Selling The Sizzle Of...Water?

Fountainhead hopes to package its way to profitability

You're a fledgling company in an exploding market. You think your product superior to rival brands, but most consumers can't tell the difference. You've no profits, little to spend on marketing, and about 500 competitors, from expansion-minded locals to global giants. You need big volume to break even. So, how do you boost distribution and get customers' attention?

For Fountainhead Water Co., the answer was packaging. After capping the first five-gallon jug from its Blue Ridge mountains aquifer in 1991, the Atlanta-based company expanded in the $4 billion bottled water market with a flow of new designs. By 1996, sales hit $5 million, yet profits remained elusive. President Kevin McClanahan sought a packaging breakthrough. The concept was a bottle with dual appeal: an unusual two-liter size--the recommended daily dose--and elegance for a dinner table. After choosing from 60 design proposals, Fountainhead spent $25,000 on a prototype and tested it on shoppers in Nashville and Atlanta. "They hated it," says McClanahan. "They thought it looked like bleach, like kitty litter, anything you might not want your water associated with."

Fountainhead moved fast on its second choice, a tall, fluted bottle. Rolled out last spring, it won awards from industry groups and praise from consumers--and proved a hit with distributors and retailers. "You can have the best water, from a 3,000-year-old well, but that doesn't sell it. The bottle does," says Fred Sipper, president of New York beverage distributor Mootch & Muck Inc., which put Fountainhead in local stores.

"For an early-stage company, it's a very strong way to break through," says brand expert Bill Rosenzweig. "But is it sustainable?" Rosenzweig, president of San Francisco-based Venture Strategy Group, was CEO at Republic of Tea, also in San Francisco, in 1992 when it introduced a canister imported from Japan. Within a year, competitors had similar canisters. Fountainhead is patenting its fluted design and extending it to most of the line. But not all design innovations are patentable. For example, neither the size nor the widened spout for easy pouring can be protected.

But even a temporary advantage can give a small company a leg up--and that can be critical, particularly with a product as close to a pure commodity as water. Since 1993, Fountainhead has made yearly changes in packaging, picking up sales outlets each time. Eight distributors signed on when a six-pack of one-liter bottles was launched in 1994, pushing sales from less than $2 million in 1993 to about $4 million in '94. A squeezable sport bottle, introduced in 1995, brought in 35 more distributors. Likewise, the fluted bottle has lured major regional supermarket chains such as Kroger, Winn-Dixie, and Big Bear.

Killer packaging may cost less than advertising, but it's not cheap. The fluted bottles cost Fountainhead 2 cents to 5 cents more apiece than the mass-produced ones used by most water companies. Development costs add up, too: $100,000 to make and rejigger machinery for the sport bottle, and $175,000 more for the flutes.

WARY PUBLIC. Those costs sting in an industry that competes on price--particularly as containers account for 40% to 60% of what consumers pay. "Some of these costs we have to just absorb," McClanahan admits. But he thinks bigger sales will yield Fountainhead's first profits--$500,000 to $1 million this year.

In the long run, water quality will be key to building sales, analysts say. Having discovered that filtered tap water can be bottled and sold, U.S. consumers are becoming warier of content. The Food & Drug Administration recently required labels that identify sources and treatment processes, and industry groups now give prizes for taste as well as packaging. Aware of the trend, Fountainhead is starting to include taste tests in its marketing efforts. Will consumers notice the difference? Maybe. For now, Fountainhead is pleased if they just notice the bottle.

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