: Danone announced its renewed emphasis on its mineral water sites alongside the publication of an impact study touting its positive “economic, social and environmental contribution.” In other words, the company would like to remind consumers its stuff is approved by even the fussiest, most enviro-conscious water sommelier.