# why don't profits fall to near zero in low barriers to entry businesses like bottled water? **URL:** \ **Category:** Factual Questions\ **Created:** [October 25, 2011, 4:35pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747 "2011-10-25T16:35:29Z")\ **Posts on this page:** 14\ **Page:** 2
**Author:** ![Baffle](https://avatars.discourse-cdn.com/v4/letter/b/dec6dc/32.png) [@Baffle](https://boards.straightdope.com/u/Baffle)\ **Post date:** [October 25, 2011, 8:52pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/21 "2011-10-25T20:52:52Z")
> [@KneadToKnow](#): > > You’re deluding yourself with irrelevant facts. It doesn’t cost the same to put a picture of a product you sell on your own website as it does to pay to advertise through other means. Even if through some bookkeeping hanky-panky one side of Costco’s headquarters “pays” the other side of the building for doing such, it’s obviously not money coming out of Costco’s corporate wallet. It doesn’t cost me anything to move a quarter from my front right pocket to my front left pocket. Costco isn’t paying itself; they’re paying employees. Or, more likely, a third-party contractor. Then they have to pay for hosting. How can you assert that websites don’t cost money? ---
**Author:** ![KneadToKnow](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kneadtoknow/32/3999_2.png) [@KneadToKnow](https://boards.straightdope.com/u/KneadToKnow)\ **Post date:** [October 25, 2011, 8:59pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/22 "2011-10-25T20:59:49Z")
> [@Baffle](#): > > Costco isn’t paying itself; they’re paying employees. Or, more likely, a third-party contractor. Then they have to pay for hosting. How can you assert that websites don’t cost money? Oh, for crying out loud. I’m not asserting that websites don’t cost money. I’m asserting that it doesn’t cost as much to put a picture of something you sell on the website you use to sell it as it does to advertise it through other means. Are you seriously asserting that the minuscule fraction of a penny that it costs in bandwidth to make that one picture available through their own site and the fraction of an hour’s time they paid staff to take the picture and upload it costs as much as it would cost to mount an actual advertising campaign for that product through other media? ---
**Author:** ![code\_grey](https://avatars.discourse-cdn.com/v4/letter/c/f4b2a3/32.png) [@code\_grey](https://boards.straightdope.com/u/code_grey)\ **Post date:** [October 25, 2011, 9:34pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/23 "2011-10-25T21:34:48Z")
> [@Baffle](#): > > Bottled water profits are near zero already, per bottle. Costco may sell their 500ml bottles for 13 cents each; that means the factory gets about seven. And those seven cents have to cover the bottle (PET resin, and electricity to run the injection molding, blow molding, and bottle delivery machines) the water (more electricity to pump the water, filter it, possibly remineralize it, disinfect it with UV and ozonate it) the caps (more injection molding and resin) the labels, the case trays, the shrink film, and then it needs to be put on a pallet and stored or shipped. Each of these steps is performed by a million dollar machine that is constantly needing replacement parts, and you’ll need a couple million a year, at least, to staff it. Then you need a building to put it in and engineers to hook it all up. And you need to clean the whole thing weekly so your product remains safe. All that for a line that will produce a million bottles a day. > > The profit margin is very slim. The big three bottled water companies (Coke, Pepsi and Nestle) compete fiercely and don’t collude to keep prices artificially high. They are as low as they can go. if we dig ditches by hand, we will operate at near zero profits while selling some pretty darn expensive ditches. If there were a market for cheaper bottled water and if, arguendo, those 500ml bottles you mention are inherently expensive, perhaps the new entrants in the market would look for cheaper bottles. Like, bigger and more rectangular (for easier shipping) canisters. In practice, I am pretty sure they already sell at least a gallon size bottles. Though probably no 3-5 gallons variants which would, conceivably, be intended for storage in the kitchen fridge between meals. ---
**Author:** ![Dravin](https://avatars.discourse-cdn.com/v4/letter/d/da6949/32.png) [@Dravin](https://boards.straightdope.com/u/Dravin)\ **Post date:** [October 25, 2011, 9:57pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/24 "2011-10-25T21:57:22Z")
> [@code\_grey](#): > > In practice, I am pretty sure they already sell at least a gallon size bottles. Though probably no 3-5 gallons variants which would, conceivably, be intended for storage in the kitchen fridge between meals. Thinking about something like these? > **[Home | Arrowhead® Brand Mountain Spring Water](https://www.arrowheadwater.com/#/products/our_products/2.5gallon/)** > > Our Arrowhead Mountain Spring Water is sourced from carefully selected, naturally occurring springs in California, Colorado, and Canada. > **[Robot or human?](https://www.walmart.com/blocked?url=L2lwL0dyZWF0LVZhbHVlLVNwcmluZy1XYXRlci0yLjUtZ2FsLzEwMzE1MjM3&uuid=2b7638b3-73c9-11f0-af93-3c558b58e347&vid=&g=b)** I notice Arrowhead has 3 and 5 gallon sizes, but they’re intended for water coolers, and you can find water stations (such as these [http://www.glacierwater.com/](http://www.glacierwater.com/)) with like sized and intended bottles at quite a few grocery stores. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [October 25, 2011, 10:21pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/25 "2011-10-25T22:21:58Z")
> [@code\_grey](#): > > In practice, I am pretty sure they already sell at least a gallon size bottles. Though probably no 3-5 gallons variants which would, conceivably, be intended for storage in the kitchen fridge between meals. They _do_ sell bottled water in gallon-size bottles, as well as larger ones. (Have you ever _been_ in a supermarket?) Some supermarkets even have kiosks where you can refill a five-gallon bottle for about a buck or two. So it is possible to buy bottled water cheaply. But a big reason that people buy those 500ml bottles of water is that they’re convenient; to have in the car, to take to your kid’s soccer game or to hand out in corporate meetings. ---
**Author:** ![code\_grey](https://avatars.discourse-cdn.com/v4/letter/c/f4b2a3/32.png) [@code\_grey](https://boards.straightdope.com/u/code_grey)\ **Post date:** [October 25, 2011, 11:16pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/26 "2011-10-25T23:16:09Z")
> [@Dravin](#): > > Thinking about something like these? > > [http://www.arrowheadwater.com/#/products/our\_products/2.5gallon/](http://www.arrowheadwater.com/#/products/our_products/2.5gallon/) > [Robot or human?](http://www.walmart.com/ip/Great-Value-Spring-Water-2.5-gal/10315237) > > I notice Arrowhead has 3 and 5 gallon sizes, but they’re intended for water coolers, and you can find water stations (such as these [http://www.glacierwater.com/](http://www.glacierwater.com/)) with like sized and intended bottles at quite a few grocery stores. exactly, thanks for the pointer. ---
**Author:** ![Baffle](https://avatars.discourse-cdn.com/v4/letter/b/dec6dc/32.png) [@Baffle](https://boards.straightdope.com/u/Baffle)\ **Post date:** [October 26, 2011, 12:50am UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/27 "2011-10-26T00:50:47Z")
> [@code\_grey](#): > > if we dig ditches by hand, we will operate at near zero profits while selling some pretty darn expensive ditches. > > If there were a market for cheaper bottled water and if, arguendo, those 500ml bottles you mention are inherently expensive, perhaps the new entrants in the market would look for cheaper bottles. Like, bigger and more rectangular (for easier shipping) canisters. > > In practice, I am pretty sure they already sell at least a gallon size bottles. Though probably no 3-5 gallons variants which would, conceivably, be intended for storage in the kitchen fridge between meals. You didn’t ask about entry into the water industry. You asked about the bottled water industry. Surely you can see the difference: you have to account for the cost of the bottle. Bottled water can’t go cheaper. ---
**Author:** ![Joey\_P](https://avatars.discourse-cdn.com/v4/letter/j/919ad9/32.png) [@Joey\_P](https://boards.straightdope.com/u/Joey_P)\ **Post date:** [October 26, 2011, 1:10am UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/28 "2011-10-26T01:10:20Z")
> [@code\_grey](#): > > bottled water seems to be a prominent example of a product that seems to sell for a lot more than production cost. E.g. googling for (bottled water ripoff) or fraud or scam returns lots of concurring claims. > > Well, so why are there no new entrants in the market in the lower price range, such as at the price close to production cost which we would expect from an efficient market with low barriers to entry? Is it the case that the vast majority of consumers of bottled water also happen to be brand conscious to an asinine degree and refuse to buy new brands? Or are there heavy regulatory costs that prevents introduction of products from new entrants, both local and foreign alike? At our store when we aren’t using private labeled water (with our logo) we use Nestle Pure life or something else along those lines. We either pick it up at Restaurant Depot or Sam’s Club or we have it delivered by Sysco. I believe no matter where it comes from it costs 12.5¢ per bottle. If you can turn some plastic pellets, a label and some potable water in to something that consumers will buy and get it to my dock door for less then 12.5¢ and still be able to turn a decent profit for yourself you’ll be a rich man. You can call it a rip off or a scam but I can’t see it. If they’re selling it to me (or you) for 12.5 cents per bottle, can you imagine how little they’re making per bottle? I doubt they even measure their profit on a per case basis it’s probably still so minuscule. As for what stores charge for it when consumers buy it by a single bottle. It’s a combination of what it costs to cool the bottle, keep the coolers maintained and stocked, pay for the coolers in the first place and ultimately, what the consumer is willing to pay. Also, I don’t think many consumers are all that concerned about the brand. Personally, if I’m at a gas station and want a cold bottle of water, I really don’t care what brand it is (as long as it isn’t one that I don’t like). I typically just grab the cheapest one. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [October 26, 2011, 11:20pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/29 "2011-10-26T23:20:15Z")
> [@Baffle](#): > > Aside from the cost of machinery, don’t underestimate the difficulty of securing a source of water. Given the public outcry that happens every time a bottling plant tries to even renew its permit, can you imagine the protest against a new plant? And your plant can’t be far from your market, or you’ll incur too much transportation cost to be viable. > > Your premise is fallacious: you assume that profits aren’t already near zero, and you assume that there are low barriers to entry, and you are wrong on both accounts. Isn’t most “spring” water simply city tap water (that has been filtered and had some mineral salts added to it)? Belmont Springs (MA) operates this way. ---
**Author:** ![Baffle](https://avatars.discourse-cdn.com/v4/letter/b/dec6dc/32.png) [@Baffle](https://boards.straightdope.com/u/Baffle)\ **Post date:** [October 27, 2011, 2:12pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/30 "2011-10-27T14:12:13Z")
> [@ralph124c](#): > > Isn’t most “spring” water simply city tap water (that has been filtered and had some mineral salts added to it)? > Belmont Springs (MA) operates this way. That depends on jurisdiction, but in my jurisdiction, labelling regulations require criteria for different types of water. Spring water has to come from either a spring or a well with similar mineral salt content (amount of ions and type). Here, Nestle sells spring water while Coke and Pepsi sell remineralized water, sourced from municipal tap water then filtered by reverse osmosis before minerals are added in a company standard recipe. Other options include ditsilled or reverse osmosis water. My jurisdiction is Ontario, Canada. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [October 27, 2011, 3:09pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/31 "2011-10-27T15:09:17Z")
Look, of course there is a way to deliver drinking water to people that is a lot cheaper than pouring it into plastic bottles, loading the bottles onto trucks, and selling them on supermarket shelves. This method is called “tap water”. However, if your business plan is, in fact, to pour water into plastic bottles and truck those bottles to supermarket shelves, how much cheaper can you get? OK, you could try selling large jugs. They already do that. Go to the supermarket and you can get water in any size container you want. It may seem nonsensical to you that a bottle of water and a bottle of soda cost the same in a vending machine. But it makes perfect sense, because the cost of the sugar and bubbles in the soda is a tiny fraction of the cost of that vended beverage. The big cost is the machine, delivery, maintainence, and so on. Your mistake is in thinking that since the water itself is pretty close to free for the bottling company, bottled water should be pretty close to free for the customer. Except a few moments of thought should change your mind. If you want nearly free water, turn on your faucet. If you want water delivered the same way soda is delivered, it’s going to be expensive even if the manufacturer gets the water for nearly free the same way you do. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [October 28, 2011, 6:51pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/32 "2011-10-28T18:51:11Z")
How about the guys who ship water from faraway places (like Fiji, Hawaii, Samoa, France, etc.). Can you get away with selling “blended water”? Maybe 2% Fiji mixed with 98% NYC? Or is bottled water like homeopathic medicines-the less you have of it, the “btter” it is? “Homeopathic Water”-pass that one on! ---
**Author:** ![Baffle](https://avatars.discourse-cdn.com/v4/letter/b/dec6dc/32.png) [@Baffle](https://boards.straightdope.com/u/Baffle)\ **Post date:** [October 29, 2011, 8:37pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/33 "2011-10-29T20:37:20Z")
> [@ralph124c](#): > > How about the guys who ship water from faraway places (like Fiji, Hawaii, Samoa, France, etc.). > Can you get away with selling “blended water”? Maybe 2% Fiji mixed with 98% NYC? Yes, as long as your label reflects that. > [@](#): > > Or is bottled water like homeopathic medicines-the less you have of it, the “btter” it is? > “Homeopathic Water”-pass that one on! You should try to market that. ---
**Author:** ![Kevbo](https://avatars.discourse-cdn.com/v4/letter/k/e47774/32.png) [@Kevbo](https://boards.straightdope.com/u/Kevbo)\ **Post date:** [October 30, 2011, 5:23pm UTC](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747/34 "2011-10-30T17:23:01Z")
You could cut down on the shipping costs by dehydrating the water and allowing the customer to reconstitute it just before drinking it. Backpackers would love it. Yes, I know [Previous page](https://boards.straightdope.com/t/why-dont-profits-fall-to-near-zero-in-low-barriers-to-entry-businesses-like-bottled-water/600747.md?page=1)