Bubbling to the Top: How Sparkling Water Brands Are Standing Out From the Crowd

From shelves to coolers, the fizz is in. But how long before the influx of sparkling water brands begins to bubble over?

As of August 10, sparkling flavored water reported $2.45 billion in annual retail dollar sales, according to Nielsen all-channel sales data. While the category is still a fraction of the much larger carbonated soft drinks category ($26.74 billion in sales in the same period), its growth has continued unabated against muted and declining numbers for soda. Some sparkling water brands – such as PepsiCo’s Bubly and Massachusetts-based Spindrift – reported triple digit spikes in the 52-week period as retailers continue to build out sets for low and zero calorie sparkling drinks.

In the past few years, most major beverage players have laid stakes in the sparkling water space – The Coca-Cola Company purchased Southwest regional player Topo Chico and rolled out flavored sparkling lines for Dasani and Smartwater; Nestlé owns Perrier, San Pellegrino, and has launched sparkling varieties of its regional bottled water brands including Poland Springs and Ozarka; and in addition to Bubly, PepsiCo owns the at-home sparkling water appliance brand SodaStream.

The rollout and expansion of these products come as National Beverage Corp.’s LaCroix brand – which just over a year ago made headlines as the breakout success story of the category – has faltered and experienced months of declining dollar sales, rough press, and distribution struggles. LaCroix’s issues are its own (and the brand still reported more than $460 million in year-to-date sales with double digit volume growth), but they are mitigated by the rush of new competing brands entering the category. In addition to products like Bubly and Spindrift, newer players such as Waterloo and Ugly have begun seizing shelf space in independent and natural channel accounts, while New England legacy brand Polar Seltzer has upped its distribution to grow the brand nationwide.

According to Laurent Grandet, lead food and beverage analyst for Guggenheim Securities, the wave of sparkling water entrants can be explained by the category’s low barrier to entry: “Everybody can do it, from private label to any sort of brand.”

With a standard formulation of tap water, stock flavors, and carbonation, sparkling water brands are now finding new ways to differentiate in order to stand out from the pack, from functionality to branding to premiumization.

Functionality Creates New Use Occasions

The definition of “sparkling water” can be rigid – stray too far from the traditional formula of water, carbonation, and natural flavoring and you might find yourself in a different space altogether. Category leaders are mostly staying within that lane by innovating on packaging or flavor, but new entrants to the space are stretching the parameters and introducing functionality into their products without losing the core elements of the category.

Energy has been one way for sparkling water brands to create added value beyond refreshment. Positioned as an alternative to high sugar energy drinks, Anheuser-Busch InBev’s HiBall sparkling energy water has been in the market since 2005 and was acquired by the beer giant in 2017. But more recently startups such as Clear/Cut Phocus, Pep Talk, and Limitless have emerged with their own spins on caffeinated sparkling water. Caffeinated water brand Avitae has introduced a sparkling line and companies that established themselves in other categories – such as Zola and Caribou Coffee – have broadened their portfolios with caffeinated, zero-calorie offerings.

Clear/Cut Phocus, founded by CEO Tom O’Grady in 2018, produces a line of flavored sparkling waters containing L-theanine and 75 mg of caffeine sourced from tea per 11.5 oz. can. According to O’Grady, L-theanine offers a more balanced and “focused” energy boost and the formulation gives the brand a unique play in the category. According to the brand’s internal sales data, O’Grady told BevNET, Phocus has drawn some consumers away from energy drinks and diet CSDs, but has avoided cannibalizing other sparkling water brands.

“I don’t think our consumer necessarily walks down the energy drink aisle, but we have lured some people over from energy drinks to Phocus,” O’Grady told BevNET. “I think the people who are already drinking sparkling water love the fact that we’ve made a functional beverage they can get their hands around that’s simple. It’s not hard to understand what we’re doing here.”

Even in this subset, caffeine levels can give brands another point of differentiation for consumers who may want to regulate their dosage. While Phocus uses L-theanine to give consumers a levelled energy boost, Avitae’s sparkling line is more in line with the average cup of coffee (a callout it includes on its packaging) with 90 mg per 16.9 oz bottle. Pep Talk, conversely, contains a lower 55 mg of caffeine per 12 oz can.

Grady recognizes that while sparkling water is still a relatively small part of the total beverage category, the space for functional sparkling waters is even smaller – “Those numbers aren’t even relevant yet,” he said. But Phocus has been gaining distribution, this summer adding 800 CVS accounts and building out a DSD network to service Kroger and Giant Martin’s locations, alongside a partnership with New York distributor Big Geyser.

Also in Big Geyser’s current stable is Recess, a functional sparkling water brand whose products include L-theanine, ginseng, schisandra, and CBD. As the CBD trend takes off in beverage – despite legal hurdles as the U.S. Food and Drug Administration works to determine whether the cannabinoid will be approved for use in food and beverage products – a number of hemp-infused sparkling water brands have launched in the past year. In addition to Recess, brands such as Sweet Reason, Weller, Day One, DRAM, and Queen City Hemp have released products containing between 7 and 25 mg of hemp-derived CBD per unit.

CBD-infused beverage brands have largely promoted their products as functional relaxation beverages. But while many companies have made CBD the front and center of their products, Recess founder and CEO Benjamin Witte told BevNET that he sees his brand’s core ideas of stress relief as more significant piece of its ability to stand out on shelf.

“We’re marketing a solution, not the ingredient,” Witte said. “If you notice we really never talk about CBD. It’s not that we’re afraid to, we just don’t think the consumer is actually that interested in it. CBD is like the equivalent of caffeine to us. They don’t call it the ‘caffeine category,’ they call it the ‘energy category.’ Just like I don’t think we’re a CBD company. It’s one of four functional ingredients that work together to deliver a calm, cool, collected feeling.”

Sweet Reason founder and CEO Hilary McCain told BevNET that sparkling water is a natural fit for CBD products as it provides consumers affordable access to the cannabinoid. “People don’t have to pay $80 for a tincture to try CBD,” she said.

While CBD-infused drinks frequently command premium price points – as much as five to 10 times the price of standard sparkling waters – consumers are currently drawn to beverages more as a delivery vehicle for CBD and the functionality has allowed these brands to grow within the sparkling water category without directly competing with brands like LaCroix or Bubly.

Nomenclature Offers Unique Identities

Functional plays can give companies an advantage over the rest of the category by allowing them to forego a reliance on storytelling or package design to sell the product. But for the rest of the category, brand identity can be vital to sticking out.

Polar’s dollar sales grew 15.9% year-to-date according to Nielsen, to $190 million. But unlike most sparkling waters, the brand favors the Northeast regional term “seltzer.” Even as the company ventures west outside of their home market, “seltzer” has become a point of identity even in markets where the word connotes sweetness. Comparatively, fellow Bay State brand Spindrift rebranded in 2016 to drop the term from its cans, in favor of the widely accepted “sparkling water” label.

According to Fred Hart, creative director and partner at branding firm Interact Boulder, the term “seltzer” does carry some risk of confusion. Some brands using the term, like Original New York Seltzer, are sweetened sodas. However, Polar’s ubiquity and in-store placement help it to communicate a clear message to consumers.

“I personally associate seltzer with sweetness, but it also sounds to me like a more elevated word and less of an everyday term,” Hart told BevNET. “But context is critical, because it means you can get away with things. If I see Polar Seltzer on shelf surrounded by all the other sparkling waters, that informs a lot of understanding onto it.”

According to Hart, different nomenclature can help brands carve out unique identities that are more memorable with consumers. Launched earlier this year, Dr. Priestley’s Fizzy Water uses the name of the inventor of sparkling water to create an olde-timey brand identity and the wording “Fizzy Water” fits with the company’s persona.

“If you’re going to be playful with language then it ought to be part of a larger personality,” Hart said. “But you should find new language. Don’t just say the same thing for the sake of it. When Dr. Priestley’s says ‘fizzy water’ I believe it.”

Premiumization, Flavors Give Consumers More

Even as sparkling water sales grow at a clip, the category leader is not Pepsi or LaCroix, but private label. Private label products currently account for $530 million in year-to-date sales, making it more than a fifth of the entire category. Volume growth in the same period was 21.4%. The data suggests that most consumers aren’t discerning in their sparkling water choices, opting instead for the lowest priced or most accessible options.

According to Grandet, of Guggenheim Securities, premiumization is expected to play a significant role in sparkling water’s diversification, and there are multiple ways to go about it. Existing premium bottled water makers like Voss and Icelandic Glacial have released their own sparkling lines carrying their established seals of quality, and Coke has followed suit with its Smartwater sparkling products. Where selling consumers on water quality worked for the bottled still water category, Grandet believes it will work for sparkling as well.

“It seems in the case of a company like Nestlé, their key differentiator is their water,” Grandet said. “They use spring water at a premium price. It’s clear they want to add more naturalness to the segment, and their super ingredient is their water.”

While water quality is one pillar that brands are using as a way to differentiate, others are emphasizing unique and offbeat flavors. Austin, Texas-based Big Swig has drawn attention by releasing unconventional SKUs such as Party Pickle, Jalapeno Pineapple, and Chile Mango. The brand leans on its regional origins, promoting itself as “unapologetically Texan,” to create unique products designed to pair with barbecue meals.

In the Northeast, Polar has also hit on quirky flavors as a means of broadening its consumer base. Initially intended as a limited edition offering, the company released its Seltzer Jr. line in 2017 with kid-friendly, candy-inspired mystery flavors such as Mermaid Songs, Yeti Mischief, and Unicorn Kisses. The extension has since become a permanent part of Polar’s offerings. But the company’s innovations aren’t just targeted at kids; its adult-positioned Seltzer’ade line pairs fruit flavors like Blood Orange and Starfruit with Lemonade and Limeade.

Meanwhile, other brands have maintained traditional flavors profiles while focusing on quality as a point of premiumization. According to CEO Jason Shiver, Texas-based Waterloo promotes a “bolder” flavor profile for its line of sparkling waters to not only give it an advantage over larger competitors, but to draw CSD consumers used to more flavorful sugar-laden beverages into the category.

“We knew a bolder taste and a lighter bubble was going to be very important to the product,” Shiver said. “It was flavor-forward. If you try our grapefruit, then that’s very true to fruit. But if you try our grape soda it might harken you back to when you were a kid drinking Fanta or something like that.”

Spindrift is flavored with fruit juices, which makes the products lightly sweetened, and has used its formulation as a way to avoid direct competition with other sparkling waters. Although fresh competitors have started taking cues from the brand – such as the recently relaunched Slice, which features “splashes” of juice concentrate – Spindrift CEO Bill Creelman told BevNET that the brand’s emphasis on using farm-sourced fresh fruit has created loyalty with “ingredient minded consumers.”

“We don’t spend too much time worrying about what competitors are doing because our product is widely different,” Creelman said. “If other companies begin to take the same approach to elevate the experience for consumers, we welcome it.”