Coca-Cola's (NYSE: KO) Dasani bottled water brand faces an uncertain future in the U.K. following a recall instituted late last week. The voluntary recall was a proactive move based on testing, which indicated elevated levels of bromate present. Coca-Cola added the bromate, a non-metallic salt, to satisfy British calcium requirements. (It's not used in the Dasani sold stateside.)
The hasty removal of 500,000 bottles from shelves is not expected to be too costly, provided they are quickly replaced, but the lingering public relations fallout may soon become a major obstacle for Dasani's penetration of the lucrative European bottled water market. The recall comes on the heels of a wave of negative publicity surrounding inquiries into Coca-Cola's use of the term "pure" to describe Dasani, which is essentially purified tap water.
The product's bottling methods have been openly acknowledged, and the practice is fairly common. Still, British consumers have shunned Dasani, despite $7 million spent by Coca-Cola to introduce the brand. Given the homogeneous nature of bottled water, with arguably little to distinguish one product from another, marketing and public perception are vital to sales. The precautionary recall, while laudable, may force Coca-Cola to prematurely consider removing Dasani from the British market. Considering fully 67% of Coca-Cola's revenues are generated overseas, this development is problematic.
The bottled water market -- with over 900 brands available -- remains highly fragmented, but consumers have begun to coalesce around several market leaders. Dasani has vaulted to the No. 2 position in the U.S. market, behind PepsiCo's (NYSE: PEP) Aquafina. Overall, both Coca-Cola and Pepsi trail Nestle (OTC BB: NSRGY), which markets a stable of water brands including Ozarka, Perrier, Arrowhead, and Aberfoyle.
In addition to generating a good deal of its sales overseas, Coca-Cola is also becoming increasingly reliant on its non-carbonated beverages. They are higher margin, faster growing, and now represent 17% of the company's total volume. An aggressive public relations campaign needs to be wagered to counter the recent spate of bad news, or the repercussions may soon spread to other European markets or possibly across the pond to our own. With a 9% drop in bottled water prices last year, and renewed talk of a price war looming on the horizon, that is the last thing Dasani needs.
Talk about Coke's Dasani problems with other Fools on the Coca-Cola discussion board.
Fool contributor Nathan Slaughter owns none of the shares mentioned. He welcomes your email.
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