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Wednesday, August 20, 2014         

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Going with the flow

As Japan's demand wanes for deep-sea drinking water, new markets are opening

By Alan Yonan Jr.

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Hawaii's producers of deep-sea drinking water are searching for new outlets for the product as once-soaring demand from Japan is showing signs of leveling off.

Both bottlers and bulk sellers of the nutrient-rich water say consumers in other Asian countries as well as on the mainland represent a promising market for the product touted for its healthful qualities and purity.

And one local company is even looking beyond deep-sea water as a beverage, marketing it as a commodity for use in cosmetics and aquaculture.

Hawaii's bottled water exports were barely a blip on anyone's radar screen before 2003, consisting mostly of small shipments of locally produced spring water.

Then Koyo USA Corp., founded by a Japanese businessman, began desalinating and bottling water drawn from deep-sea pipe at a government-run technology park on the Kona Coast.

The product was a huge hit in Japan, and within a few years bottled water became Hawaii's fastest-growing export and a big cash generator for Koyo, which charges $6 in Japan for a 1.5-liter bottle of its Mahalo brand water.

Data compiled by the Foreign Trade Zone No. 9 in Honolulu shows that the value of Hawaii's bottled water exports -- which now consist mostly of desalinated deep-sea water -- jumped from $1.6 million in 2003 to a peak of $41.2 million in 2007. Exports slipped to $35 million in 2008 and $29.4 million in 2009, with industry executives attributing the declines to a combination of the global recession and a maturing market in Japan.

Still, the interest by companies wanting to get into the deep-sea water business remains high. Since Koyo opened for business, five other deep-sea water producers have set up shop at the Kona tech park run by the National Energy Laboratory of Hawaii Authority, and two others have launched operations on Oahu.

Right now the vast majority of Hawaii's bottled and bulk deep-sea water goes to foreign destinations, with Japan accounting for about 98 percent of all foreign exports, according to industry executives and Foreign Trade Zone data.

At least two of the NELHA-based companies, Koyo and Destiny Deep Sea Water LLC, have received approval from federal and state regulators to market their water in all 50 U.S. states.

For Koyo, Hawaii's largest deep-sea water producer by far, expanding its sales outside of Japan is critical, said Yutaka Ishiyama, the company's director of sales and marketing.

"Demand was very high at the beginning, but now sales have stabilized," said Ishiyama, who noted that Koyo sells 96 percent of its deep-sea water in Japan.

"Focusing on only the Japan market makes it difficult to increase sales," he said. "We're looking to expand to other markets very slowly, including other countries in Asia, Europe and the mainland."

Destiny Deep Sea Water, headquartered in Utah, recently bought the NELHA operations of Enzamin USA Inc., which had exported most of its bottled deep-sea water to Japan.

"We're ready to do retail in the U.S. and expect our product to grow significantly as people see the value of what deep-sea water is all about," said Gregg Bauman, the company's marketing director.

Destiny spent "hundreds of thousands of dollars" over the past 18 months to win approval from state officials and the Food and Drug Administration, which regulates the bottled water industry in the U.S., he said.

The company currently distributes its deep-sea water in California and Utah, and it expects to add other states incrementally, Bauman said. Destiny also is negotiating a distribution deal with a Hawaii company, which it expects to announce in the coming months, he said.

Destiny faces stiff competition from other brands in the crowded market for bottled water in the U.S. but has marketing advantage because of the cache associated with Hawaii deep-sea water, according to Bauman.

"In 18 to 24 months we expect to be competing with companies like Fiji, Evian and Aquafina."

Destiny, like most of the deep-sea water producers, is reluctant to reveal precise numbers on its exports because of the competitive nature of the business.

DSH International Inc., which does business here as DOHAWAII, is the only local company doing bulk sales of deep-sea water.

The company pumps up water from a depth of 2,000 feet off the Leeward Oahu coast, desalinates it aboard a ship and packages it in plastic-lined cargo containers that can each hold 5,200 gallons of water.

DOHAWAII got its start three years ago primarily selling its desalinated deep-sea water to Deep Ocean Enterprises, which bottles the water at its Campbell Industrial Park facility under the brand name Hawaii Deep Blue.

DOHAWAII secured a foothold in China this year, something that was part of its original business plan.

One customer in China buys the water, with no desalination, for distribution to aquaculture users, said Roger Ulveling, DOHAWAII president and chief executive officer. Another buys the desalinated version and bottles it in China as drinking water.

According to the Foreign Trade Zone data, Hawaii producers exported $18,000 worth of water to China through the first four months of this year, compared with no exports last year.

DOHAWAII also is in negotiations with an international cosmetics company to use the water in its products, Ulveling said.

"We're also working on some other things that I can't talk about right now. We're making some forays into areas that look promising."

DOHAWAII's main local customer, Deep Ocean Enterprises, also has begun exporting to China.

Deep Ocean initially concentrated on the local market while most of its competitors focused on Japan, said Ted Chen, the company's president and chief executive officer. Deep Ocean began expanding into Japan and Korea in 2008 and 2009, and sold its first bottle of water in China this spring.

"We anticipate that China will eventually become the largest part of our business," Chen said.

The split of Deep Ocean's sales is now about 75 percent in Asia and 25 percent in Hawaii, according to Chen. The company plans to expand to the mainland next year, he added.

"As we move forward we're always looking for ways to gain market share. We have a good story to tell and are very confident we have a good product."






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