9 Oct 2008

The Good Side of Bottled Water

Coke, Nestle and other bottled water companies are not popular these days (see, e.g., Stop Nestle Waters or FLOW, the Movie) -- for a lot of reasons.

[My personal belief, btw, is that people should drink what they want, but I avoid bottled water.]

When I was in Atlanta, I had a chance to chat with a representative of Coke, who said that bottled water makes sense to people who want convenience. (Nice profit, too!)

I also chatted with a guy from Nestle, a groundwater hydrologist who professed to be shocked at the "reception" Nestle got in McCloud [prior posts]. I gave my opinion on why Nestle got tossed out (offering a price that was too low) and suggested that Nestle could have made a deal if it had divided the wholesale profit (e.g., wholesale price less capital and operating costs) 50/50 with McCloud -- instead of 99.5/0.5.**

He hadn't thought of that equity argument. Instead, he had thought that Nestle had made a deal with the McCloud city council and that that deal had reflected a bargain that was acceptable to both sides. That's when I explained that a lot of people (apparently) had objected to the council's "give away" and rejected the deal as bad for the community. Anyways...

After that bit, I told him that the bottled water industry needs to do something about its image (duh!), and I suggested that one thing it could do is test and certify that ALL bottled water met or exceeded the toughest quality standards for TAP WATER. I'm sure that a lot of people buy bottled water because they worry about the quality of their tap water, but these same people are unhappy that bottled water is not tested/regulated to tap water standards [more].

That thought got me to thinking...

The biggest problem in urban water supply (to me) is not whether the company is public or private -- it's that water companies are monopolies. That means, by definition, that the company faces no competition. Companies (governments!) without competition are bad for consumers because they tend -- over time -- to offer lower quality products at higher prices.* Why work when people MUST come to you? [See next post.]

So, the good side of bottled water is that you can take it anywhere. When it gets there, it competes with local tap water. If bottled water is of higher quality, people will notice. Some will just drink the bottled water, but others will complain to their water company -- insisting that it offer the same quality, which they should already be doing!

Bottom Line: Bottled water vendors should meet or beat tap water standards, and people should insist that their water companies do the same. Competition with local water monopolies can only help consumers.

* I could give hundreds of examples but note that the most persistent monopoly is a government monopoly: The USPS has controlled our mailboxes since 1775. Think businesses are bad? Not even close. (Consider how Microsoft destroyed IBM and is, in turn, being destroyed by Google, which will be destroyed by...)

** If Nestle has a profit of $0.02/16.9 oz bottle [see 4 here] and offered McCloud $0.70/1,000 gallons, then McCloud would have received 0.46% of that profit. Ouch.

3 comments:

  1. The bottled water companies may not have incentives to do so...In the long run if all municipal water quality improves due to pressure from consumers to meet bottled water standards, don't they lose all business?

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  2. Hmmm... so you're saying that the bottled water companies may prefer to be vague about their water quality because the SR gain in profits/sales may be offset by LR losses in same? If SR is one year and LR is ten years, I'd be skeptical of this notion. Since I think those time frames are reasonable, I am.

    OTOH, municipalities and bottled water manufacturers BOTH have an incentive to test the other's water to try to destroy the other side's share. In equilibrium, both would test. I wonder why that's not happening...

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  3. Nestle took a beating in McCloud because their contract was negotiated without public input, then signed by the McCloud Services District (MCSD) at the end of their first public meeting.

    Naturally, half the population was enraged by the lack of public input and review - and that outrage didn't get any better after they actually reviewed the contract, which was one of the biggest corporate hose jobs of all time.

    Some of the reasons for fighting Nestle go far beyond the economics of a bad deal (if you haven't reviewed the original contract, it's good for a laugh).

    Some residents didn't want 500 truck trips a day rolling in and around the town. Others objected to the potential pollution questions, and still others simply didn't think handing exclusive right to McCloud's drinking water springs to Nestle - for 100 years with zero increase in payment to the town - was a very good idea.

    I got involved when Nestled started wielding their legal bludgeon and subpoenaed the private financial records of opponents (some of whom were friends).

    It didn't take much research to discover similar tactics being employed elsewhere by the company (they've sued the tiny city of Fryeburg, Maine five times to try and force the building of a truck loading station in a residential neighborhood).

    In other words, the problems with the Nestle deal in McCloud stretched far beyond the financial, and Nestle's facing opposition in other parts of the country for reasons largely unrelated to money.

    A share of the profits doesn't solve truck, noise, and local control issues.

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