As the bottled water category has witnessed disruption from sustainably packaged water brands, M&A activity among premium brands and innovation in the form of functionality, The Alkaline Water Company is aiming to do it all.
Founded in 2012, the Arizona-based, publicly-traded beverage company owns the Alkaline88 brand, which over the past few years has expanded its portfolio from bulk jugs of 8.8 pH water to include sustainably-packaged lines, flavors and CBD-infused drinks. The brand’s products are currently available in over 75,000 retail locations nationwide, but the company is continuing to focus on expansion as it seeks to build a DSD distribution network and branch out internationally.
According to the company’s fiscal year Q3 earnings report last month, revenue grew 20% year-over-year to $10.2 million in the quarter and was up 21% to $35.2 million for the first nine months of the fiscal year. Market research firm IRI reported that Alkaline88’s still water jug line grew 27.1% to $50 million in the 52-week period ending February 21.
CEO Ricky Wright said the company anticipates it will be in roughly 90,000 to 110,000 stores by the end of the 2022 fiscal year. Speaking with BevNET this week, he said another 9,000 stores are expected to go online in the coming weeks.
Although Alkaline Water has achieved a broad nationwide distribution, the company has done so without a robust DSD distribution network, relying primarily on a warehouse model. As it looks to break into new channels with its expanded portfolio, Wright said the company is now focusing on building a direct to store system, including a partnership with Arizona-based Hensley Beverage Company, which was announced last month.
Currently, Wright said Alkaline Water is primarily focused on the grocery channel, with a presence in big box and drug chains.
“I’d love to do more of that this year,” Wright said. “We’re looking to hopefully get into the Northeast, we’ve been talking to a number of different large DSDs, but I wanted to start in my backyard because we’ve really never used that model.”
To support the expansion, Wright said the company has doubled its staff within the last 12 months, including four additions to its operations team, four to its accounting team and about 10 people on its sales team, bringing the total staff to over 30 employees. Wright noted that the company has also opened up two East Coast production facilities, “almost doubling” its capacity. Alkaline Water will open up two more facilities — one on each coast — later this year.
In addition to growing its footprint, Wright said the company also aims to address shortages and stocking issues through its expanded DSD network.
“I think we lose 20 to 30% of our sales by not being on the shelf,” he said. “A lot of times, because we are direct from warehouse, chains may only get deliveries three days a week. So if we happen to have a rush on our product, there could be a day where we’re not in stock and retailers just don’t have any in the back room. And so [DSD] should get rid of that issue.”
In addition to the U.S., Alkaline Water is now looking towards international expansion. Last month, the company partnered with Tiendas Sindicales, a Mexican grocery chain and food service and vending service provider. Wright noted that Tiendas Sindicales services roughly six million regular consumers.
According to Wright, Alkaline Water is also watching the regulations surrounding CBD in food and beverages as the company continues to build out its CBD-infused products line. Last year, the company launched a line of topical CBD skincare products as it waited for clearer regulations surrounding ingestibles. In the summer, the company expanded its CBD line to include beverages, shots, capsules, oil tinctures, gummies and powders. Going forward, Wright said the company aims to focus mostly on beverages as it most closely aligns with the brand’s established business model.
Alkaline Water has also moved into another rising trend within the bottled water space: sustainable packaging. Last year, Alkaline88 released a line of waters in recyclable aluminum bottles, putting it on a trend alongside brands like Pathwater, All Market Inc.’s Ever & Ever and Proud Source Spring Water.
Prior to the COVID-19 pandemic, Alkaline88 was in a number of hospitality and on-premise accounts, but the business suffered in the last year as those channels saw significant declines. As the vaccination rollout gains steam, however, the on-premise channel is beginning to reopen and Wright said Alkaline Water will once again aim to go deep in that sector — with CBD and its aluminum line giving the brand a point of differentiation.
“People don’t realize the on-premise business in beverage is just about as big as the rest of the retail business,” Wright said. “It’s a huge market that not a lot of people try to crack, and I think that the distinction of our products and now particularly with CBD is opening up as well, we’re going to have some lead products in some of these markets that nobody else has.”
Alkaline Water’s latest expansion initiative comes as the bottled alkaline water category has experienced significant market validation, Wright said. Earlier this month, Nestlé acquired Essentia for an undisclosed sum and, in January, Flow Alkaline Spring Water filed for an IPO on the Toronto Stock Exchange. Wright said although Alkaline88 faces tight competition in the market, these moves are helping Alkaline Water make its case with buyers and distributors. And while Essentia is still onboarding into the Nestlé system, Wright also noted Alkaline Water is ready to take advantage of any openings in the market created by the acquisition.
“I don’t have any inside information, but to the extent that Nestlé decides to put Essentia into their own DSD network or the carriers that they think might be a little stronger than the ones that that Essentia currently uses, we’ll be right there looking to take advantage of that and move into that particular territory with a DSD partner,” Wright said.
Last month, The Alkaline Water Company was accused of fraud in a lawsuit filed by Minneapolis-based brand management firm Castello, which alleged the bottled water maker failed to make payments. Alkaline Water countersued, claiming Castello had misrepresented itself and had overstepped the agreement to focus on marketing efforts the brand never requested. Wright said the case was “more complicated” than Castello presented in its court filings and said the firm was not “remotely reasonable” in its approach to the suit.