The ongoing Iran war is beginning to affect India's packaged drinking water industry, creating cost pressures just as the country approaches the peak summer season. The conflict has disrupted supply chains and pushed up oil prices, increasing the cost of key raw materials used in packaging, CNBC TV18 has stated in its report.

India's bottled water market, estimated at around $5 billion, is one of the fastest growing in the world. However, manufacturers are now facing rising expenses for plastic bottles, caps, labels and packaging materials.

Smaller manufacturers begin raising distributor prices

While retail prices for consumers have largely remained unchanged so far, many smaller manufacturers have started increasing prices for distributors, the report said.

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According to the Federation of All India Packaged Drinking Water Manufacturers' Association, around 2,000 smaller bottled water producers have already raised prices for resellers by about Rs 1 per bottle. The hike represents roughly a 5 per cent increase, with another 10 per cent rise expected in the coming days.

Consumers typically pay less than Rs 20 for a one-litre bottle of packaged drinking water.

"There is chaos and within the next 4-5 days, this will start impacting customer prices," CNBC TV 18 quoted Apurva Doshi as saying, the federation's secretary general.

Packaging costs surge as oil prices rise

A major factor behind the price increase is the sharp rise in the cost of polymer, a crude-oil-based material used to manufacture plastic bottles.

Industry data shows that the cost of material used to make plastic bottles has climbed by about 50 per cent, reaching Rs 170 per kilogram. At the same time, the price of bottle caps has more than doubled to Rs 0.45 per piece.

Other packaging components have also become more expensive. Corrugated boxes, labels and adhesive tapes used in distribution are now costing significantly more, according to industry communications.

Premium mineral water segment also affected

The cost pressure is also being felt in the premium mineral water segment, which is estimated to be a $400 million market in India. This category has grown rapidly in recent years, especially among urban and affluent consumers.

Research firm Euromonitor reports that premium mineral water accounted for about 8 per cent of the bottled water market last year, compared with just one per cent in 2021.

Aava, which sells mineral water sourced from the foothills of the Aravalli mountains, has increased bottle prices for resellers by 18 per cent, according to CEO Shiroy Mehta.

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"Most manufacturers are absorbing 40-50 per cent of the cost to ensure that they don't lose clients. It's a poor situation for the beverage industry ahead of the summer season," he said.

Companies struggle to absorb rising costs

The broader market for bottled drinking water is dominated by companies selling affordable one-litre bottles to mass consumers.

Brands such as Bisleri, Coca-Cola's Kinley, Pepsi's Aquafina, Reliance and Tata compete for a share of the market.

Clear Premium Water, a brand of India's Energy Beverages, informed distributors that raw material costs have risen sharply.

"It is no longer possible for us to absorb the escalating costs while maintaining existing product prices," the notice said.