Amid rising consumer disdain for high-calorie beverages, a convergence in demand for simple refreshment and functionality is starting to give rise to a broad, catch-all category: premium hydration. At its core are products that are generally thought of as enhanced waters, but it has more room at the margins, including alkaline waters, electrolyte enhanced waters and beverages, naturally functional products like coffeefruit-based Bai or any number of coconut waters, mix-to-drink twist-cap bottles, even carbonated products like Sparkling Ice and its current raft of imitators.
In particular, coconut water products and electrolyte-infused waters, led by market leaders Vita Coco and Smartwater, respectively, have found success by promoting hydration as a key function of their beverages, particularly as a way to bridge the gap between health and refreshment.
“Hydration is a very contemporary opportunity that’s out there,” said Neil Kimberley, a longtime beverage consultant. “I think it probably comes back to the idea that it’s not so much about enhanced water as it is about some form of hydration. And then it’s about, ‘is this an updated form of modern hydration that is not for a sports occasion?’ Then I think you get into this kind of space.”
Consumers have been drinking more beverages in general, Kimberley noted, particularly as hydration becomes a more significant part of their daily needs, and a big part of that boost in consumption has come from bottled water. Moreover, as U.S. consumers increasingly shun carbonated soft drinks, research from Nestlé Waters North America and published by Zenith International, a consulting group focused on the food and beverage industries, found that 51 percent of consumers choose non-flavored bottled water in favor of CSDs, while 12 percent opt for sweetened or enhanced water.
At a cost that hovers around $3-6 for a 24-pack of brands like Poland Springs and Dasani, manufacturers have made it extremely easy to buy and consume commodity water. However, higher margins in single serve premium water and hydration beverages have made the products an attractive option for retailers. And in more and more instances, lines have been blurred to include a wider range of beverages.
“[The growth of] bottled water and the whole idea of premium hydration starting with Vitaminwater and then going through products like Smartwater and Sobe Lifewater and then into coconut water, and maybe even Body Armor is an example, is something that’s starting to get grouped together by retailers, and I think that’s becoming the decision set for the consumer,” Kimberley said. “It is taking away share from carbonated soft drinks, specifically diets, and, probably, there’s some trading going on inside the actual premium set itself when you look at the declines of Vitaminwater and the increases in Smartwater.”
The irony of Vitaminwater’s current position is that the brand was once touted as the better-for-you (and higher margin) alternative to highly sweetened carbonated soft drinks and artificially flavored sports drinks. Along with its first-to-market status, Vitaminwater’s fortified formulation and a lighter sweetness profile (than most CSDs, anyway) were significant pieces of the proposition. Moreover, the isotonic flavor, sans the salty aftertaste of Gatorade, gave the brand a solid following among female consumers, who have played a major role in the growth of the enhanced water category.
In recent years, however, the billion-dollar brand has faced a highly publicized torrent of criticism from public health advocates who claim that Vitaminwater’s positioning as a healthy beverage is not only flawed, but dangerous. A 2009 lawsuit filed by consumer advocacy group The Center for Science in the Public Interest (CSPI) alleges The Coca-Cola Co, Inc., which markets the cane sugar-sweetened drinks, has engaged in “deceptive and unsubstantiated claims” in the labeling and marketing of the products.
“Vitaminwater is Coke’s attempt to dress up soda in a physician’s white coat,” said CSPI litigation director Steve Gardner said in a statement about the lawsuit. “Underneath, it’s still sugar water, albeit sugar water that costs about ten bucks a gallon.”
Lawsuits aside, sales of Vitaminwater are in the midst of sustained slide, pointing to a consumer that wants something else. According to Symphony IRI, a Chicago-based market research firm, the brand is down over 16 percent in dollar sales and over 20 percent in unit sales in all multi-outlets combined including C-Stores for the 52 week period ending on Aug. 11 2013. A significant part of that decline is likely rooted in cannibalization from Vitaminwater Zero, the brand’s zero-calorie line. That noted, Zero isn’t faring much better than its stable mate: the brand is down 10 percent and 17.25 percent in dollar and unit sales, respectively.
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