"CANADIAN COOL CLEAR WTAA INC. (WTAA) is a company with all the necessary attributes to become a major player in one of the most dynamic, expansive industries of the 21st century. This time we're not talking tech / Internet or anything that's hard to fathom. As its name implies, WTAA is about to make a big splash in the cool clear bottled drinking water business. You're not really in vogue these days unless you're sporting a personal water container, but the business of supplying North America with safe, refreshing, clean water goes far beyond that.
There's water in bulk for the home and office, and a multitude of commercial accounts. Then there are the small package products and the premium sparkling water markets. All in all it adds up to more that US$4 billion annually. Over a five year period, WTAA hopes to grow revenues to over $100 million annually with a gross profit margin exceeding 50%. Because we're at the very beginning of the WTAA story, we consider its stock an excellent speculation at this time and recommend it as a BUY.
It's quite an ambitious mission to grow a company from zero to over $100 million in revenue with a healthy profit margin in five years. Lots of things have to be available and lots of things have to fall into place. Let's take a look at the bottled water business and the company's business plan and examine how WTAA plans to capitalize on each of them.
Drinking water is the source of life! That's all you need to know about this business to realize it is bullet-proof from technology change, consumer preference, deflation, inflation, or a declining stock market.
Successful companies in the bottled water business will have earnings regardless of economic conditions – and earnings are what ultimately determine stock prices. North Americans used to take the luxury of clean tap water for granted, but that's no longer the case. Today, what comes out of the tap is being labeled as a drinking water crisis. Education, the quest for a healthier lifestyle, and the simple pleasure of enjoying a cool glass of refreshing water are driving forces behind the magnitude of the burgeoning demand for clean bottled water.
Most importantly, however, the bottled water industry is driven by demographic and economic growth.
To carve out $100 million or more of market share, the total market has to be substantial and it has to be growing. The North American bottled water industry totals about $4 billion in wholesale sales. It has enjoyed an average growth rate of 12% per year over the past decade. It has been the fastest growing segment of the beverage industry for the past 14 years. Recently, it has emerged as the drink of choice as a substitute for both soft drinks and municipally supplied water. In the United States, in 1997, consumption of bottled water averaged 12.7 gallons per year per person. This amount is expected to increase to 17.7 gallons per capita by 2002, representing a projected market of $5 billion. The size of the market is more than adequate.
The North American bottled water industry consists of three categories of products: non-sparkling or still water, sparkling water, and imported specialty water. In 1985, non-sparkling water accounted for 71% of industry sales or about $831 million. Ten years later, its share had remained nearly constant as a percentage of total with 1995 sales at 72% or $2.1 billion. Domestic and imported sparkling water each accounted for about 14% of sales, about $420 million each. These markets are dominated by a handful of multi-national players that accounted for over 61% of all bottled water sales in 1997, the latest year for which figures are available. The remaining 39% is filled by a large number of highly fragmented, small regional players that represent excellent acquisition targets under a "roll-up" strategy that WTAA plans to implement.
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