Sparkling Ideas: Flavor and Functional Innovations Help to Drive Sparkling Water Growth

While the beverage industry has been rocked by inflation and shifting consumer habits, sparkling water sales are staying fizzy.

According to data firm IRI, flavored sparkling water sales grew 5% to over $3.72 billion in the 52-weeks ending October 30, while non-flavored sparkling waters (including seltzers and mineral water) grew at an even faster rate, up 8.5% to around $856 million.

Although the category has felt some drag as several larger flavored sparkling brands from conglomerates have declined – including PepsiCo’s Bubly (-3.7%), Nestle’s Perrier (-0.4%) and The Coca-Cola Company’s AHA (-3.4%) and Topo Chico (-30.3%) – the category has continued to show some of the steadiest growth across the non-alcoholic beverage sector as the macro better-for-you trend remains firm and wallet-pinched consumers seek out lower priced products in a marketplace ravaged by record high inflation.

Jim Watson, senior analyst for beverages at Rabobank, told BevNET that although economic conditions have led to some “trading down” by consumers away from name brands, resulting in a 5.3% pickup for private label products during the 52-weeks, the category as a whole remains strong, particularly for smaller, innovative brands.

“It’s still one of the best places to be,” Watson said. “[Sparkling water] still has all the core tailwind behind it of being like full flavor if you want it to be much healthier, a reasonable price point, and a platform for innovation within the category. So I’m still super bullish on the category as a whole.”

Even as Coke and Pepsi fight for sales in a crowded category, other top players are still growing. Sparkling Ice (+4.1%), LaCroix (+0.9%) and Polar (+17.8%) – the latter still scaling its national presence outside of the Northeast through a distribution pact with Keurig Dr Pepper – have stayed competitive even as surging startups like Spindrift (+35.7%) and Waterloo (+53%) have gained more market share throughout brick-and-mortar retail.

But for a category that traditionally has been defined as unsweetened carbonated water with natural flavors, disruptive innovations in flavor, format and function are creating a more diversified set that frequently crosses category lines and, most importantly, offers more opportunity to peel off soda consumers and drive incremental growth.

Flavor Forward

As it’s a category built around refreshment, flavor remains a key innovation pillar for sparkling water brands. One notable emerging trend is double flavor varieties, such as AHA’s line with SKUs like Lime + Watermelon and Blueberry + Pomegranate, or Aura Bora’s more experimental offerings such as Cactus Rose, Lavender Cucumber and Lemongrass Coconut. According to Watson, the prevalence of these types of products can be attributed to crowded sets with brands adopting more unusual taste profiles in an attempt to stand out – “If you go up and down the aisle looking at brands, count the number that have two flavors, as opposed to one, and I think you’d see a massive move in that direction,” he suggested. However it also comes with some risk of being too complicated for mainstream consumers, he added, who are primarily seeking simple alternatives to sugary soft drinks.

“I do think in a category where every month to three months you come in and it’s a new array of flavors, everything is kind of more powerful or more different than you’re used to, it can be a little damaging to the brand of overall flavored seltzer,” Watson said. “Obviously, some level of innovation is good, but you can kind of confuse consumers or just give them the paradox of choice and it’s overwhelming.”

Aura Bora, a California-based startup which closed an eight-figure funding round in September, has turned complex, botanical-infused flavor profiles into its signature. The brand, which has about 50% ACV in the natural channel and is currently expanding into mass and conventional accounts nationwide and has scaled revenue 30-40x since 2020. However, even with a line that deviates drastically from the category’s traditional focus on simple fruit flavors, co-founder and CEO Paul Voge has said he won’t tone down the innovation for mainstream channels but rather will push SKUs like Lime Cardamom for conventional accounts that are more palatable to new customers.

However, even within the single-flavor, fruit-focused sparkling water space, brands such as Sanzo have stood out by turning to untapped flavors. The Asian-inspired line features flavors like Lychee, Calamansi, Mango, Ginger and Yuzu, and most recently an LTO Asian Pear variety. Founder and CEO Sandro Roco has been outspoken about the need for more Asian American Pacific Islander (AAPI) representation within the food and beverage industry, and Sanzo has now established itself in the market by highlighting a broader cultural trend towards embracing Asian cultures; “Our biggest contention was ‘Why does the grocery store not yet reflect what I’m seeing on my television or listening to on my Spotify?’” Roco said.

In targeting the sparkling water shelf, Sanzo has followed a path paved by Spindrift – creating a premium sparkling water brand made with real fruit juice. Roco credited Spindrift and that brand’s investment partner VMG for introducing both consumers and retailers to a unique style of sparkling water that has allowed Sanzo to more readily gain placements.

“It felt like a category that for quite a while has been treated as a commodity – just water with bubbles,” Roco said. “Even when you say ‘seltzer,’ I think a lot of folks have a particular connotation of what that brand and price point is. And it’s ended up being ripe, I think, for a brand to come in and kind of spur a conversation.”

From a different angle, canned water brand Liquid Death has fast established itself as not only one of the fastest growing still waters in the country, but a serious sparkling player as well. The company debuted an unflavored sparkling water in 2020, and it has grown 238.2% in the 52-week period per IRI to $19.6 million in retail sales. This year, the company debuted its first flavored sparkling line, similarly packaged in 16.9 oz. tallboy cans, with aptly named flavors like Berry It Alive and Mango Chainsaw, is lightly sweetened with agave and contains 20 calories per can, a decision that CEO Mike Cessario said then obviously the prebiotic soda brands like all the Poppi and Olipop, we were all birthed at a time of being digitally native – there just wasn’t another option. We couldn’t have fathomed launching a beverage brand by just putting a product on the shelf.”

Meanwhile, Spindrift founder and CEO Bill Creelman said his company is likely to stick with flavors that consumers are already familiar with, but instead the brand is building its platform around category crossovers through hybrid products with tea, lemonade and, most recently, cider (not to mention hard seltzer with its Spindrift Spiked line).

Spindrift, which has surpassed AHA to reach over $145 million in retail sales, still has under 50% ACV for the traditional sparkling water category, Creelman said, and while other brands are now following his company’s lead he said the brand is keeping its focus on simple, flavorful beverages with a platform approach to product development.

“Our innovation strategy is to take big, big categories, huge categories – I mean, when you take soda and cider and lemonade and tea, you’re talking about literally the biggest categories in beverage, it doesn’t get much bigger,” Creelman said. “We want to provide our point of view on those categories, what we think is interesting and unique and in what is our IP, and extend it into big well known categories. But we don’t really look much beyond what we’re focused on, just because there’s so much to do.”

For Spindrift, Creelman noted that the brand’s sales are primarily multiserve, leaving large runway open to expand its single-serve business, as well as opening new retail partners the company has yet to launch. And despite more competition at the premium level, Creelman noted that the slow decline of traditional soda is still fueling the category and constantly attracting new consumers.

“When we think about all of the places that soda is available today, and then contrast it to where sparkling water is not available today or is less available, [those are] opportunities,” he said. “I just think the consumer is more and more aware of ingredients and sugar … and the move towards better-for-you products will only continue to accelerate.”

Fizzing Function

Outside of flavor, functional brands are also bringing new use occasions to the sparkling water shelf. Crossovers with the energy space through caffeinated brands like Hiball and Phocus have been around for years, but the rise in CBD and relaxation beverages has led to mood-boosting brands like PepsiCo’s Soulboost. Meanwhile, alcohol-alternative styles of products, such as Recess, are carving out all new sets in retail.

The influx of brands billing themselves as functional sparkling waters hasn’t slowed in recent months, as startups like Baloo craft messaging around relaxation while legacy brand Bossa Nova is relaunching as a plant-based functional line.

More established, however, is midwest brand BUBBL’R, an antioxidant sparkling water that has focused on building out a commanding presence in convenience stores in the middle of the country. BUBBL’R grew 84% to $81.4 million in the last year, per IRI, making it the fastest growing company in the category. Owned by Wis-Pak brands, a Pepsi Cola bottler and distributor, BUBBL’R has foregone expansion into coastal markets but is connecting with consumers as a better-for-you, value-add product.

Tyler Hartmann, director of marketing and brand development for Wis-Pak, told BevNET that BUBBL’R has made “functional forward” a core part of its message, which has helped it succeed in the convenience channel while more traditional sparkling water brands have tended to struggle to compete at the level they do in the grocery and natural channels.

“Consumers that are having BUBBL’R are not your typical generic sparkling water consumer that you that you think of, we have a lot of sales that are coming from a lot of different categories when consumers are looking for something that’s a little bit healthier,” Hartmann said. “My feeling is that that trend is going to continue, and where AHA and Bubly are all fighting over what we typically think of as that traditional sparkling consumer – you know, maybe a millennial, slightly older, they’re looking for permissible but still fun – BUBBL’R is in a much wider category stretching down to Gen Z that is really looking for a healthier option.”

While BUBBL’R aims to be a national brand, to date the company has avoided launching along the coasts and Texas remains “underdeveloped,” Hartmann said. However, around Milwaukee and Chicago, he said the brand is competing to be a top three, if not top two, competitor in the sparkling water space and further expansion will come steadily over time.

As a PepsiCo distribution affiliate, Wis-Pak also services Bubly, but he suggested BUBBL’R is differentiated enough to not compete directly with it. While PepsiCo’s brand has seen some sales declines this year, Hartmann said he believes it has less to do with the product itself and more with general consumer trends in the post-pandemic market.

“I do think that while we’ve seen maybe a little bit of slowing on the unsweetened traditional sparkling waters, I think a lot of that might be due to [how] we just had a lot of COVID foot traffic that was going into grocery stores, and sparkling is so dominant in that channel,” he said. “And so overlapping that foot traffic probably has some pretty significant impact on that because they’re not really developed outside of that grocery channel.”