Everyone's Looking for the Big Squeeze

The following conversation was overheard in a Boston-area convenience store in the spring of 2011. (Note that the dialogue is a loose recollection of what was actually said.)

Customer: I want to get a bottle of water but one with just a little bit of sweetness and flavor.

Clerk: You should try MiO. It’s new.

Customer: What is it?

Clerk: It’s a liquid water enhancer.

Customer: What the hell is a liquid water enhancer?

For Kraft Foods, which, a few weeks earlier, launched MiO, a line of mix-to-drink liquid concentrates, it wasn’t a run-of-the-mill new product or brand introduction that the company had on its hands; Kraft was attempting to create an entirely new beverage category. Prior to the launch, the term “liquid water enhancer” didn’t exist in the consumer parlance, and Kraft executives knew that it would take an exceptional marketing strategy — and a bundle of cash — to adequately support the rollout of MiO. So how did the company take MiO, a first-of-its-kind product with zero awareness, to a brand that, three years later, is leading a category worth over $400 million?

Whetting the Millennial Whistle

Certainly, it helped that Kraft spent over $50 million in first-year advertising and consumer education efforts and has since pumped millions more into brand marketing. The money was big, but just as significant was how it was to be spent. According to Barry Calpino, who as Vice President – Breakthrough Innovation for Kraft Foods, was one of the key figures behind the launch of MiO, the company, which, by his own account, sells many products that are aimed at “the stereotypical soccer mom,” decided to key on a target demographic of millennial consumers.

Why millennials? To begin, let’s first look at the category that spawned the creation of liquid water enhancers: powdered beverages. Pioneered by Tang and long dominated by Kraft-owned brands Crystal Light and Kool-Aid, as well as entrants from Gatorade and AriZona, the powdered drink category has recently seen the introduction of several innovative brands, often designed to reach individuals seeking out specific functional benefits.

However, Kraft’s beverage business largely relied on its longstanding portfolio and a consumer base largely made up of women and children. The company had done little to engage male consumers and felt that MiO could be a critical conduit to the untapped demographic. The product, however, by virtue of its use and package design (a small squeeze bottle), required substantial trial and education to create a significant shift in consumer behavior.

The good news for Kraft is that millennials tend to be more concerned with health and wellness than older generations. Often in place of soda and other high-sugar, high-calorie beverages, bottled or tap water is the top beverage for U.S. consumers aged 13-24, according to Beverage Marketing Corporation, an industry research group. That’s not to say that millennials don’t enjoy flavor in their beverages, something that is the foundation of Kraft’s strategy for MiO; the product would enable these heavy water users to customize their beverages with as much or little taste and sweetness as they wanted. And for a generation that is as much about individual expression and self-promotion (see Twitter, Instagram) as any before it, Kraft saw MiO as a natural fit.

“[Millennials] really personalize every part of their life,” Becky McAninch, Marketing Director – MiO, Kraft Foods said in a 2012 article in Ad Age. “[With MiO] you can make it any way you like. It embraces that individuality, that customization … that no other beverage in the market could.”

The Biggest Launch in the History of Kraft

In a 2012 seminar sponsored by global research provider Nielsen, Calpino explained that Kraft saw such potential for MiO that the company ditched its historically conservative approach to new product introductions and infused millions into pre-launch awareness programs, directed at those millennial consumers.

“We launched digitally before we were even shipping product, and ran a campaign with a character from Second City,” Calpino said. “The campaign was viral, and had high viral content before MiO was on shelf. We were on Facebook offering free samples. We also focused our resources. MiO was the biggest launch in the history of Kraft.”

Following that sustained marketing spend throughout 2011 and 2012, Kraft hailed MiO as “one of the most successful new product introductions” in its history. Much in the way that 5-hour Energy forged the path for what is now the billion-dollar energy shot business, MiO is responsible for the birth of a segment that, within the U.S., is estimated to be worth $412 million, according to a new report from Zenith International, a consulting group focused on the food and beverage industries.

Within two years of MiO’s launch, Kraft rolled out two successful line extensions – MiO Energy and MiO Fit – but also saw a swell of competing brands rise to the surface, with many companies employing similar millennial-focused marketing campaigns.

Over the past two years, The Coca-Cola Co., Inc. has introduced a range of liquid water enhancers marketed under the umbrella of Coke-owned brands, including Dasani Drops, Powerade Drops, Minute Maid Drops and the soon-to-be-launched Vitaminwater Drops. In December, 2012, Dr Pepper Snapple debuted similarly-positioned products through its Hawaiian Punch and Crush brands, and in 2013, Nestle Waters North America and AriZona Beverages leapt into the fray with iced tea-flavored liquid concentrates.

Last year, stalwart powdered brand 4C launched its own liquid enhancer line with a range of tea, lemonade and energy products. The company extended its foray into liquid concentrates with 4C Cap.It, a product in which the liquid water enhancer is delivered in “flavor filled sports caps” that a consumer places on top of single-serve bottled water.

PepsiCo finally got into the mix last October with the launch of Aquafina Splash, a brand whose Digital and Brand Strategist is teenage singer Austin Mahone. In a statement praising his association with Aquafina Splash as one that “empowers teens to be creative and pursue their passions,” Mahone, 17, will undoubtedly leverage his recognizability and appeal as a way for PepsiCo to gain access to millennial consumers.

Despite the deep-pocketed advertising budgets of competing brands, MiO remains, by far, the leading player in the thriving liquid water enhancer segment. And while MiO does not enjoy as dominant market share as 5-hour Energy (which owns over 90 percent of the energy shot category), Zenith estimates that total U.S. consumption of liquid water enhancers grew by 85 percent in 2013, rising to 700 million liters and notes that in the midst of their growth, the products have swallowed 10 percent of the total market for dilutable concentrates and powders.

Notably, Zenith found that private label supermarket brands, often positioned as value alternatives to MiO and other brand-named products, hold the second largest piece of the market.

Natural, International Growth

But the same healthy living trend that originally powered MiO’s growth may have turn back around to bite it.

A quick look at the ingredient list for MiO’s Fruit Punch flavor might just have consumer and health activists gritting their teeth and rolling up their sleeves: Water, Malic Acid, Propylene Glycol, Citric Acid, Less than 2 percent of Natural Flavor, Sucralose and Acesulfame Potassium, Potassium Citrate, Red 40, Potassium Sorbate.

So, in the midst of an expanding market for liquid water enhancers and the potential for a backlash on formulations made with artificial ingredients, some beverage companies have launched all-natural products that are positioned as better-for-you and healthier alternatives to current offerings. Ecosentials LLC, which markets Vitamin Squeeze, a zero-calorie, zero-sugar brand of liquid water enhancers, leads this subset. Sweetened with stevia, the brand has achieved significant distribution in thousands of grocery retailers across the U.S.

Following in the footsteps of Vitamin Squeeze, a few other stevia-sweetened brands have entered the category, including Stur, which promotes itself as a natural stevia liquid water enhancer with the tagline “Love Water Naturally.” Earlier this year, Wisdom Natural Brands introduced SweetLeaf Sweet Drops water enhancers, a line made with the company’s organic stevia extract and plant-based flavors.

While all-natural formulations have yet to make a significant impact in the category, international demand for liquid water enhancers is expected to have a huge effect on sales.

The Zenith report assessed 85 countries for potential growth of the category, and analysts concluded that the U.K, France, Germany, Italy and China offer the greatest prospect for liquid water enhancers, with Zenith Chairman Richard Hall stating that “there is no reason why this should not become a $1 billion international market by 2015.”

“A year ago, we predicted 50 product variants would be available in Europe by the end of 2014 and that could well be exceeded,” Hall said.