The Price of Water

In the United Arab Emirates fresh water is not a natural resource.  Water is either desalinated or imported.   May is here and we are heading into the heat of Summer (or alternatively known as the heat of Spring, Summer and Autumn….and a bit of Winter).  The car temperature today was 41◦C, soon it will be a daily 50◦C.  Water is such an important product and so bottled water is a highly demanded product.

Task Spotting and The National newspaper has uncovered some interesting information on bottled water from both a qualitative and quantitative perspective:

From a qualitative perspective,  92% of those surveyed, pay for bottled water while eating out and 94% felt it was overpriced.  However from a quantitative perspective, there is a price variation of up to 900% for 500ml and 500% for 1500ml, inferring the product is selling at these prices.  How does this strong customer opinion have no impact on the price?

  • In most countries, bottled water has a high elasticity of demand because there is availability of substitute goods such as tap water and home rain water tanks.
  • Water is a necessary good and the higher the necessity, the lower the elasticity.

So we are confronted with no substitute and a highly necessary good, it truly is a captive market.

http://www.thenational.ae/opinion/feedback/the-survey-says-price-of-bottled-water-in-hotels-and-restaurants

http://www.thenational.ae/uae/bottled-water-prices-at-selected-cafes-and-restaurants—graphic

http://www.thenational.ae/uae/uae-consumers-complain-of-inflated-water-prices-when-eating-out

http://www.thenational.ae/news/uae-news/environment/angry-at-cost-of-bottled-water-in-the-uae-youre-not-alone

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25 thoughts on “The Price of Water

  1. Melbourne has some of the best quality water in the world and it seems a real extravagance to buy bottled water (unless travelling). I also feel pressured to drink bottled water in restaurants which corresponds to the statistics above. The scarcity of a product can determine the relative price/demand elasticity, but other elements affect the prices people are willing to pay. Perceived quality of bottled water and the current trend of lifestyle conscious consumers and consumers’ willingness to pay a premium for bottled water make the pricing unaffected by consumers’ responses. In many Asian countries where tap water is not drinkable, people tend to boil their water or filter it and in cases where bottled water is bought, the prices are much lower comparable to Australia. Prices are indicative of standards of living in these locations too, but in view of Melbourne having clean drinking water, I think it can be attributed to social/lifestyle aspects that create a strong market for bottled water and determine its pricing.

    http://www.melbournewater.com.au/whatwedo/supply-water/Pages/Water-quality.aspx

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    • Totally agree that social/lifestyle aspects where clean drinking water is readily available. The unfortunate side to these social/lifestyle choices has the unfortunate outcome that its the environment that then pays the price.

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  2. I think the restaurants are charging what they want because they know they can. This appears to be a problem on the consumer side, put simply, if people did not purchase the water then the restaurants would respond by reducing the price.

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    • Fully agree. Unfortunately here in lies the issue of elasticity. It is a necessity. I would strongly advocate for regulatory intervention either that restaurants allow customers to BYO or that water must be provided free of charge, especially where tap water is drinkable.

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      • I am not sure I agree with this stance. What is the product being sold in a restaurant? Is it merely food and drink? Very rarely. More often, it is a combination of food & beverage, service, ambience, atmosphere. The cost of provide water in a restaurant is not free, just because it comes out of a tap. Something has to pay the rent, the electricity, the decor, chilling, bringing it to the table, washing and polishing the glass, etc.
        In the past, these costs were covered by the margins achieved on wine and alcoholic beverages and the food. However, industry and societal change means that people are drinking less (particularly at lunch) and the cost of food is increasingly competitive. If people want water, let them pay for it!

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  3. Price elasticity is a good topic to discuss and your is blog good to discuss about it .. Water being a universal requirements for everyone its demand is encashed by providers .. here the higher the reputation of restaurants the price of water increase . And this is difficult to control .. It’s not just in UAE most of the countries is like this .. But it must be understood here that those restaurants would have got it for very low rice in bulk purchase and they enjoy more profit than manufacturer.

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  4. An interesting article! I traveled to the UK and Europe for the first time last year. Before I left, I was given a stern warning from friends in Australia, that if I didn’t want to be paying for water everywhere I went, then I needed to specify ‘tap water’ when ordering at cafes or restaurants. Certainly not the end of the world, but it was different from what I have experienced more often than not here. Sure, there are always going to be your fine dining or high end places that charge for water. But, for the most part water in cafes etc is free. I was a little surprised (perhaps naively so), that in countries that have clean drinking water, their restaurants/cafes etc feel the need to supply only bottled water, unless you asked for the tap variety.

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    • I have also found this travelling through Europe and hadn’t given it a thought to ask for tap water! Certainly will on my next trip.

      In the U.A.E. the equivalent is ‘local water’ referring to locally bottled water as opposed to imported brands such as San Pellegrino, Evian or Voss. I do make a point of requesting local water.

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  5. In most of Asian countries, tap water is not drinkable. So suppose you are travelling in an Asian country, you are forced to buy bottled water either in supermarket or in store. If you forget to buy some, you will end up buying bottled water in hotel, and imagine the price, this will be twice or three times of the price you buy in supermarket.
    As we all know, price of water in Asian countries are much lower than in Australia, and I agree with atownsen2015 that prices of water are determined by standards of living.

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  6. I feel restaurants are benefiting from the consumers reluctance to request tap water i.e. valuing status. When I travel in countries with clean drinking water I always request tap water. Colleagues feel uncomfortable with this request. However, I perceive no addtional value in bottled water and have no concern in ordering.

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    • To take the concept of ‘valuing status’ one step further, I find that when out to dinner here ‘flat water’ is looked down upon with ‘sparkling’ sounding much more sophisticated. I personally don’t like carbonated water so I do tend to feel a little ‘from Darwin and it shows’ but c’est la vie – that’s life 🙂

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  7. I believe in a lot of cases (especially for services) people not willing to complain, rather they become bystanders. In the case of water, it is a necessity and this can dictate upon supply/demand concerns. There are lot of extra variables that need to be taken into consideration for this type of question. Knowing which audience we are referring to, the type of restaurant in which customers are purchasing, the level of thirst at the time customers enter and so on. At least when in Melbourne, as our water is rated in the best in the world and availability is commonplace I feel restaurant should always have tap water available to customers. In no way do I feel obliged to order bottled water. However, in other countries/cities, circumstances on cleanliness and availability can vary and I would expect to pay a high price at times. If water is in scarcity in UAE, then bottled water will be expensive, though a 900% price variation seems quite drastic.

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    • Completely agree with your comments. What is the right price? The right answer “well, it depends”.

      One of the factors that enables such a dramatic difference in price is that its very cheap to start with. If I use coke-a-cola as an example, a can is 1.5 dirhams or 51c AUD. When I first move here 6 years ago it was 1 dirham or 33c AUD. The price increase was significant in comparison to the original price but not at really a blip in comparison to average income. The price increase had no impact on demand at all.

      Back to water, as shown above, for 500ml we have a starting retail price of 1 dirham or 33c AUD with the highest price example shown for havanna murdif city at 10 dirhams or 3.30 AUD. Huge percentage increase but overall price in comparison to average income – negligible.

      How much does it cost for a 500ml bottle of water in Melbourne?

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  8. I can see how there would be I high elasticity for demand on bottle water like in Australia where there are alternatives because we have clean drinking water. However I think in countries where bottle water is a little more of a necessity the companies should still be careful as to not price their product too high because most of the countries in these situations the people wouldn’t be able to afford bottled water at a higher price. I think higher prices work better in Western countries although the elasticity is higher there is a market for those who buy it as a social/status symbol because it is not a necessity.

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  9. This reminds me of the movie ‘The Lorax’ where the villain of the story takes advantage of the environment having no trees so he sells bottled air. He could potentially sell this air for hundreds of dollars per bottle and because without it they would die. The human necessities can make the consumer extremely vulnerable as we have no choice but to buy. However, for business, this is the ideal situation. You would have to think money spent on marketing would be almost wasted on these types of product and they would compete entirely on price as the basic life necessities are extremely hard and perhaps impossible to differentiate.

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  10. I remember when I landed at Melbourne airport for the first time, couldn’t find tap water anywhere and by the time I finished all formalities and reached outside I was dying of thirst and went straight to a shop for buying bottled water. For a 500ml bottle I paid an obnoxious price of 5.5 AUD, my first purchase in Australia. Was it justified to charge this much for something as basic as water?
    I think everywhere in world it should be a regulation to make it mandatory for the retailers to sell one basic bottled water variant.

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  11. After reading this post, I made a point of checking out the variety of water bottles on offer at a local supermarket here in Geneva and was blown away by what I saw. At least 10 different brands of water, some costing 5x the price of other same-sized bottles! What I am keen to know is, what qualities in water do people look out for besides the basic differences such as glass or plastic bottle, sparkling or still?

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  12. Having grown up in Australia and having lived in Brisbane, Melbourne and Perth in the past 5 years, I have always expected to be offered free water in restaurants. With my wife being French, we spend every second Xmas in Northern France, very close to the Belgium border and I have noticed some specific peculiarities when ordering water at restaurants in this region. In France if you ask for a bottle of water you will be charged for a branded bottle of still water. If you do not want pay for water you specifically need to ask for a carafe of water. When we cross the border and go to Belgium to eat at a restaurant, there is simply do not offer free water. It only comes at a cost. Therefore sometimes water pricing policies are engrained in culture……

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  13. Interesting topic. Correct me if i am wrong, but i was once told the water in the UAE costs more than fuel? If true , either fuel is very cheap in the UAE or water is indeed very expensive!

    Coming from a third world country – with clean water readily available, water is usual the last choice for many consumers. Consumer would rather have anything but water. This attitude was based on the lack of other beverages apart from water. So in a society with a abundance of water and few fancy beverages with sugar. Water was the boring norm. To this day water is the cheapest beverage.

    In your case Dubai being a country in a desert, water would be seen as precious commodity. Hence the high prices.

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  14. Wow $10 for a small bottle is outrageous. I guess the conviienance at a restaurant helps sell the bottle, as well when I go out to restaurants I usually don’t care how much things cost and hit with a large bottle at the end of the night….

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