Liquid Gold?


Oil used to be called liquid gold. Then environmental problems grew so drilling was not so easy. How has this affected the oil business? More profits! Will the water be next? See why below.

Not more than a week after I started this series on investing in Wood, Water and Air, articles began showing up all over the place about the shortage of all three

Every day the value of clean, pure water becomes increasingly apparent. Take for example the Wednesday April 18, article by Traci Watson in USA Today, page 3A entitled "Nation's Thirst Raises Fears for Springs". This article shows that bottled water could surpass coffee and milk in popularity by 2004. Soft drinks will still lead the way (which makes me suspect we should also invest in dentistry and treatments for diabetes), but bottled water would be the second most consumed drink.

The article outlined a struggle that is rising between local communities and large bottling companies that want to buy springs of pure water for bottling. The story told how was the community of Stevens Point in Central Wisconsin battled Perrier over their proposal to place a bottling plant at Schmudlach Creek. After strong opposition Perrier has moved its search for a Wisconsin plant elsewhere.

Here are some excerpts from the article:

Perrier is the giant of the bottled water industry with 75 spring sources from Maine to California. It markets U.S. water under the brands Ozarka, Deer Park, Zephyrhills and Poland Springs. Their U.S. revenues grew 130% to 5.2 billion in the past 10 years.

Perrier is nearly twice as large as its nearest competitor Danone which markets Evian and Volvic. Perrier has over ten labels and controls about a third of the market.

The article points out that there are "Save our Spring" Chapters in Central Florida, Michigan, challenging the location of Perrier plants.

Soft drink makers have noted the growth of these water firms and it is likely that there will be increased competition for springs in isolated areas. The chairman of the Beverage Marketing Corporation says, "We look at water as a scares resource such as oil, especially on a global basis."

There are several messages we can learn from this information.

First we can see the power of rule number one of Inspired Investing (Invest in what you know). Perrier, a French Company has known the bottled water business well because of the bad water supply that has existed in France for centuries. They used this knowledge to capture a huge share of a foreign country (the U.S.) because businesses in the U.S. were not familiar with water scarcity.

The second lesson is a confirmation that land with fresh water will become increasingly valuable.

The third is that there will be a water crisis and struggle between water bottlers and environmentalists. This struggle will not make the water business less profitable. The old adage that "where there is muck, there is brass" remains true. Business does not pay tax nor environmental costs. They simply pass them onto the consumer. The struggle will increase profits in the water business and just pass added costs onto bottled water consumers.

For more information about businesses that invest in water you can contact our eClub advisors through us at info@garyascott.com

We will look at environmental issues and how they affect investing when we meet for our Inspired Investing courses this summer and spring here at the farm and enjoy the many water resources we have here (where the spring water to drink is free!)

Until next message, good global investing!

Gary


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