The world's largest coffee retailer has decided to take a plunge into the bottled water business. Seattle-based Starbucks Corporation recently acquired Santa Monica, California's Ethos Brands in a move designed to help the coffee company grab a share of the $9.8-billion industry--and perhaps even quench world thirst.

As part of the agreement, the coffee giant will donate five cents on the bottle to drinking-water projects in poor countries in Africa, Asia, and Latin America. Starbucks has promised to contribute at least $1 million to humanitarian water projects in 2006 and millions more over the next five years.

Starbucks' entrance into the bottled-water market comes at time when the sector is seeing reduced margins across the board. While water has become the No. 2 drink of choice, it has also grown more competitive and less profitable. As a result of price competition, volume has been growing faster than sales for the past two years, meaning more water is being sold but at less profit.

As evidence of growing competition in the sector, PepsiCo recently cut the price on its Aquafina brand, as Coca-Cola did with Dasani. The beverage giants are expected to continue slashing prices to grab market share from Nestle Waters, seller of Poland Spring and Arrowhead. Yet within this highly-competitive environment, Starbucks' Ethos may have a key advantage over the competition: its humanitarian message. The idea that drinking Ethos can make a difference in poor countries is a unique proposition--one that sets the brand apart and resonates with eco-conscious consumers.