(FORTUNE Magazine) – RONALD V. DAVIS laughs nervously about his own prescience. On a Friday in early February, when the first bits of news trickled in about benzene in his bottled water, the president of Perrier Group of America was hacking away at his five-year plan. On the first page he had written: ''In today's business environment, it is very difficult, if not impossible, to project even two years into the future.'' Competing in the 1990s, he added, would require not strategic planning but ''flexibility planning.'' Some flexibility! Source Perrier SA, the French parent, did little to distinguish itself during the water recall: Communication was slipshod and planning confused. The dirty filter that caused the problem has by now been replaced. But getting the bulbous green bottles back to the U.S. market is Davis's job, and everyone wonders what kinds of contortions he will have to go through to return Perrier to the top. It is being relaunched this month after a near three-month absence -- forever, by marketing's calendar. Conversely, keeping Perrier bottled up is the job of its 675 competitors, suddenly presented the leader's head on a plate. ''It's as if, in one day, the world's biggest army has waved the white flag,'' says Derek Quibell, vice president of Quibell Corp., a relatively new but high-spirited competitor. ''We send our condolences, with a smile.'' And then you pounce, right? Oddly, the contest for Perrier's customers has been mostly a war of wimps. Short on marketing money, constrained by bottling capacity, slow afoot, and < fearful that a weak Perrier would bring a weak overall market, the bottled- water industry seems to be letting the wounded wonder swim forward relatively unimpeded. Big competitors such as PepsiCo and Coors, which are introducing other bottled waters, have declined to mass their fire against such an inviting target. The Perrier drama comes stocked with important marketing questions. How do you turn around an imperiled brand? How do you woo retailers who haven't seen your product for months, and consumers who may have discovered that San Pellegrino has better bubbles, Saratoga tastes cleaner, or cheaper seltzer goes down just fine. In ten years as CEO, Davis has had a magical hold on customers by positioning Perrier as an adult soft drink with European cachet, and pounding the message home with terrific advertising. The strategy lifted Perrier's U.S. water sales from $40 million to more than $800 million at retail, about 25% of total company sales. Neat trick that: At a price six times that of gasoline, bottled water is the fastest-growing segment of the U.S. beverage industry. In coordinating Perrier's comeback, Davis, 43, yearns to practice that ''flexibility planning'' wherein a fluid organization reacts to market changes before the competition. Instead, he's managing from the gut. He expects Perrier's sales to return to 85% of normal by the end of 1991. How does he arrive at that estimate? To explain, he raises his hand and throws a few imaginary darts at the wall. He says, ''My biggest worry is spotty supply. We won't have normal supply until the first of the year.'' There is but one spring at Vergeze, France, whence flows Perrier, and the world supply has to be replaced. That's dangerous because distributors -- independent wholesalers that sell Perrier to retailers and restaurants -- could lose interest in the brand. Coca-Cola, PepsiCo, and Anheuser-Busch all got washed out of the water business in the 1980s largely because their distributors paid less attention to their waters than to beer and soft drinks. But Davis has tremendous clout with retailers, where the brand does three- quarters of its business. Says Davis: ''I've learned how important a reputation is. If we had faced this problem with a bad reputation, we'd be dead.'' The Perrier Group controls 24% of the U.S. bottled-water business and markets five of the eight best-selling brands. These other brands -- Arrowhead, Poland Spring, Great Bear, and Calistoga -- picked up much of the supermarket shelf space Perrier lost. To reinforce Perrier's dominant position with retailers, Davis wrote letters to 550 retail CEOs and pledged unusually heavy spending. Perrier's marketing budget will rise this year from $6 million to $25 million, with $16 million going into advertising and the rest into promotions and special events. Its rivals spent only some $14 million combined on advertising last year, according to New York City consultants Beverage Marketing Corp. Competitors come up short in other areas too. La Croix, for example, was the only major bottled water to take a dig at Perrier's problems -- in an ad that read ''Pure sparkling water. Always was. Always will be.'' Though volume rose 300% after Perrier abdicated its shelf space, La Croix, with sales of about $29 million, probably isn't a serious threat. Despite the fancy French name, La Croix is eau de Wisconsin -- carbonated, then bottled on underused beer lines owned by troubled G. Heileman Brewing. San Pellegrino, an upscale sparkling water drawn from a spring northeast of Milan, has been grabbing at Perrier's position in hundreds of restaurants on the two coasts. Still, San Pellegrino's volume is less than 10% of Perrier's, and its Italian bottler lacks the capacity to supply much more. The quirkiest player is five-year-old Virginia-based Quibell Corp., which took in one month's worth of orders in a day soon after the Perrier recall. The Quibell family, former concert promoters, got into the business after they found themselves buying hundreds of cases of Perrier for Tina Turner, Johnny Mathis, and other acts they booked. A truly global group -- originally from France but with time spent in England, South Africa, and Australia -- they looked for four years for the right spring in the U.S. They settled on Sweet Springs, West Virginia, and with $3 million of father Ronald's money developed an all-American product with the image of an import. The label on Quibell's green, curvaceous, Perrier-like bottle reads: ''Eau de source Sweet Springs . . . Mis en bouteilles en Amerique.'' Says Perrier's Davis: ''We spill more than they sell.'' He predicts a shallow future for Quibell. But little Quibell is au courant in Washington, D.C., these days and gaining popularity elsewhere. Says David Daniel, CEO of Evian's U.S. water business.: ''I think they'll do pretty well.'' Deep-pocketed players, meantime, have been wading cautiously while Perrier has been out of the pool. PepsiCo and Adolph Coors, which are testing new sparkling waters in Denver, decided against speeding up expansion plans or running ads that would remind consumers of Perrier's problems. At Evian, owned by French food giant BSN Groupe, Daniel says Perrier's problems ''haven't affected our strategies one iota.'' WHY THE LACK of gumption? Daniel says that his sparkling water, Saratoga, quadrupled its volume in February, ''but I don't expect those gains to be long-lasting. Perrier's going to come back big.'' He adds, ''There's unlimited growth in this market, and we're not stealing share from everybody else. Why should we slow the leader and rock the entire category?'' And says Craig Weatherup, president of Pepsi-Cola Co., PepsiCo's U.S. soft-drink business: ''Anyone who isn't gentlemanly is very shortsighted.'' Since they're all in the same boat -- a fast-growing industry -- marketers are half hoping that Perrier passes smoothly through its troubled waters. The customer, of course, gets the final call, and winning his faith remains difficult. Consumers now know that benzene occurs naturally in the gas at the source, though in harmless amounts that filters should remove. The French attitude is c'est la vie, but health-conscious Americans may be more cautious. The question is: How cautious? Investors can't decide, and Source Perrier's stock undulates on the Paris bourse. Says Sylvain Massot of the UBS Phillips & Drew securities firm: ''The French could care less about a little benzene. But Americans do. The danger is that Perrier's success is built on marketing, and the bubble could burst, leaving nothing.'' That isn't likely. Perrier's very problems underline the enormous inherent value of an established global brand. The company's recent consumer surveys indicate that 84% of Perrier's U.S. drinkers intend to buy the product again. In late March, Davis dropped San Francisco adman Hal Riney, who created the ''It's perfect, it's Perrier'' campaign, and brought in Manhattan-based Waring & La Rosa to reposition the brand as a ''fun drink'' for the Nineties. This year has been anything except fun for Perrier, but Davis figures drinkers will soon forgive and forget the great benzene mess.

CHART: NOT AVAILABLE CREDIT: SOURCE: BEVERAGE MARKETING CORP. CAPTION: Average annual growth 1985 - 1989 WATER'S BIG WAVE Bottled-water sales are bubbling ahead at more than three times the growth rate of soft drinks.