Bottled water set to topple soda sales for the first time

Soda has finally met its match: water.

U.S. sales of bottled water are expected to top soda for the first time ever as early as this year, with consumers increasingly opting for healthier alternatives to carbonated beverages, according to a market research firm.

Data from Beverage Marketing Corp. show that companies are expected to ship 12.6 million gallons of water in fiscal year 2016, compared with 12.4 million gallons of carbonated beverages. The firm, whose industry data goes back to the 1970s, also expects water shipments to reach 13.5 million gallons the following year and for soda volumes to fall to 12.2 million gallons.

"We are in our 10th year of consecutive year-on-year declines in traditional soda volumes in the U.S.," said Adam Fleck, an analyst with Morningstar. "Bottled water has been a growth story."

Bottled water has been gaining on soda for years, a fact not lost on soda makers. Coca-Cola (KO) is the corporate parent of Dasani, which Beverage Digest says is the country's second best-selling brand of water. PepsiCo. (PEP) owns Aquafina, the No. 3 brand, while Dr. Pepper Snapple (DPS) has DejaBlue and is one of the distributors of Fiji Water.

Dwarfing the soda companies in the water market is European food and beverage giant Nestle, which sells eight of the 10 best-selling water brands in the U.S., including market leader Nestle Pure Life.

Coca-Cola reported that volumes of still beverages, which include bottled waters, rose 2 percent in its latest quarter, while sparkling beverages, which includes soda, fell 1 percent. PepsiCo. saw a double-digit gain in its water business, as did Dr. Pepper. Carbonated beverages remain a higher-margin business because they are priced higher than bottled water.

Though industry watchers have predicted that bottled water sales would soon overtake soda, the shift is happening faster than many had forecast. The biggest factor is the growing health concerns surrounding carbonated beverages, with groups such as the Center for Science and the Public Interest linking soda to a range of health problems.

Such scrutiny, along with a wish to raise revenue, recently led Philadelphia to became the first major U.S. city to levy a separate tax on sugary and diet beverages despite fierce lobbying by the soda industry.

"In general, this is a fairly recent and somewhat surprising development because the category was hit hard during the recession and has bounced back," said Duane Stanford, editor of trade publication Beverage Digest, in an email.

If drinking more water is good for people's health, it may not be good for the planet. Environmentalists has long criticized the beverage industry, noting that bottled H2O is 2,000 times more expensive than tap water, according to the Pacific Institute. A 2013 forecast by the Environmental Protection Agency forecast that the nation's water quality infrastructure needs $384 billion in repairs is through 2030.

"We are not spending enough," said Marc Yaggi, executive director of the Waterkeeper Alliance. "Our infrastructure maintenance is not as politically sexy as opening up a new baseball stadium or a brand new architectural triumph."