Tuesday, August 23, 2005

Blame the Supply Chain for $2 Bottled Water

My brother and I often don't see eye to eye. He is a vegan (doesn't eat anything with eyes), while as you know from my Seattle posting, I'll take some Alaskan crab legs with melted butter any day of the week. We often clash on a variety of topics such as new construction in our beloved Brooklyn, current events and most recently on the cost of bottled water. I think I won the argument, but you would never know if you asked him. He just doesn't understand why "corporate America", as he puts it, needs to charge so much for water, which is why he refuses to drink it. His case, which he based on a recent NY Times article is ounce for ounce, bottled water costs more than gas, even with the $3.00 per gallon costs we have today. Bottled water also costs 250 to 10,000 times more than tap water, creating a $46 billion industry. He views it as corporate America being a capitalist pig, while I argued that it makes good business sense. [Note: the water to gas argument is flawed, since gas is heavily taxed and water is not, but I kept this in my back pocket.]

Using my vast supply chain knowledge (well, compared to him anyway) and a few searches in Yahoo! I made my case. According to a study at Duke University called "Economies of Scale of Bottled Water" the logistics/transportation to get water from the bottling plant to the retailers is more expensive then the water itself. In fact, according to the report, for water that costs one cent per gallon, it may cost up to five cents per gallon to ship it.

So drum roll please, here is where I sealed my argument....the reality is the $2 you pay for a pint of the finest, clear beverage on Earth (besides vodka, that is) actually is for the convenience of having it where you want it and when you want it and not for the actually product. So if you want to blame anything, blame the supply chain. This is often the case in many commodity products, such as fruits and vegetables and even lumber and gravel. Logistics providers need to make a living and you can only discount freight costs so much, where else are they going to go? On a smaller scale, I told him to think about how much it would cost him in transportation costs to go to Maine for a glass of water from the Evergreen Springs?

The next time I see my brother I'll have to tell him that major cities, including Kansas City and San Francisco, have started bottling tap water. The same water Kansas City locals get for a few pennies a gallon is now being sold to them at the store by the local government for .40 cents per 20 ounce bottle. In San Fran, they are charging $1.24 for 19.9 ounces. Who is the pig now?

3 comments:

Barry Leiba said...

It's true for much of the mass-market food products: the overhead (labor, transportation, packaging, etc.) is greater (often by far) than the costs of the ingredients.

As to whether bottled water is worth the price they're charging for it, I'll use the Bob Dunscomb argument here(*): If people are paying it, it's worth it to them. If enough people are paying it, it's worth it to the seller. If you don't think it's worth it, don't buy it.

For what it's worth, I'm with the Sciacca Brother on this: it's not worth it to me, and I don't buy it. But that's my opinion, and there can be no objective measure of this.

(* Bob used to work here at Watson, and in the days of online discussions about the cafeteria he often responded to complaints about pricing with the comment that if you buy their food, you agree with their pricing. Some responded that, well, we buy it because it's convenient, and it takes too long to go out... to which Bob's response was that the convenience is all part of it -- the convenience is worth some amount of money, as are the other aspects, and the buyer decides what's worth it and what isn't, voting with his money.)

Gordon Oppenheimer said...

Fox 5 News in New York City did a taste test with various bottled water against NYC tap water. Guess what? The NYC tap was rated the best.

At least NYC residents shouldn't be paying for a supply chain.

Drew Winter said...

Price of
water in Europe is 2 euros (about $2.50) for 330 ml!
That's about 40 US cents for a shot glass of water.
They can charge anything they want. But I believe the
government should always require the installation of
free water coolers or the old water bubblers in public
places like airports and bus stations -- so you're not
forced to buy it.