By Jennifer Maloney
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 27, 2019).
Five years ago, Jason Zook became a LaCroix convert. Looking to
cut sweetened sodas from his diet, he said he switched to the
faintly flavored bubbly water, buying it by the trunk load and
drinking four to six cans a day.
Now he has changed again, to Spindrift, a startup brand that
flavors its seltzer with a touch of real juice rather than the
"natural essence oils" LaCroix uses. Trying Spindrift for the first
time, "it was literally like biting into a fruit or a vegetable,"
said Mr. Zook, who is 37 years old and lives in San Diego.
LaCroix drove an explosion of flavored seltzer sales over the
past several years.
Now sales have slumped, hurt by new competition and a legal
battle over LaCroix's ingredients.
The predicament highlights the challenges that a consumer brand
can face when it becomes so popular that new entrants or
established giants flood the market.
Blue Apron Holdings Inc. sparked a trend with its meal-kit
delivery service but lost customers as competition increased.
Lululemon Athletica Inc., meanwhile, says it won't lower prices on
its $100 yoga pants though cheaper alternatives are now
everywhere.
Coca-Cola Co. and PepsiCo Inc. have put up sparkling-water
competitors; startups and private-label seltzer brands abound.
Offered more choices in the beverage aisle, consumers who have
switched from LaCroix say they found alternatives that taste
better, cost less or have ingredients they feel more comfortable
with.
"You suddenly saw more options," said Loretta Gilewicz, a
32-year-old theater props technician who lives in Kissimmee, Fla.
She drank two or three cans of LaCroix a day until a few months
ago, when she picked up a pack of cherry-flavored Polar seltzer on
sale at a supermarket. She preferred its flavor, and switched.
On Wednesday, National Beverage Corp., which makes LaCroix,
reported its second straight year-over-year quarterly sales
decline, following five years of steady growth.
"While consumers have additional choices in today's marketplace,
LaCroix remains the largest brand of sparkling water by a
significant margin," a National Beverage spokesman said.
Analysts say attempts to regain market share -- by spending on
marketing and shelf space -- are likely to hurt profits. LaCroix,
which had been around for decades but relaunched in 2002, accounts
for roughly 70% of National Beverage's sales.
LaCroix began to face rising challenges last year when PepsiCo
launched a seltzer brand called Bubly. Coca-Cola, meanwhile, was
expanding distribution for Topo Chico, a sparkling mineral water
from Mexico it had acquired in late 2017.
Then, last October, law firm Beaumont Costales said it had filed
a class-action lawsuit against National Beverage on behalf of a
consumer, alleging that its all-natural product claims were false
and that LaCroix contained synthetic ingredients. The company
denied the allegations as "shameless fabrications" and later said
independent lab testing it commissioned supported its natural
product claims.
The law firm didn't respond to a request for comment.
"LaCroix's reputation has been maligned over the last year by
'buzzworthy' publicity arising from false and intentionally
misleading accusations that may take months or years to refute in
court," National Beverage said this week in a message to
consumers.
LaCroix comes in a variety of fanciful flavors including
pamplemousse, which is French for grapefruit, and blackberry
cucumber. The cans simply list "carbonated water, naturally
essenced" or "carbonated water, natural flavor" as ingredients.
The ingredients in LaCroix flavors are certified natural and not
genetically modified, National Beverage said this week. There are
no artificial ingredients contained in, or added to, its extracted
flavors, the company said. "We never have, and never will, make
false statements about our products," it said.
National Beverage says the plaintiff's laboratory didn't
actually test whether the ingredients in LaCroix are natural or
synthetic. In February, National Beverage filed a motion arguing
the plaintiffs lacked sufficient factual and legal support for
their allegations. The two sides are waiting for a federal court to
rule.
National Beverage's share price has fallen by more than half
over the past year, closing Wednesday at $42.22 a share.
"The LaCroix brand has gone from bad, to worse, to disastrous,"
Guggenheim analyst Laurent Grandet wrote in a note in May, when he
placed a "sell" rating on National Beverage shares. "We think it's
unlikely that LaCroix can recover to any meaningful degree while in
the hands of National Beverage."
LaCroix's share of U.S. sparkling water sales peaked last year
at 23.3%, according to Guggenheim. It fell to 17.3% in the four
weeks ended May 18, according to an analysis of Nielsen data by
Wells Fargo analyst Bonnie Herzog. Bubly meanwhile has surged to
9.4%. The Nielsen data include Sparkling Ice, a carbonated beverage
with the same artificial sweetener as diet sodas that markets
itself as sparkling water.
Overall, flavored sparkling water sales in the U.S. continue to
rise, reaching nearly $2.5 billion in the 52 weeks ended May 18,
according to the Wells Fargo analysis.
"We believe LaCroix could stabilize trends [with] incremental
brand support in the months ahead," UBS analysts said in a recent
report, upgrading their rating to "neutral."
Yet pressure from competitors persists. PepsiCo was late to
enter the category but saw an opportunity to market a seltzer like
a soda brand, said Stacy Taffet, vice president of the soda giant's
water portfolio. The company launched Bubly last year with a Super
Bowl ad and distributed the product to convenience stores that
LaCroix couldn't reach.
Alex O'Donnell, a college recruiter in Dallas, treats himself to
a Topo Chico when eating out, but at home now drinks Kroger brand
seltzer instead of LaCroix. "Why spend money," he said, "on
something that tastes the same?"
Write to Jennifer Maloney at jennifer.maloney@wsj.com
Corrections & Amplifications A chart in an earlier version
of this article incorrectly labeled change in market share as
percentage change over the past 12 weeks. It should have been
labeled as change in market share compared with a year ago, in
percentage points. (June 26, 2019)
(END) Dow Jones Newswires
June 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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