Beyond Me-Too

By Jeffrey Klineman

It’s probably unfair to name names.

Oh well. In the interest of showing how far things have come in the post-Vitaminwater world – and in the interest of having a little fun, (and also highlighting the war on punctuation and spelling that the category we’re about to talk about engendered,)  let’s name a few anyway:

There was IQH20. There was Speedo Sportswater. There were also Water +, Vital Lifestyle Water,  Activwater, and  Clearly Canadian Natural Enhanced
Water: Blueberry (dailyVITAMIN). There was Jones 24C Multi-Vitamin Enhanced Water.

When it comes to Vitaminwater me-toos, there were a lot, and a lot of bad ones, okay? And, as a result, distributors and retailers are still pretty wary of brands that come to them with the idea of mixing up a bit of sugar, a few potentially functional elements and a relatively interesting bottle, and calling it a name with weird punctuation and phonetic spelling.

It’s easy to understand why folks wanted to knock off Vitaminwater. From a marketing, sales, and branding perspective, the company had it going on – even now, despite the derisive comments by some that Coke might have overpaid for the brand and its $4.1 billion price tag, it’s hard to dispute that the Glaceau stable of brands has become a major sales producer for its new owner. Between Vitaminwater, Vitaminwater Zero and Smartwater, Coke pulled in $1.2 billion in sales last year alone, according to channels covered by symphony/IRI – and that’s not counting a small retail chain called Wal-Mart.

But what the brand pioneered – the grow-until-you-get-bought phenomenon that put profitability second to expanded reach – left a hard-to-swallow legacy for distributors and investors, and they’re not necessarily willing to put their money behind the next functional product that comes along.

Particularly, they say, since the public largely understands that despite Vitaminwater’s much-advertised use of a variety of commonly-occurring vitamins as part of its formulations, it’s largely accepted that the product isn’t going to do much in terms of making consumers healthier. While the product still has great taste and branding going for it, when it comes to functionality, for a new product to break out as a functional brand, many industry insiders believe that it’s going to have to break the mold.

And with most of the me-toos finally fading into memory, marketers are once again making the argument that they can do it.

“People are tired of the pixie dust phenomenon,” said Carl Sweat, the CEO of FRS, which aims to supply some of that true functionality through the fitness-oriented extract quercetin. “Consumers are deciding they want something stronger.”

Sweat, himself a former Coke employee, has seen the obstacles left in the wake of Vitaminwater’s unfulfilled physiological promise. While he said he believes that the brand’s combination of taste and packaging leave it unassailable in its category, Sweat and other brand owners seem to be motivated by a belief that they have found a new generation of functional beverages that are actually able to back up the claims they make on the label. The market is there, as well, with functional beverage products expected to reach nearly $10 billion by 2014, according to the findings of a 2010 Mintel International study. While that would represent a mild increase of about $1 billion from 2009, it’s a bump that could theoretically be filled by a handful of strong, emerging brands. A runaway hit could easily overwhelm those expectations. But the time has to be right.

“If we’d launched ten years ago, it would have been confusing to the public,” said Paul Nadel, the President of Neuro Beverage, which claims to offer an “operating system” for life through enhanced beverages. “We’ve have been accused of being a me-too. And now, I think people think of Vitaminwater as a good tasting beverage – they don’t really think of it as a healthy beverage or a functional beverage.”

So rather than try to emulate Vitaminwater, this next generation has made it a priority to move away from the brand. The next generation of functional brands distinguishes itself by trying to present a scientific case for its products’ efficacy. They provide megadoses of  vitamins and other compounds where once a simple Recommended Daily Intake (RDI) might have sufficed, introducing new elements whose presence can be quickly felt in the body. They even make an argument for better performing packaging styles, all while still attempting to show creativity and good taste.

“Our bottle design, our structure/function claims, the advertising we’re doing, we’re trying to separate ourselves from that group,” of ‘me-too’ brands, Nadel said. “Clearly, we have to separate and distance ourselves from them.”
And for some of them, the investors and the distributors have started to re-appear, ready to move on and take a chance. The question is, are consumers emerging from the Vitaminwater era ready to move on, as well?

“There are so many products that have gone through their life cycle where the more consumers find out the brand, the less they like it,” says C.J. Rapp, the founder of “mix-to-drink” Karma Water, which, like a growing cadre of products, uses a cap dispenser to push vitamins into a water bottle.

If consumers are indeed interested in moving on, a front line of products is beginning to form by strength of the experienced hands and deep pockets that are powering their operations, but also by presenting brand arguments that do indeed seem to differentiate the products from the crowd of fallen me-toos. It’s an interesting group because none of them have yet broken out, and there are formats that range from single functional plays to brands that offer multiple SKUs as an “operating system” for a consumer’s life. Some are vitamin-based, while others rely on caffeine or other stimulants to drive home instant effects.

What is certain here is that success for these brands is by no means certain – it’s sort of an “if-then” statement on time and momentum that  will eventually determine if a new category has emerged from the long shadow of Vitaminwater’s  apothecary bottle. But if it does, here’s what new product makers are gambling on:

1. Better Payloads
Recently, Sweat and his old friend Lance Collins, who started Fuze and is now grabbing distributors’ attention through his next-generation “Super Drink” Body Armor, chatted at a trade show booth, daring each other to try to up the protein contents of upcoming line extensions.

The message was clear: more is better.

“You’re going to try 25 grams of protein?” Sweat dared Collins. “Do you want to do the over/under for how many batches you throw out in a year?”

It’s a dare that illustrates the challenge for functional beverage makers: Because so many of them are gambling that the public will no longer settle for the perceived weak functionality of Vitaminwater, they have to improve the quality of what their products deliver.

Hence Collins’ “kitchen sink” approach of providing – in one drink – electrolytes (including some from coconut water), vitamins, fiber, “fat-burning” tea extracts like EGCG, energy elements like caffeine, and focus products like L-Theanine. Other potential products on the board include a “super-slim” line along with the just-mentioned protein-enhanced drink.

“There are a lot of good things in here,” Collins said.

With his experience in bringing Fuze to the market in the early days of the New Age beverage movement, Collins combines an inventor’s mindset with the ability to get things done. But having all of the ingredients at once is only one approach. Another, taken by FRS, is to have one key ingredient as the building block for a brand.

FRS, which uses the plant-derived flavonoid quercetin as the key metabolic ingredient in its product line, is based on the premise that the product can provide consumers extra energy for performance.

“Consumers have decided it’s the one thing they feel strongly about,” Sweat said. “It’s got to be strong enough to make a difference.”

2. Better sweeteners and flavors to hide the payload
While there’s no doubt that Vitaminwater Zero – as well as chief competitor SoBe Lifewater – has been able to take advantage of the momentum and distribution advantages provided by Coke, some marketers point to stevia and other sweetener developments as a kind of new starting point for brands that are able to come up with formulations that will appease calorie-conscious consumers.

“The Zero part of the brand is the only part of Vitaminwater that’s really growing,” points out Ben Weiss, the founder of coffee fruit-based Bai beverages. “I think that the use of stevia delivers the flavor without the off-notes, and people will opt for higher functionality, higher antioxidant counts, if the flavors are equivalent.”

Adds Sweat, “You can dial back nutritionals and the other things that affect your taste profile, or you can spend a lot of time at the [research] bench and really mask them well. But the high water mark is when there is no taste penalty.”

3. Cool, functional packaging that holds the payload
Mikel Anderson can’t contain his excitement. The developer of more than 1200 styles of caps that consumers can twist, turn, punch, pull, squeeze, or otherwise manipulate in myriad other ways believes that the time of the dispensing cap has come.

“It’s going to be a tidal wave in the next three to five years,” Anderson said. “The story is finally starting to be told and realized.”

But strangely enough, Anderson’s excitement has been generated through a product he hasn’t even worked with: Activate Drinks, a California-based product that is the first to widely market a “dispensing cap” as a way to drop a mixture of vitamins and other healthy ingredients into a bottle of plain water – without having to use a hot-fill process that can cause those ingredients’ effectiveness to degrade.

“Finally, people are starting to take the chance, and daring,” Anderson said. “They see the Tata investment in Activate, and Karma is coming around out there, and it’s not just America. The entire world is looking at these caps. Something dramatic has happened.”

Over the last three years, Activate has indeed been able to leverage more than $20 million in investment from Indian conglomerate Tata, as well as the distribution connections of CEO Dan Holland, to build a large West Coast footprint that is heading national.

To date, the Activate brand has, along with newcomer Neuro and longtime online-stalwart FRS, been one of the leading brands in terms of growing retail sales for the emerging generation of functional products. With a deal in place with Coast Brands Group and a growing number of chain buyers willing to explore the possibility that “mix to drink” might be the wave of the future, Activate has taken the dispenser cap and helped cobble it into a concrete category.

But problems remain for Activate, as well as its emerging group of cap-oriented competitors, including Rapp’s Karma Water and V-Blast, which dispenses a liquid solution instead of a dry one. The key stumbling blocks? Consumer education about how to use the caps, as well as the notion that, for some consumers, the products may be too similar to Vitaminwater in terms of what they promise.

“We understand there’s a huge educational gap to overcome relating to dispensing caps,” says Rapp, whose product attempts to mix the freshness advantage of cap dispensing with a mega-dose of seven different vitamins.

The solution to the second problem is what will also fix the first, Rapp adds. Once consumers feel the effects of the vitamins in their non-degraded form, he argues, they will be more inclined to accept the package that keeps them from degrading.

“Once people understand it and start to be educated, that hot fill is boiled and the enzymes are dead, the sugar is added, and the product is only what they add back in, they’re going to say they don’t want this anymore,” Anderson said. “The biggest obstacle has been the consumer understanding what the process is for [hot-filled] beverages. It really still hasn’t been explained, but the eyes are open and the ears are listening loud and clear.”

4. Immediate Effects
Also working from an efficacy-enhancing standpoint is Neuro, a cold-filled product that is fast becoming a standard-bearer for a wave of brands that use short- and medium-term functional effects to indicate that their ingredients are working.

Rather than provide an alternative to Vitaminwater, said Neuro’s Nadel, the real functional product to which Neuro tries to compare itself is the energy drink Red Bull.

“People felt that drink’s efficacy immediately,” he said. “It changed my paradigm. Initially, at the very inception of the brand, the focus was to find a healthy alternative to an energy drink. But beyond that, as we continued to develop, our research team decided to try to do things that would work.”

To that end, most of the Neuro line – Trim, Gasm, Bliss, Sleep and Sonic among them – have strong enough doses to elicit physiological effects that include fullness (through fiber), relaxation or sleep (through L-Theanine or melatonin), and focus or excitement (caffeine, more L-Theanine, B-Vitamins). Nadel said the products use an intentionally powerful mix of ingredients. While not all drinkers are going to feel all effects (and Gasm may be a bit of a functional reach), the idea is clear.

“If you get a consumer who tries one and it works, like Sleep, they say, what else can I try?” Nadel said. “If just one works, it builds credibility.”

Credibility is a hard word when dealing with products that promise different effects. It’s been the hard work of functional products – particularly those that offer the so-called “long-lead” effects promised by, say, cancer-fighting antioxidants – to prove out that credibility.

Still, the potential for at least one key function – money-making ability – continues to drive many of the products mentioned above onto store shelves. Each of them – Neuro, Activate, FRS, as well as newer products like Bai, Karma Water, and Body Armor – and others, like Vitaminwater-era survivor Function and leading relaxation brand Marley – have managed to grab large chunks of distributor territory in the past year, verging on national footprints. The promised shelves of chain accounts are beginning to beckon, offering the ultimate promise for enhanced beverages: enhanced profits. Will they all feel the effects? In this case, the answer “me too” might not be such a bad one.