As a distributor in England, Roger Healey saw firsthand the dramatic rise in 5-gallon bottled water sales in the 1980s, partly due to a drop in consumer confidence in municipal tap water.

Since then, the current international sales director for the Dover, DE-based Sunroc Corp. estimates, sales have grown by 30 percent annually, easily the largest emerging market in the bottled water industry.

But after more than a decade of such heady growth, Healey believes the market is just now truly poised for explosive expansion. He says market penetration is only about 500,000 units for a market approaching 350 million people, including Eastern Europe.

In comparison, there are an estimated 6.5 million units in the 260-million-person US market. Domestic growth is predicted to grow around 4 percent in the next three to five years vs. 40 percent in Europe, researchers say.

While sales have been strong, bulk bottled water sales still don't even translate to 1 percent of total bottled water sales in Europe, a study released earlier this year by Zenith International shows. With bulk bottled water sales in the United Kingdom making up 16 percent of total European sales, a battle is brewing for the continent's consumers, industry observers say.

Observers say the UK market will still mean more profits for companies in the near future with its greater consumer acceptance and more mature marketing system already in place.

Faster growth in the UK is attributed to larger, multinational corporations, such as the Northbrook, IL-based Culligan International Co., setting up distribution networks sooner. Also, Healey says the privatization of UK's municipal water system in the 1980s under then Prime Minister Margaret Thatcher brought water issues to the forefront of the nation's consciousness.

"There was a lot of coverage and revelations about the lack of quality through the efforts of groups like Greenpeace," Healey says.

At this point, "the appeal of having water coolers in offices is only going to improve," says Healey. "The groundwork has been done, with many old consumer habits fallen by the wayside."

Economics play a role

Another reason for the brisk expansion in the European cooler market is economics, says Steve Singer, managing director of the New Rochelle, NY-based Pure 1 Corp.

"The market in the US is pretty saturated, and other emerging countries are still developing," he says. "In Europe, there is an educated consumer and an improving economy."

Europeans have long been at the forefront of bottled water consumption, whether mineral water such as Perrier or springwater like Evian. Since the 1970s, consumers have regularly toted 1/2-liter to 1-liter bottles with them to work.

However, several obstacles stood in the way of the cooler market coming into its own sooner, observers say. One problem was that many countries passed legislation limiting the sizes of containers in which water could be sold. Another was the perception that bulk bottled water was inferior to that in smaller-size bottles. And many companies refused to pay for employees' individual water consumption.

"These days, many see coolers as a perk. A way to show appreciation to employees," says Jason Holway, director of research at the UK-based Zenith International, a food and beverage market research firm. "With changing consumer behaviors, many times employees push manangement to purchase coolers."

An improving economy in Europe is tightening the European labor market, as it has in the United States, forcing many firms to add stock option bonuses and other health insurance benefits. But small things, such as free bulk bottled water, often count for a lot.

"It's relatively inexpensive and becoming more affordable all the time," says Holway. "The market is becoming sophisticated and mature, but the growth should remain at 40 percent annually for at least five years, and then taper off a bit."

The move toward a unified European market through the Euro currency and the European Union is easing trade barriers in general, which is lowering manufacturers' costs and prices while piqueing consumer demand, Healey says.

Also, he added, the "harmonizing" of regulations is allowing companies to circumvent specific size regulations. While France still has strict standards on size limitations, the European parliament has passed laws increasing the allowable sizes of containers, which enables a company that bottles elsewhere to sell in France, Healey says.

With the European market opening up and consumer awareness and sales never higher, a wave of consolidation has swept through a traditionally staid water business. Consolidation has enabled companies to raise capital to increase manufacturing capacity and launch new marketing campaigns.

Meanwhile, Perrier is launching its own 5-gallon-jug division to ply the market with its sizable resources, a move unthinkable just three years ago, Zenith's Holway says.

"There's been reluctance on the part of many old European mineral water companies to market spring and purified waters," he says. "It's truly an indication of how the market has progressed."

US companies head east

Not only are European companies positioning themselves for the burgeoning bulk water segment, but US companies are investing millions to reap profits from it as well.

In the past several months, a flurry of transactions gave evidence that many companies have decided Europe's growth potential is too big to ignore.

Pure 1 opened its first European office July 31. The point-of-use products distributor says growth in the cooler market was primarily responsible for the move. Officials put the total investment planned during the next several years over the $1 million mark.

"The expansion of Pure 1's sales throughout Europe and North Africa and the rapid growth in the popularity of water coolers made this move inevitable," says Cliff Rosen, Pure 1 vice president.

Sparkling Spring Water Holdings Ltd. in August raised $10 million through a stock offering with Egeria BV in Amsterdam. The deal gives the Dartmouth, Nova Scotia-based bottled water producer a major infusion of cash for acquisitions in the UK and the European continent, including water cooler manufacturers and distributors, company officials say.

Elkay, an Oak Brook, IL, cooler manufacturer, completed a major consolidation of its international division to move forward its European development opportunities, including strategic alliances.

And Healey's Sunroc Corp. opened a bottling plant in England as the first step in a multi-year plan to expand European sales. Healey says there are plans to expand manufacturing in the next several years as anticipated sales materialize.

Healey says Sunroc plans to invest "around $3 million to $4 million" in its European operations over the next five years. The new plant will allow Sunroc to produce its products more cost-effectively and translate those savings to the consumer, making the company more competitive.

"It's a sizable investment, but it shows the strength of the European market," Healey says.

Timothy Kane is a free-lance writer in Waterford, NY.