Topo Chico Acquired by Coke VEB

The Coca-Cola Company today announced the acquisition of premium sparkling mineral water brand Topo Chico through its Venturing & Emerging Brands (VEB) unit for a reported fee of $220 million.

The acquisition of Topo Chico, founded in Mexico in 1895, gives Coke a leading brand with strong consumer affinity, particularly in Texas, within the rapidly growing $4 billion sparkling water category. According to data from market research group IRI, as of August 13, Topo Chico’s annual sales are over $74 million for a trailing 52-week period, a 29 percent increase from the same 52-week period last year.

VEB, founded by Coke 10 years ago, aims to identify and nurture brands with “billion-dollar potential” through strategic investment or outright acquisition, and counts brands such as Suja, Zico, Honest Tea and Fairlife as alumni.

“As we accelerate our evolution to a total beverage company, we’re investing in brands that are on trend,” said Matt Hughes, VP of VEB, in a press release. “Topo Chico is a fast-growing brand with a lot of passion behind it and growth runway ahead.”

Coke has an existing relationship with Arca Continental, the parent company which has bottled and distributed Topo Chico for the last 30 years; they are Coke’s second-largest Latin American bottling partner. Interex, a U.S. subsidiary of Arca based in Fort Worth, Texas, imports the product domestically, where it is sold in 35 states. According to Coke, 70 percent of U.S. sales of Topo Chico come from Texas, where it is particularly popular with Latin and Hispanic consumers.

Coke indicated in the press release that no personnel changes were imminent at this time, and that the Topo Chico team would remain based in Texas.

Noting that the goal was to “extend [Topo Chico’s] reach while preserving its heritage,” Hughes said that Coke would look to “thoughtfully expand the brand’s geographic presence” through integrating the brand into its internal supply chain, marketing, and distribution systems. Hughes said VEB “will be a guiding arm behind the growth of the brand’s distribution footprint.”

As the runaway success of LaCroix has proven, developing a sparkling water brand identity and culture that connects with younger consumers can turn a relatively straightforward product into something more significant. “It’s more of a lifestyle brand than a hydration brand,” said Hughes in the release, while Interex GM Gerardo Galvan described Topo Chico’s personality as “authentic, classic, carefree, laid back, cool without trying too hard, unpretentious, consistent, reliable, local and homegrown.”

Topo Chico joins an existing portfolio of Coke sparkling water products that includes flavored and unflavored SKUs from Smartwater, available in 20 oz. plastic bottles, and Dasani, available in slim 12 oz. cans. Packaged in 12 oz. glass bottles, as well as 20 oz. and 1L plastic bottles, Topo Chico presents Coke with an opportunity to compete directly with premium sparkling water brands from Nestle, which includes European imports Perrier and San Pellegrino, and chief rival PepsiCo, which markets the IZZE sparkling water line. The acquisition also fits with Coke’s interest in expanding its low and no-sugar beverage options, a shift in strategy outlined by new CEO James Quincy in February.

Hughes described Topo Chico as “additive,” noting Coke views it “as incremental based on its very unique proposition and taste” due to its natural source. “This is important as we look to drive growth in part by building and buying brands in adjacent categories,” he said.

In evaluating the company’s potential under the Coke umbrella, Galvan indicated that Topo Chico was already looking beyond U.S. expansion.

“I believe 10 years from now when we speak of Topo Chico, we will be talking about a brand with grand recognition at an international level, exceeding the current geography of the United States and Mexico,” he said.