As the food and beverage industry evolves to meet the demand for functional, better-for-you products, the powdered beverage category is feeling fresh.
Last year, hydration powder mix maker Liquid I.V. was acquired by Unilever for an undisclosed sum. According to market research firm IRI, the brand’s dollar sales grew 505% to $28.6 million in the 52-week period ending February 21, making it the number three brand in the sports drink mix category (overall up 28.3% to $137 million).
Powdered beverage brands outside of the hydration and water enhancement space are also experiencing high performance and gaining the attention of strategics. Laird Superfoods — maker of functional powdered creamers, protein and other drink mixes — chased a $10 million investment from Danone Manifesto Ventures last spring with a $58.3 million IPO in the fall. In June, Nestlé Health Science acquired a majority stake in collagen powder maker Vital Proteins.
But beyond these more sizable players, the category has seen an influx of innovations and startup activity over the past few years. In hydration and water enhancement, brands like Cure, Hydrant, Gainful and Beam have entered the market, alongside established RTD brands such as LifeAID. Energy drink mixes have also seen an uptick in sales, up 7.2% to $129.7 million per IRI and brands like CELSIUS have rolled out single-serve stick innovations. Within energy, brands owned by Chicago-based conglomerate Jel Sert have seen fast growth, including Pure Kick (up 266.4% to $3.1 million) and Hi C (up 2092.3% to $1.3 million).
Amid the M&A activity, growth in the category has been driven by the convenience of the single-serve stick format, ecommerce sales and a demand for better-for-you, functional beverages. So the powdered category is fast evolving and quickly gaining the attention of investors. To learn more about the shifts in the space, we sat down with three entrepreneurs for a discussion on the category.
Included in this panel are Lauren Picasso, the co-founder and CEO of Cure Hydration — which last year raised $2.6 million in a seed funding round; Kevin Rutherford, CEO of Nuun, which has expanded its line of hydration powders to include tablets, sticks and tubs as well as energy, immunity and sleep sublines; and Ken Wegner, president of Jel Sert, which owns a number of powder brands including All Sport (which it acquired last year), Super C, and Flavor Aid as well as co-branded drink mixes with products such as Skittles and Starburst.
BevNET: The powdered beverage category has seen significant growth in recent years. What have been some of the key drivers that are fueling this space?
Kevin Rutherford: The ‘water enhancement’ category, I think, was really set to be disrupted. Looking back in time at some of the heritage brands from years ago, we’d say ‘these are a little bit outdated,’ and the trends of better-for-you have transitioned across the entire grocery store into all the aisles. Yet, here’s this section [powders] where it’s not really happening. So I think you’ve just come back to an overarching trend. It comes down to better efficacy in many cases, when you’ve got a powder or a tablet product, versus ready-to-drink.
There is also a convenience aspect to it — don’t get me wrong, clearly ready-to-drink has a convenience aspect to it — however, if you have access to water, then having single sachets or tablets in a tube, that’s pretty darn convenient to have with you. And then lastly, I think there’s also an undercurrent to watch out for in the business community of how do we transition to planet friendly. So there’s an undercurrent of negativity on plastic bottles in general.
Lauren Picasso: When I started Cure three years ago, everyone thought I was crazy for starting a powdered beverage just because ready-to-drink is still such a larger category. But I chose the category for a few reasons. Coming from ecommerce, powder is super lightweight and cheap to ship online. And just seeing the rise of ecommerce, it’s incredibly difficult to make ready-to-drink work online and do that profitably. From a consumer standpoint, Kevin, you’re exactly right. Everyone is moving away from single-use plastic, everyone has their own water bottle. Back when we used to travel, you couldn’t bring a ready-to-drink through security. So I had started drinking powders and tablets for a while just so that I could actually bring it in my purse, take it on a plane with me and and have something that wasn’t so heavy.
As a woman, I always felt powder is kind of like what my brothers drank growing up. They’d be drinking these protein powders full of creatine and junk. Now that the category is evolving, you’re seeing much cleaner, whole food ingredients. I think there’s been a lot of brands, outside of the hydration and energy categories, like Vital Proteins and Four Sigmatic, that have made this category a lot friendlier to non-athletes and to women.
Ken Wegner: Certainly this space, including powdered sticks — and some liquid water enhancers as well — have seen some great growth just because of the overall growth of the bottled water category.
But I think as people start becoming more active outside, kids start going back on the field to play sports and the weather warms up, I think you’re going to see that the single-serve stick pack and/or tablet form have a resurgence. I think Lauren touched on that, and in our view we’re seeing growth across pretty much every channel that we’re in. Certainly ecommerce has seen tremendous growth, but also we’re seeing it in drug, we’re seeing it in dollar, we’re certainly seeing it in grocery. So we’ll see where that all goes in the future and how they redefine that space. But it’s a format that’s here to stay. And it’s one that we continue to invest in substantially within our operation. And we will continue to follow that plan, even from a brand development or acquisition perspective as we acquired All Sport a year ago.
You said ‘As people get back out,’ which leads well into the question of how did COVID, in this past year, impact the category and has it done anything unexpected to the direction of powders?
KW: Certainly COVID impacted pretty much everything. We all dealt with the pandemic shopping issues of a year ago and a lot of it was dealing in fear, not knowing how long you were going to be at home, and people just were buying anything and everything that was on the shelf. The interesting thing is that today, when we’re starting to compare against pandemic purchasing numbers, we’re seeing some elevation in our sales from two years ago. I don’t think any of us are going to get back to the levels of where things were from a pandemic shopping perspective, but when you start looking back at where we are today versus two years ago, we’re maintaining some of that growth. And it means that people are using the format more. They kind of got forced into it, because everybody bought everything, and I think now that people have utilized it and realized ‘Hey, this is good, my water actually tastes good’ or ‘I’m getting functionality out of it,’ there are more people that are utilizing it than there were two years ago.
LP: We saw that same spike in March. And for us, we were a really new brand. Last year, we were only in about 100 stores. Because all these retailers were selling out of electrolyte products, it became a priority category for them, along with other health products, like immunity. And so we ended up getting into over 5,000 stores last year and saw tremendous growth just because of a lot of the retail and consumer interest. Even if customers discovered us only because of the pandemic, it’s sort of like any big change in your life: when you adopt a new product or create a new habit that came out of some major change, you’re actually pretty likely to stick with that habit afterwards.
KR: The shopper behavior, we all know, has shifted. But here’s the thing, it’s shifted for a couple of reasons to meet an omni-experience world. So confidence and familiarity with buying online has clearly expanded; More people are doing it than ever before and more frequently. I think this is a real big shift that I think it bodes well for brands like ours that are doing well online.
And that shift is in how we’ve created these self-imposed category lines. So traditionally here’s the category, this is where you play because there are four foot shelves, right? I’ve worked at retail, it’s a four foot shelf, you can’t expand it, it is what it is. So by doing that, we’ve kind of said to the consumer that you need to go to this section for this, this section for that. But in a point and click world that changes. When you think about powders and tablets as a source of volume in this category explosion, now all of a sudden, ready-to-drink is also a source of volume because the consumers just point and click. I don’t physically have to move to a different part of the store. Omni-experience has blurred those lines.
Ken, Jel Sert is a legacy company with a large brand portfolio. How does an organization like that pivot or evolve to meet this changing consumer behavior?
KW: We continue to explore opportunities within our own brand space. We have our own brands that have been very successful. And we’ve added to that from a functionality perspective with our Super C brand and the All Sport brand that we acquired a year ago that plays heavily in the industrial space. But we’re now bringing it into retail with our Pure Kick brand, which is on the energy side primarily.
But on top of that, for us, we still see a tremendous amount of opportunity. Not only with those brands, but with the licensed brands that we are continually bringing to the market; our Skittles item, our Starburst items have been unbelievable, doing really, really well in the category. And there are a lot of consumers out there that are still challenged from a budgetary perspective and if we’re doing something from a fun and flavor perspective, we certainly give them a great value.
It’s also not only the great value that we bring to the consumer, with the price points, but also we bring a large margin to the retailer. I mean, we are the largest stick pack manufacturer, certainly in North America. And certainly one of the largest in the world. And it’s a capability that we continue to add to and we continue to develop our research and development lab, so our capabilities are very unique in the space.
Lauren, there’s been an increase in investor interest in this category. From the startup perspective, you’re playing in a hot area, which is hydration. We just saw Unilever purchase Liquid I.V., and you raised $2.6 million last year. What are you seeing in terms of interest from investors and outside firms in the powdered beverage space?
LP: I actually think the Liquid I.V. acquisition by Unilever was validating and is definitely a proof point that is showing that this category is growing really quickly. Investors are also starting to see the potential: There’s just so much flexibility in terms of where a powder product or a tablet can sell. So obviously ecommerce is much more economical, the margins are a lot higher than ready-to-drink, just given the weight of the product. But there’s so much more flexibility, because the product doesn’t require refrigeration. So we can sell anywhere from an Urban Outfitters or an Anthropologie to a Walmart. And we can sell in multiple different locations in the store. That sort of potential is really interesting to investors.
Ken, you acquired All Sport last year. From your perspective, what are you thinking about in terms of being the acquirer, how you’ve thought about M&A and your ability to do that as well.
KW: Certainly, there’s more money out there chasing fewer deals, right? The market’s been red hot as far as acquisition or investment opportunities. Certainly the stock market’s driven up a lot of people’s portfolios, so it’s allowed a lot of people to have more capital to put to use. Right now, we’re more focused on the brands that we have versus paying for something where the acquisition value may be higher than we think something is worth. So our investment going forward is going to be in our existing brands and it will be significant.
Kevin, Nuun plays in the hydration space, but energy and other functionalities are a big focus, as well. What is your perspective on innovation and how functionality has had an impact on this category?
KR: For us, it all comes back to hydration and optimally hydrating you. So that is absolutely at the core of what we’re doing. To make sure we’re grounded on this, 75% or so of the population is chronically dehydrated, it really should be no surprise, because you can’t escape dehydration.
So I set that problem up to say, that’s what we’re trying to do — we need you to drink more water. So that leads to where you were going on the different innovation approaches and where we’re going with the functional need states. In this case, this needs to be something you want to do versus something you have to do. We just can’t can’t bend on that one.
That sacrifice the consumer makes, you’ve got to take it away. Taste, we’re very obsessed with. Efficacy is a key one. So then what are the different needs states that we need to address? Hydration is the foundation across and then we then look at what need states are out there and we ask ‘have [other brands] done it the right way’ from a science perspective. Truthfully, if we don’t find a better way, from our perspective, on the science then we don’t do it. And if we can, then we go after it. So immunity is a good example of that. For us, we looked at immunity and we just thought it was like a big vitamin C arms race. At least that’s how it was marketed. And so we said, ‘Okay, let’s take a more balanced approach to that with hydration.’ We’ve kind of taken that model and applied it to different need states that we can enter.
What about form factor? You all have products in single sticks. Nuun has tubs and tablets as well. What you are seeing in the market and how does it tie into all this innovation discussion we’ve been having?
LP: We felt like the single-serve stick pack was just super portable and we knew it was a better seller. I think eventually we would certainly launch a tub so it’s not really a question of if but of when.
KW: For us, we have been powder manufacturers since literally the late 1920’s. So we’re almost 100 years in powders. Powder is our real focus, we’re really good at it, we sell sticks better than anybody out there does and more efficiently than anybody does. We do liquid water enhancers as well. We see that there could be some growth opportunity there, so we will grow liquid water enhancers over time within our portfolio. And I can’t even share with you, but we are bringing a new technology eventually to the category. I wish I could tell you about it now, but I can’t.
KR: Powders are more familiar to the consumer, tablets are a little bit of a longer build and education process in the U.S. and Canada. If you go around the globe, that’s not the case. So I would say this: Yes, Nuun has all three forms. Stick powder is very familiar to the consumer, they get it. I think powder has its role for sure. I think our tubs, when I think of the value proposition, it’s better for the planet, because you just have less packaging. So that makes a ton of sense. And I think tablets, there’s some real advantages to it but tablets are tougher to work with behind the scenes. And I think we’ve got it dialed in. We’ve been around for a long time, so there’s a lot of institutional knowledge where we figured out how to get there. Maybe that’s why we continue to stick in there and why I think very few who launched tablets have stuck around.
This is perhaps the overarching question of this discussion: What is the role powder beverages will play in consumers’ lives going forward? And with functionality a fast growing space, does indulgence and flavor still have room to grow?
KW: These are ways of modifying something that means a great deal to a lot of people’s lives. Even if they’re using a reusable flask of some kind or a water bottle, it makes a lot of sense for them to utilize these types of products. We sell stick packs today at Walmart that go into a gallon of water and it’s been a very successful thing.
LP: The question of if there’s room for indulgence and flavor in this space? I think absolutely, yes. We’re all more focused on function, and I think a lot of customers are looking for that functional additive to their water. But I also see a world in which they flavor their water just for the sake of drinking something delicious.
KR: Totally agree with that on both counts. We hear this all the time, right? It actually is a little more prominent among women than men, but we hear that water is boring. I think that has really given a massive surge to the sparkling water category. I think there’s a movement around being pro-planet, reuse your water bottle, make water something you want to do. Let’s make it taste good. There’s clearly, clearly an opportunity there. So yeah, this category is not going away. Clearly this thing’s had a big boost and now it’s just early innings, this thing’s gonna take off.
This conversation has been condensed and edited for clarity.