The heatwave and demand for bottled water

The UK's heatwave is inevitably driving higher demand for cool drinks but Briton’s desire for bottled water over the long run may be declining.

In 2020, approximately 2.54 billion litres of bottled water were consumed in the UK. Over 4 million people are estimated to consume bottled mineral water more than once a day and 2.6 million people drink water from a bottle once a day.

The bottled water market in the UK was worth £1.5 billion in 2020, down from £1.9 billion in 2018. Breaking sales down by brand, Volvic was the leading bottled water UK brand in 2021, generating sales of just under £150 million with Evian and Highland Spring the next leading brands that year.

Increased awareness about the environmental impact of the external costs of single use plastic bottles was a factor behind the fall in bottled water consumption from 2013 to 2019.

Consumption from bottles instead of taps may be rising once again. Perhaps this is due to growing and probably largely mis-placed concerns about UK tap water quality linked to the impact of scare mongering on social media.

In fact, UK drinking water quality remains high. The last triennial report from OFWAT and the Drinking Water Inspectorate found that ,during 2017 to 2019, public water supply compliance with drinking water regulations was 99.95%.

It will be interesting to see how sales of bottled water including the bewildering range of flavoured and vitamin and protein-enhanced brands will be affected by the cost of living crisis.

Real disposable incomes are set to fall sharply in 2022 and 2023 with wages lagging price increases. If bottled water, and especially the premium varieties, have a relatively high income elasticity of demand, then sales will likely fall as consumers look for ways to cut back their spending. And with retail prices climbing, to what extent do these drinks have a price-sensitive demand with a coefficient of price elasticity of demand greater than one?

Bottled water manufacturers are also under increasing cost pressures. An example is the new Plastic Packaging tax in the UK which from April 2022 applies a £200 per tonne levy on all plastic packaging manufactured in, or imported into, the UK that contains less than 30% recycled plastic.

A weaker pound is also increasing the cost of imported inputs into the manufacturing process.

Here is a video walking through an essay answer to a question on the new UK plastic packaging tax.