The little sparkling flavored water company that could
FORTUNE — “You need the moon and stars to align to get growth like this.” That’s what Kevin Klock, chief executive officer of beverage company TalkingRain, told Fortune on Wednesday.
In this scenario, the two things that lined up just right were Klock’s management of TalkingRain’s Sparkling Ice brand and consumers’ changing drinking habits. The end result was the $337 million in sales that Sparkling Ice – a zero calorie, carbonated water that comes in 17 flavors – recorded in the 12 months ending in April 2014, according to IRI, a Chicago-based market research firm, up from $2.7 million in 2009. It was the second-highest grossing sparkling water company, behind only Nestle.
If you haven’t heard of TalkingRain or Sparkling Ice, that’s not surprising. The company, which still has fewer than 300 employees, was founded in Seattle in 1992, and up until a few years ago, its products and customers had been isolated in the Northwest.
Prior to 2010, the company was made up of a mishmash of brands: sparkling spring water Essence, flavored flat water Twist, and vitamin-enriched Active Water all stood alongside Sparking Ice. None of them were selling all that well.
Klock was senior vice president of the company then, but he was catapulted into the CEO role in May 2010 after the company’s CEO, president, and vice president of sales all left the company in a six-week span. After moving into the CEO role, Klock sought to address the company’s slacking sales and decided to focus on Sparkling Ice alone. His rationale was simple: “the brand had good margins and a strong following in the Northwest,” he says.
That decision prompted a redesign of Sparkling Ice, using its top-selling Orange Mango variety as a prototype for what it wanted all its flavors to be in terms of bottle design, taste, color, smell, and even the sound it made when opened.
But image wasn’t the only problem that needed fixing. If Sparkling Ice was going to be TalkingRain’s standalone product, the company needed to ramp up production to meet what it hoped would be increasing demand. By April 2012, sales of Sparkling Ice had reached $43 million, and that summer, the company expanded its manufacturing operations from one plant outside Seattle to six in the U.S. and one in Canada. This spring, it finalized its direct store delivery network, which is made up of Anheuser-Busch, Miller Coors, and independent distributors.
While Talking Rain was busy expanding its Sparkling Ice brand, Americans beverage preferences were a-changing. In short, U.S. consumers have been losing their lust for soda.
Cola carbonate volumes in the United States plunged from just over 28 billion liters in 2009 to 24.7 billion liters in 2013, according to Euromonitor. They’re projected to contract even further this year.
Slumping soda sales are often attributed to consumers’ growing concerns about sugar intake and calorie counts, but that’s not the only factor. After all, energy drinks, juices, and iced coffee – all loaded with sugar – are still quite popular.
Klock, whose Sparkling Ice is made with the artificial sweetener sucralose, argues that consumers have turned away from soda in search of something new, something different. A walk down the soda aisle will show you that there’s been very little innovation in the past few years, he says. There are many iterations of cola – diet, caffeine free, cherry flavored – but that’s about it.
“The human diet is always seeking out a new version of things we know,” says Harry Balzer, chief industry analyst for food and diet at NPD Group, a consumer research firm. Soda is still a mainstay of the American diet, he says. (During a typical two-week period ending in February 2014, 70% of all Americans reported consuming a carbonated soft drink at least once, according to NPD.)
Klock thinks Sparkling Ice’s zero calories, carbonation, and flavor — which he says is lighter and less syrupy than soda — can fill consumer’s needs. So do a lot of other brands that have introduced their own carbonated, flavored water in the past 13 months. Coca-Cola (KO) introduced its Fruitwater. PepsiCo (PEP) announced the relaunch of FlavorSplash. LaCroix started selling Spree. And Arizona Iced Tea partnered with talk show host Bethenny Frankel, who has a line of low-calorie cocktails, to launch Skinnygirl Sparklers.
These brands are certainly onto something. Sales of carbonated bottled water grew from 600 million liters in 2009 to nearly 790 million in 2013, and they are projected to top 850 million liters this year.
“Consumers want a healthier beverage that’s not water,” Balzer says. “I have no doubt that the drink of the future is water that’s carbonated and flavored. I just don’t know what brand it’ll be.”