Eau dear, what can the matter be?

The announcement by Nestlé that it intends to sell off the Perrier mineral water label marks the end of an era for a French brand that was invented by an Englishman. John Lichfield reports from Paris

Perrier, one of the best-known brand-names in the world, marketed in one of the world's most celebrated bottles, will probably be sold off, its parent company Nestlé said yesterday.

Why? The demand for bottled water is booming all over the world. A four-way multinational struggle is raging for dominance of the industry, with Nestlé in the lead. Perrier is still the global market champion of fizzy bottled, or canned, water. Why would the Swiss-based food company decide to sell one of its best-known labels? (It was Perrier that first devised the wheeze of bottling one of the most common commodities in the world and transporting it long distances to sell to foreigners 101 years ago.)

The explanation for Nestlé's decision lies partly in cut-throat competition and efforts to slash costs in the mineral water market; partly in the proliferation of many other spring waters around the world; and a new boom in selling "purified" tap water. Partly, it lies in a couple of public relations disasters suffered by Perrier, including the discovery of tiny quantities of benzene in a Perrier bottle in 1990.

Nestlé claims that it can no longer make money out of Perrier because of the over-manning and rigidity of the labour laws at the company's plant in Vergezè in the south of France. The sale of Perrier (and presumably a buyer will be found) is likely to become a cause célèbre in the anguished debate in the European Union - and especially in France - about the cost of labour in western Europe compared to eastern Europe and Asia. But Nestlé's disenchantment with Perrier is also connected to the new trend in the mineral water market: the processing of anonymous water supplies to fill colourfully branded and marketed bottles. "Real" springs such as Perrier may be gradually reduced to a niche market for more expensive brands.

Perrier workers say that Nestlé - despite the value of the brand name - has concentrated its investment in recent years on these new generic mineral waters, which can be bottled anywhere and do not involve the limitations and transport costs of a specific spring.

The company admits that it has considered "relocating" Perrier production to a spring in another country, possibly in eastern Europe, holding on to the brand name but using cheaper labour to fill the same bottles with cheaper water.

This idea - which would have made a nonsense of the claim that the more expensive bottled waters are somehow unique and specific to their place of origin, like good wines - now seems to have been dropped. The company said yesterday that, following the refusal of the largest union at the Perrier factory to accept 356 job losses through early retirement, it was "leaning towards the hypothesis" of selling off the plant.

Perrier comes from a spring near Nîmes in southern France but the idea of the little, skittle-shaped, green bottles and the first triumphant experiment in the global marketing of water came from a Briton: St John Harmsworth, brother of Lord Rothermere, the founder of the Daily Mail. Under the direction of the younger Harmsworth, Perrier became, from 1903, one half of most whiskies and soda in those parts of the British Empire where you could not trust the local water.

The natural source of Perrier water, between the southern foothills of the Auvergne and the marshes of the Camargue, has allegedly been quenching the thirst of foreigners since Hannibal's army passed that way. Harmsworth named the water, not after the spring, but after the man that he bought it from, Louis Perrier.

Although Vichy water continued to be the most commonly bought fizzy water in France, Perrier conquered the world in the 1920s and 1930s, selling itself in elegant, colourful posters as, not only safe, but emblematic of the effervescent spirit of the French.

By 1933, the Perrier plant was producing 19 million bottles a year - more than half of them going abroad.

Seized by the Germans in 1940 and sold by the Harmsworth family to French buyers after the war, Perrier continued to out-sparkle all its rivals until one day in 1990 when an American food safety laboratory found minute traces of the carcinogenic substance benzene in a little green bottle. The company, in an attempt to recover its healthy, clean image, withdrew all 280 million bottles of Perrier in circulation throughout the world at a cost of £100m.

Perrier had previously claimed to be "naturally sparkling". It emerged that the benzene came from a problem with the filtering of the carbon dioxide introduced to make the water fizz. The naturally sparkling claim had to be dropped.

Fourteen years later, Perrier has regained two-thirds of its 1990 sales - 830 million bottles a year compared to 1,200 million before the benzene disaster. It continues to lag in the US and has lost its pre-eminence in Europe. Even in restaurants in France these days, you are more likely to be offered a Badoit (from eastern France) or a San Pellegrino (from Italy, also a Nestlé brand) than a Perrier.

Nestlé bought the damaged company in 1992 and made it the flagship of a watery empire, covering 77 brands, including Buxton water in Britain and Poland Spring in the US.

The boom in bottled water sales has been good for Nestlé but it has also brought ferocious competition from, among others, Coca-Cola, with its Dasani brand, and Pepsi's Aquafina. The British version of Dasani, which used filtered tap-water, was withdrawn from sale after problems at its bottling plant in Sidcup, Kent, led to contamination with a carcinogenic chemical.

To reduce costs at its Perrier factory in Vergezè, Nestlé has negotiated cuts of 800 jobs in recent years. It still complains that overmanning, compared to water-bottling plants elsewhere, as well as the 35-hour week and the high "social charges" on companies in France, make the Perrier plant unprofitable.

Peter Brabeck, head of Nestlé, told French journalists earlier this year: "I find it very hard to work in France ... To produce a billion litres of water here, I am obliged to employ 4,800 people [including the Vittel and Contrex water plants, as well as Perrier]. To produce the same quantity in Italy, I need 1,800. And I'm talking about Europe there - not China or India." Perhaps more to the point, however, he went on to say that Nestlé was now heading down the Coca-Cola route and investing in new products such as Pure Life and Aquarel, generic or flavoured mineral waters which could be bottled in many places. "I have liberated myself from dependence on one spring and the economic and political burdens that that brings," he said.

In other words, the future and growth in the bottled water market is to go for generic products with an imposed taste, based on purifying and adding minerals to almost any old water. The argument strangely mirrors the debate which is raging in the French, and world, wine industries about the relative virtues of wine from specific locations and brands of wine with carefully controlled tastes, made from grapes bought from many different places.

Earlier this year, more moderate unions at the Perrier plant accepted that the world was changing and agreed to Nestlé's plan to cut 356 out of 1,650 jobs by giving early retirement to anyone over 55. Under a new French labour law, the plan had to be agreed by a majority of the workforce. It was rejected overwhelmingly by members of the militant CGT union federation, which represents 80 per cent of Perrier employees.

A CGT member, Jean-Paul Soulier, said that he and his colleagues rejected the plan because it was "clear that the factory was buggered" if the workforce was reduced again. Other CGT members said they were calling Nestlé's bluff; they knew the company would never sell the Perrier brand.

It appears that they may be wrong. More moderate trades union leaders spoke to the press yesterday with tears in their eyes, pleading with Nestlé and the CGT to reopen negotiations on redundancies. The company said it had no intention of starting new talks and Perrier would be sold off unless the CGT caved in and accepted all the job losses.

Meanwhile, it said, its Vittel and Contrex plants in eastern France would be "unified" into one company - clearly implying that Nestlé intended to concentrate all its French water interests there.

There have been several other high-profile defections - or threatened defections - of foreign companies from France in recent months. The issue of "relocation" - to avoid high taxes in France and, up to a point, the 35-hour week - has become a subject of anguished political debate. On Tuesday the government announced that it was setting up "low-tax" zones in areas of high unemployment to try to prevent foreign companies from deserting.

But the Perrier dispute is clearly linked, also, to a shift in the bottled water industry.

Should we be upset, like the Perrier workers, that there is a trend away from "authentic" natural springs? Or has the whole bottled water industry, from St John Harmsworth onwards, been a clever exercise in persuading people to buy what they can get more cheaply from the tap? Ecological campaigners describe bottled waters as "environmental madness", with vast amounts of energy being used to bottle water in one country and transport it around the world.

The new trend - selling you what is already in the taps - is an even cleverer wheeze than St John Harmsworth's idea in 1903. It may also be, marginally, more environmentally friendly.

A SHORT GUIDE TO BOTTLED WATER

Once the preserve of the bourgeoisie, bottled water is now a huge seller, worth £1.2bn a year. Our enthusiasm for drinking bottled water cannot be dampened, despite its cost, and reports questioning its benefits over tap water. Britons drank more than 2.1 billion litres last year alone.

A recent report from Which? magazine found that the Waterside Inn restaurant in Bray, Berkshire, wins the award for the priciest bottle - 75cl of Perrier or Badoit will set you back £5.

The bottled water market is the fastest growing drinks industry in the world and manufacturers spend millions of pounds on marketing. However, a study by the University of Geneva last year found that bottled water was often no healthier or safer to drink than tap water.

With tap water the norm in Britain, bottled water is marketed on its origins as much as its purity. Rita Clifton, chairwoman of the brand consultancy Interbrand, which has provided consultancy for a number of mineral water producers, said: "The bottled-water market in Britain is all about the purity of the source, the mythology surrounding it.

"If anyone told you 20 or 25 years ago that the British would pay 50p or even £1.50 for a bottle of water, you would have found it a ridiculous notion."

The origins of bottled water can be traced back at least as far as the Romans, who developed sources as they established their empire. According to legend, after crossing the Pyrenees, Hannibal, the general of the Carthaginian army, rested his troops and elephants at Les Bouillens in France, the location of the Perrier spring.

Vittel was the first company to bottle water. In 1903, Vittel Grande Source and Hépar natural mineral waters were declared "d'intérêt public" ("of public interest") by the French authorities.

In the early days, bottled natural mineral water was the privilege of captains of industry, politicians and royalty. It was bottled in glass or stoneware, with porcelain or cork stoppers. By the mid-nineteenth century the development of railways and industrial production techniques were gradually transforming the business.

Bottling methods changed as consumption spread, and by the mid-twentieth century, global production had climbed to several hundred million bottles a year.

Vittel revolutionised the market in 1968 by launching the first plastic bottle - aimed at more general public consumption. It supported its launch with an advertising campaign emphasising vitality rather than medical benefits.

More and more people around the world are recognising the health benefits of drinking water and are showing their preference for the taste and convenience of bottled waters. This is reflected in an annual growth rate of 9 per cent since 1997, with the global bottled water market totalling 126 billion litres in 2002.

Helen McCormack