IMO, the reason for water as a "sacrament" is financial. Just think how many pennies are saved in mormon coffers by doing away with the grape juice or wine in the millions of little cups every Sunday.
It will be NO surprise to us that the reason for water instead of juice is....wait for it...PERSECUTION OF MORMONS!.
As to our use of water in place of grape juice ("new wine"—see Isaiah 65:8), it is important to note that initially grape juice was used in the sacrament both in the early church (Matthew 26:28-29) and in the latter-day church (DC 20:79).[2] As a precaution against enemies of the Church poisoning or adulterating the grape juice sold to the Saints, a change was authorized by the Lord.[3] The Lord revealed, "that it mattereth not what ye shall eat or what ye shall drink when ye partake of the sacrament, if it so be that ye do it with an eye single to my glory—remembering unto the Father my body which was laid down for you, and my blood which was shed for the remission of your sins" (DC 27:1-2).
