Enhancing a Category
New nutrient and flavor additives bring energy—and confusion—to bottled water.
C.J. Rapp looks forward to the day when his Karma Wellness Water has a like-minded competitor in stores on the East Coast.“Two or more viable brands help create a category. So we don’t at all dread competing. We welcome it,” says Rapp, CEO of Karma Culture, Pittsford, N.Y.Rapp will get his wish sooner than he thought, now that Activate has announced its entry into New York and other East Coast markets.“First we are entering New York, and then we are looking at the New Hampshire and Boston area, then Washington D.C.,” says Reza Mirza, president of Activate Drinks, Newport Beach, Calif.
Activate and Karma are both nutrient enhanced waters that store vitamins and minerals in powder form in the cap, to be unleashed only when the consumer is ready to drink. They are also one of two new variations on enhanced waters—the other being liquid water enhancers such as Kraft’s MiO and Coca-Cola Co.’s Dasani Drops—that are catching on across the country and breathing new life into the bottled-water category, with the hope of establishing themselves as categories of their own in c-stores and other channels.
“Enhanced waters play in the health and-wellness space,” says Rapp. “This is a broad category that draws from many segments: water, isotonic, energy drinks. Consumption is all day long … from breakfast until late evening.”
Certainly, PepsiCo’s SoBe Lifewater; glaceau vitamin water and smartwater, distributed through Coca-Cola Co.; and Nestle Waters North America’s recently relaunched Resource cover the enhanced watermarket quite well. What sets these new products apart is an interactive factor, the ability to customize a drink to your liking or pour in the additive when you’re ready, providing fresher nutrients, according to the beverage makers.
“We continue to see consumer trends toward customization, flavor variety and convenience,” says Jessica Sheth, senior associate brand manager for Kraft Foods, Northfield, Ill. “Specifically, MiO targets millennials, and while price is an important consideration for this group, uniqueness and trend-inspired attributes are also essential.”
Twist, Shake, Drink
Makers of “dosing cap” beverages agree that the concept of adding nutrients stored in the cap goes back several years. But recent innovation in “cap technology” is making such products more affordable, and each manufacturer has a story about why its cap is better than the others. What they have in common, however, is an interactivity that makes the process of opening a drink a little interesting.
“We appeal to all five senses,” says Mirza. “It looks good. It tastes good. You can feel that punch when you open it. Some people enjoy hearing that click when you turn the cap. … I liken it to wine and spirits in terms of beverages that appeal to all five senses.”
Mirza, who previously worked for Nestle Waters, began developing Activate in 2007 as a way to deliver a better enhanced beverage to consumers, he says.
“It’s an attention-getter. It’s trendy. It is all about health and wellness. … And it is interactive,” he says. “This is an opportunity that comes along once in a lifetime… to create a new category.”The Activate line comes in 15.9-ounce bottles and is available in 10 flavors with six “functions,” including immunity, energy and overall health and maintenance, according to the company. Average retail price of the beverage is $1.99.
Having started in California, Activate is most developed on the West Coast, though it launched a national presence on Amazon.com in July 2012. More recently, Activate announced its move into the Northeast, beginning with the New York launch in several grocery and natural-store chains. That brings Activate into Karma territory, clearly establishing “do sing-cap” beverages as a new category, according to Karma’s Rapp.
“Our concentration has been the Eastern third of the United States, and their concentration has been in the Western third,” says Rapp. “Eventually we’ll compete more directly, and we look forward to that. I do think two or more viable brands help create a category.”
Rapp says the lack of a strong competitor worked against him in a previous venture: Jolt Cola. Created in 1985, Jolt effectively was the first energy drink, promoting itself as having “all the sugar and twice the caffeine.” While the drink sold “millions of cases,” retailers found it difficult to place. Was it a cola or was it something else? The lack of a solid category vexed Jolt and Rapp, and he’s confident he can avoid a similar fate with Karma.
“The brand is 15 months old, and it’s brand new in many regions,” he says.“There’s much of the U.S. that we have not entered to date. We’re hoping to [break into some new territories] before this calendar year is over. We’re in the full launch stage.”
Activate’s Mirza also sees opportunity in developing a complete category. “We are trying to create a section for premium functional beverages,” he says. “In the future it’s going to be about the water pluses;people are looking for healthy benefits in every category.”
Karma comes in 18-ounce bottles, with a suggested price of $2.39, in five flavors and functions: Body (fitness), Mind(alertness), Balance (immunity), Vitality(hydration) and Spirit (mood elevation).
Today, Karma, Activate and VBlast from New York Spring Water are the three most prominent players in the “dosingcap” segment. The value proposition is based on the concept that nutrients breakdown in water, so the longer an enhanced drink sits on a shelf, the more its potency decreases. By adding the nutrients—stored in the cap as a powder or liquid—the potency is maintained until that powder or liquid is mixed into the water.
“Most vitamins deteriorate in water,” Rapp says. “So a premixed vitamin drink loses its potency. … The solution is to separate the vitamins and nutrition from the water until only moments before consumption.”
Add to that the desire to personalize, and the opportunity to sell more bottled water becomes even more obvious. That’s the prospect Kraft Foods saw in 2011 when it introduced MiO, a “liquid water enhancer” that, in its initial form, allowed consumers to add flavor to water to match a consumer’s personal taste. The product sold well enough to warrant an “energy” line extension with caffeine, and a “fit” extension that echoes the benefits of sports drinks such as Gatorade and PowerAde.
“As a portable liquid water enhancer, this product encourages an incremental purchase: a bottle of water,” Kraft’s Sheth says. “This is a great bundling profit opportunity for convenience retailers. Initial research indicates that over 50% of all
MiO purchases in c-store are an incremental, unplanned beverage purchase.”MiO followed on Kraft’s success with Crystal Lite to Go, a line of single-serve powders to flavor and enhance waters with nutrients and energy. In 2012, according to SymphonyIRI Group data, Crystal Lite to Go Energy unit sales in c-stores grew 31% to 2.3 million packets, while MiO Energy in its first year of sales sold nearly 7.0 million units—at about $3.50 per unit.
Such success has bred imitators, including Kraft Foods’ own Kool-Aid and numerous private-label brands. But perhaps most significant is Coca-Cola’s Dasani Drops, which leverage the bottled water’s brand name.
“We think this whole space for consumers in an active, healthy lifestyle, the hydration space, really resonates well with us,” says Mel Landis, chief customer officer for Coca-Cola Refreshments, Atlanta.“Dasani Drops: That’s an enhanced water, just in a different form. You add it yourself, but it’s the same concept. How do we add value to core water, whether it’s nutrients or flavor or whatever it is?”
Gary Hemphill, senior vice president of information services for Beverage Marketing Group in New York, says the desire to personalize is part of a larger trend affecting several beverage categories.
“We see consumers increasingly opting for customized beverage options so they can have products exactly how they want them,” Hemphill says. “Water enhancers are one such example of this, along with the emergence of products like single-cup coffee brewers and soft-drink dispensing systems like Soda Stream.”
Dasani Drops debuted last fall in four flavors. Landis said he sees the opportunity for the drops to branch out: “If you can do drops in flavors, why can’t you do nutrients in concentrate? Why can’t I do energy, vitamins, etc.?”
Other variations on the concept include Zip fizz Healthy Energy Mix and Gatorade Powder Sticks.
The Space Race
If there’s a challenge facing these innovative products, it’s one that any new category goes through: Where should these products—particularly those in new, unfamiliar packaging—be merchandised? Most c-store retailers have placed MiO on the front counter to drive impulse. While few manufacturers would say no to such placement, Kraft would like to see multiple points of purchase
“To really capitalize on this purchase behavior, convenience retailers should consider placing MiO on the front counter or near the water cooler [door] to maximize velocity performance,” says Sheth.
Fills Convenience Stores in Las Vegas is on board with that. “Some are by the registers, some in acrylics on the cooler doors of the water section, and some are in-line by the protein bars/health-food sections,” says Tami Caputo, COO of the four-store chain.
Robinson Oil’s Rotten Robbie c-stores, based in Santa Clara, Calif., have seen some success as well. “MiO has a great following because they’ve been in grocery[stores],” says Kris Kingbury, marketing and merchandising director.
MiO was, in fact, launched first in grocery stores, where a “water enhancer” set might include up to 3 feet of shelf space, pairing newer products with more familiar mixers, such as Kool-Aid and Country Time Lemonade.
While acknowledging the natural link between the enhancers and bottled water, retailers say they are not seeing a boost in water sales as a result. In fact, a representative of Nestle Waters North America, the largest bottled-water company in the country, says, “We don’t really see a significant impact yet, based on the data.”
Jim Donker, director of national accounts for Nestle Waters, says, “We know there’s some relationship, a correlation between this product and bottled water. That’s what they recommend you mix it with. So we know it’s being used, but to what degree and how much, I’m not sure we’ve got a real handle on.”
Kingbury says she’d like to see Kraftwork with the bottled-water companies on some joint promotions, or a crossover between Coke’s Dasani water and DasaniDrops. And Donker says there are talks to such effect. “We’ve done some tie-in stuff with MiO; they’ve come to us and said, ‘Will you tie in with us?’ ” he says.“So we’ve been doing some of that with some of their introductions and promotions. We’re doing some evaluations as we speak.”
The proof will come a year from now, when we’ll look back and see how these new categories have progressed.