Can a brand built on counterculture, rebellion and flaming skulls become the next big mainstream beverage giant? That remains to be seen, but Liquid Death CEO Mike Cessario is certainly up for the challenge.
In just a few short years, the former advertising executive has emerged as an unlikely visionary businessman, injecting a punk rock aesthetic and healthy disregard for ‘safe’ marketing tactics into a packaged water brand expected to clear $130 million in sales this year — and to double in 2023. According to internal company documents viewed by BevNET, Liquid Death has achieved 94% national distribution coverage via DSD and broadline partners, carrying the ability to service 346,000 doors across the U.S., while only clocking in at 13% brand awareness. To the chagrin or disbelief of many, Liquid Death has achieved a $700 million valuation by selling water in a can, generating a war chest of $195 million in investment — including yesterday’s $70 million Series D — along the way.
If January’s $75 million Series C round was a confirmation of Liquid Death’s growth thus far, this week’s round underscores the belief that the brand can go even further, mainly thanks to the performance of its flavored sparkling line released in January. Within three months of its introduction, the product had “gone nuclear,” according to Cessario, generating 40% of the brand’s total Amazon revenue without cannibalizing its existing business. In brick-and-mortar retail, the flavored line outsold all varieties of Topo Chico in Target and became the #2 best-selling sparkling water at 7-Eleven. Retailers that had initially been skeptical on stocking a Liquid Death product that strayed from the brand’s zero-calorie, zero-sugar roots were eventually won over.
To Cessario, that experience has underscored Liquid Death’s true point of differentiation as a beverage maker: bringing otherwise disinterested consumers into the better-for-you space. Beyond the various publicity stunts and provocative ads, the brand has created a connection with its audience that allows its waters to play at retailers as diverse as Whole Foods and Walmart at virtually the same price. The early success of the flavored line, positioned somewhere between a soda and a zero-calorie Sparkling Ice or Spindrift, suggests that consumers are eager to evolve alongside the brand. It’s also now seeing its first line extension since the launch with a fourth flavor, Convicted Melon, launching in the near future.
“What we’re seeing is that the brand can be a platform for healthy beverages,” Cessario said. “Healthy beverage categories typically don’t have the most exciting, fun marketing; it tends to kind of be all very the same kind of bland. I think there’s a possibility for Liquid Death to go into multiple healthy beverage categories and sort of be the cool, fun brand. And for me, outside of our ‘Death to Plastic’ mission, what we’re really trying to do is bring healthy beverages to people who don’t typically drink them.”
The first test of the brand’s broader viability is set to begin soon with the introduction of iced teas, Liquid Death’s first non-water product. The line was previewed at the National Association of Convenience Stores (NACS) 2022 show in Las Vegas this week with three aptly named flavors: Rest In Peach, Grim Leafer and Armless Palmer. The teas are expected to hit shelves this spring and will be available for $2.79 per 19.2 oz can ($17.99 per 8-pack case), with six grams of sugar from agave each. The product images featured in this story are a work-in-progress design.
Thanks to its large audience, healthy halo and dearth of recent large-scale innovation, the iced tea category “checked all of our boxes,” said Cessario. With just 30 mg of caffeine from black tea, the product allows Liquid Death to dip its toes in the general ‘energy’ space without going full force with a dedicated product, a move the CEO suggested was unlikely.
“When your brand is called Liquid Death, if you were to create an energy drink with 300mg of caffeine, and a kid could drink five in an hour and actually die, it’s not funny,” he said. “I think what makes us successful is taking something that is completely safe and having fun branding it as something extreme where it is very tongue-in-cheek and fun because it’s sort of two different worlds at odds with each other coming together. That’s what makes it interesting.”
The extension will also serve to test whether Liquid Death’s strong presence in on-premise channels can go beyond water. The brand is currently in over 400,000 restaurants, bars and other on-premise venues; through its exclusive partnership with Live Nation, where the product has found traction as a non-alcoholic option for partying and nightlife occasions. It’s unclear whether the iced tea will also be prominently featured in those channels or if it would be carried as the exclusive category product for Live Nation properties.
“For us, it’s more exciting to find products [where] maybe the category in general has never had the right kind of brand to bring, you know, more audience, or more different kinds of people into those categories,” Cessario said. “Places where there already are 100 cool, loud, exciting brands — it doesn’t make as much sense to kind of go [into those categories].”
Iced tea — and more potential innovations — are expected to help fuel the company’s march towards profitability and stronger gross margins. But operations are also set for a major overhaul next year, as Liquid Death transitions its sourcing from “mountain water” from the Austrian Alps to natural springs in the U.S. Cessario said the move was “always on our radar,” but a lack of U.S. co-packers who could produce spring water in cans forced the company to source from abroad. Now that Liquid Death has more options stateside, the transition is expected to begin next year and be completed by 2024-2025, by which point gross margins are projected at 46-47%. Moving production to the U.S. will also sidestep ocean freight, which weighed down both profitability and the company’s more-sustainable positioning.
That growth, along with a planned expansion into Europe, will require even more funding, and yesterday’s announcement teased the potential for Liquid Death to go public in the future. Having been encouraged by the $5.5 billion valuation attached to publicly traded energy drink company Celsius, Cessario called the prospect of an IPO “interesting” but emphasized that his company was not committing to going down that road just yet.
As the brand’s reach and platform widens, though, Cessario said Liquid Death will stick to the marketing approach that has taken it this far by focusing on “insane ROI on every marketing dollar” the company spends. In other words, don’t expect the brand to splash the cash on an NBA sponsorship anytime soon.
“When you create something where a lot of people legitimately love it and think it’s the greatest thing ever, but then you’ve got some people who completely don’t understand it and think it’s the dumbest thing ever, that kind of a dynamic has been proven to lead to a tremendous amount of success,” he said.