Nine years ago, long before he formed plans to create a new sparkling water company, Tyler Merrick entered the bottled water business with his brand Project 7. It didn’t go so well.
“I’m not trying to build a bottled water brand,” he said with a laugh, recalling his first foray into beverage during a call with BevNET last week. In the years since, Project 7 has found success in marketing organic chewing gums and gummy candies with unique and distinctive flavors. Candidly assessing his struggle to get the water company off the ground while competing against the likes of Coca-Cola and PepsiCo, he remarked: “I’ve done that before and been humbled in the process.”
In some ways, the sparkling water market Merrick is now preparing to break into is no less fraught with peril for an upstart independent brand. While the U.S. carbonated water market continues to grow –up 70.4 percent between 2011 and 2016, according to data from market research firm Euromonitor International — in the face of declining soft drink sales, share of the category has been increasingly divided between major players like La Croix, Talking Rain, Coke and Pepsi-affiliated brands and private label offerings.
Yet that growth has given Merrick what he sees as an opportunity to bring more depth and complex flavors into the segment with the launch of Seven sparkling water, which debuts this week in 12 oz. cans. The line comes in four flavor varieties: Grapefruit Melon, Coconut Lime, Champagne Wishes and Margaritahh.
“I was personally looking for something that had more body and depth to it,” he said, drawing a parallel to the craft beer business. “As the category grows, just like craft beer, I like to have a different roster of experiences in my fridge. I felt like in the sparkling water category there was room for a [product] that had a little bit more than just the natural essence or a more singular flavor focus.”
To achieve the more complex flavor experience he was seeking, Merrick opted to use a combination of fruit juice (about 3 to 5 percent on average for each SKU) and natural flavors with no added sugar. Optimizing the flavor balance in varieties like Grapefruit Melon and Coconut Lime took some trial and error, but Merrick said creating the other SKUs — designed to be non-alcoholic takes on classic cocktails — was the bigger challenge. Those include Margaritahh and Champagne Wishes, to be followed by additional flavors later in 2018.
“Anytime you put that flavor that someone is used to experiencing, in their head they know what a margarita tastes like,” he said, noting the challenge of bringing elements of those cocktails into the sparkling water flavor profile while clearly establishing that the product is not a traditional mixer. “As soon as you make a margarita-style sparkling water, you know there will be a lot of people who say ‘this is not a margarita.’”
Even as Seven emphasizes its unique formulation and ingredients, La Croix’s dominance of the sparkling water category may indicate that many consumers aren’t necessarily demanding a pricier premium alternative. Merrick said he explored making the line organic, but the margins were too high. Instead, Seven, priced at $5.99 per 8-pack, offers a way for retailers to complement their existing set with an incremental sales driver, rather than another competitor for La Croix or their own private label seltzers. Measuring the ambition of his own venture, Merrick quoted one of his father’s favorite sayings: “I don’t want a piece of the pie — I just want to take my knife, put in in the pie, pull it out and lick whatever is on the edges.”
“I think there’s something to that, just the humility of saying we are not trying to be the next La Croix and there’s no way we could be,” Merrick said, adding that his experience in the organic candy business proved that certain consumers were willing to pay more for higher quality products. “This is a complementary product in the set; it’s not going to turn the velocity that La Croix does, but that’s OK.”
As he sets a distribution strategy for Seven, Merrick is applying the lessons learned from his previous experience in bottled water. The line will debut this week at five divisions of Kroger and Kroger banner stores on the West Coast, along with some select food service partners. Just as with the liquid itself, Merrick has a clear idea of what Seven will and won’t be as a product.
“I’ll be honest, we are not going to be a DSD brand,” he said, describing the distribution strategy as “select surgical strikes” aimed at incremental growth. “We’re not just trying to go super wide– I want to learn in a small pond. Some people may say Kroger is not really a small pond, but you can’t make this on a scale that we are doing and just try 10 stores. Five divisions of Kroger is still relatively small, so we can try that out, do some promos, see what flavors do well, see what regions do well and learn from that.”
Though Seven will be its own brand independent of Project 7, Merrick said the new venture will have the same social mission as its predecessor. A portion of the sales of Project 7 products goes to support nonprofit organizations working on causes such as homelessness, environmental sustainability, clean water, hunger, education, health care and anti-bullying initiatives.
And, despite its rough start, the Seven bottled water line lives on: though no longer sold at retail, the line has one exclusive customer — Caribou Coffee — keeping it in demand. The Minnesota-based national coffee house chain carries Seven water in its 200-plus U.S. stores, and Merrick said he isn’t actively trying to expand that segment of the business anytime soon. While updated packaging for its bottled water will be introduced next month to integrate it with the sparkling line, Seven is building its future squarely around the latter.
“I think what’s really cool potentially in sparkling water is that if more players continue to get into it and do more interesting things, I think it does have kind of the makings of a craft beer revolution,” Merrick said. “It’s not the same, but I have five different brands of sparkling water in my fridge at all times. There are ones that I like one flavor a lot, then there’s other ones that add a little higher carbonation when I want stronger bubbles, and so on. That happens with beer — you have your go-tos but you also have other stuff in rotation.”