Tight margins, increasing costs and new fees may soon force Canadian bottled-water producers to pass on rising production costs to their customers.
As Ontario moves to raise the amount it charges next year to industrial and commercial water users under the province's water resources legislation, companies in the sector are eyeing mounting expenses.
Even at an extra $3.71 per million litres of water used - the amount Ontario will charge as a "conservation fee" - when broken down to a cost per bottle, it could be as low as a fraction of a cent depending on the amount of product.
However, there is concern that constantly rising costs are making it harder for bottled-water operations to survive.
"One of our biggest concerns is the family-owned Canadian company. We want to ensure that they're able to maintain their health and growth," says Elizabeth Griswold, executive director of the Richmond Hill-based Canadian Bottled Water Association (CBWA), whose member companies produce and distribute about 85 per cent of the bottled water sold in Canada.
"That's really important for the long-term health of the bottled-water industry."
Ontario's environment ministry says the new charge is not a tax, but rather a move to recover the portion of administrative costs it incurs to manage its water resources.
While the CBWA supports groundwater management practices that are based in science, it also says the costs should be fair and broad-based.
It notes Ontario rules currently apply only to commercial and industrial water users and not other users such as golf courses.
"What's interesting is that as an industry, we use as much water as 10 golf courses in Ontario, and there's 700 golf courses in Ontario. So our water use is quite small," says Griswold.
She adds it's too early to tell what the ultimate impact of the new Ontario charge will be, or if it will change the bottled-water industry in Canada.
However, she does point out it could place Ontario producers at a disadvantage if other provinces have lower fees. Alberta, for example, charges a one-time fee for a licence but has no immediate plans to introduce a charge similar to the one in Ontario.
In Ontario, Environment Minister John Gerretsen has said that the new water-taking fees "are at the low end" of where he thinks they should be, but said he's not prepared yet to put an actual price on water the companies take.
"Those are the kinds of things that are in discussion right now, and I'm just not prepared to put any kind of a number on that right now," Gerretsen said. "At one time, they got the water for nothing."
Nestle Canada Inc. was recently given the green light by the Environment Ministry to take 1.3 billion litres of groundwater a year from an area near Guelph, for only the cost of a $3,000 application fee.
The $3,000 Nestle spent to secure the rights to 3.6 million litres of water a day in Ontario would cost the company more than $1.1 million if it took the same amount from a community in central Massachusetts, which is charging Nestle Waters North America $2.55 for every 100 cu. ft. of water.
About 10 million litres of water are taken in Ontario every day to be bottled for sale.
Danna O'Brien of Refreshments Canada, a Toronto-based trade association representing companies that manufacture and distribute the majority of non-alcoholic beverages in Canada - including Coca-Cola and bottled water - also says it's premature to measure the impact of the new cost.
Ice River Springs Water, the largest privately held bottled-water company in Canada, says it won't be increasing its prices in light of Ontario's latest move. "The $3.71 per million litres is certainly sustainable for our industry, it's at a level where we aren't going to pass it on to the consumer," says Sandy Gott, executive vice-president of the Feversham, Ont.-based company. "The concern for me is when they talk of perhaps (further) increasing those fees."
Noting 24-bottle cases of water can retail for as low as $2.40, she adds: "Our industry right now is very competitive, so there isn't room to pass it on to the consumer."
Because the company deals with national clients - including Wal-Mart Canada and other large national chains - it has to have uniform pricing across the board and can't afford to charge different prices in different regions because of provincial fees.
But Gott is more concerned by soaring oil prices, which in turn spell higher fuel and transportation costs, as well as increasing prices for resin to make the water bottles.
To keep costs down, Ice River is embarking on a plan to build smaller regional plants closer to its customers.
In 2004, it opened a plant in Cranbrook, B.C., which handles the B.C., Alberta and Saskatchewan markets, while the company's Ontario operation supplies the rest of Canada.
It's also adding three more plants in the U.S. to supplement an existing facility in Morganton, N.C.
Ice River is also making its water bottles lighter. When the company first started in 1995, its 500-millilitre bottle weighed about 22 grams.
Today, the same bottles weigh 11.8 grams, meaning a lighter product to ship and a reduction in the amount of plastic used. The company's goal is to reduce the weight by one additional gram.
"Our plan is to become more efficient," adds Gott.
At Muskoka Springs Natural Spring Water in Gravenhurst, Ont., which includes a large private label bottled-water business, president Michael Billinghurst is mulling over what to do about the cost of the new Ontario charge.
Billinghurst says a decision has not yet been made on passing the cost increase to customers.
"Like lots of things as a business owner, you tend to eat them up rather than pass them on - it's so competitive," he says. "We do charge a small fuel surcharge, but by no means does it cover the (rising fuel) cost. The money just comes off the bottom line."
He adds he expects that the Ontario fee will amount to less than a penny per bottle, and unnoticeable on a package of 24 500-ml bottles.
"But again it's a tax. It's another thing that is added on to your bottom line."
Wahta Springs, based in the Wahta Mohawk community in Ontario's Muskoka region, is also unsure about the impact of the new charge, as it's a much smaller bottled-water producer and uses less annual water volumes than its bigger competitors.
"We're a small entity, which focuses on the niche market of private labelling," says Wahta Springs general manager Sandra Franks.
"If we were to fall under this act for paying the taxes, most definitely I would say it would have an impact. Anything that imparts on the cost of doing business means less chance of having jobs."
Franks points to the bottled-water industry's already-slim margins.
"The grandiose thinking out there is that we're making oodles of money on bottled water, but that's not the manufacturer, it's the retailer," she adds.
"The bottom price water goes out our door is $3 for a case of 24. That 12.5 cents a bottle. Factor in raw materials and overhead. It's not rocket science," says Franks.
"That money (bottled water being sold at $1 to $2 or more a bottle) is going into the pockets of people selling the water, not ours," Franks adds.
- with files from The Canadian Press
Water, water ...
* Bottled water holds a 9.1-per-cent share of the Canadian beverage market, according to 2006 figures from New York-based Beverage Marketing Corp.
* In Canada, bottled water producers use 1.03 litres of water to bottle one litre of water in the manufacturing process.
* Less than two-tenths of one per cent of the total groundwater is withdrawn per year for annual bottled-water production.
- Source: CBWA
