Water With Some Pop to It: New Drinks Go After People Who Don’t Like the Bland Taste; Controlling the Flavor

May 14, 2013, 7:43 p.m. ET

Water With Some Pop to It

New Drinks Go After People Who Don’t Like the Bland Taste; Controlling the Flavor

By SARAH NASSAUER

With soda and diet soda sales in decline, drinks companies are coming up with waters that look more like soda than water. Sarah Nassauer joins Lunch Break with a look.

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When is water actually soda? As bottled-water sales boom and traditional soda sales slump in an almost decade-long decline, companies are marketing water that hints it could taste like soda. The consumer targets: People who know they should drink more water but don’t always like the taste. These water-fussy drinkers are a quiet but large group—about 20% of Americans, say drinks companies and consumer research firms. Some complain water tastes metallic or chlorinated. Others say water is too boring. The products becoming popular with these folks aim to mimic water: They have no calories and market themselves as natural, though some have artificial sweeteners and colorings, or other ingredients that help deliver a soda-like fix. The makers of these drinks hope people who like water or soda but want more variety will also buy the products.Soda is still the most popular bottled beverage in the U.S., though bottled water is gaining ground. “People are looking for an alternative to soda that still tastes good to them,” says Kevin Klock, chief executive of Talking Rain Company Inc., makers of Sparking Ice, a carbonated, fruit-flavored, zero-calorie spring water sweetened with sucralose. The drink was one of the 10 best-selling new products in grocery stores last year, according to IRI, a market-research firm.

Coca-Cola Co.

Glacéau’s new Fruitwater has lighter carbonation than traditional soda.

Last month Coca-Cola Co.’sKO +0.78% Glacéau division, makers of Vitaminwater and Smartwater, introduced a sparkling, fruit-flavored, artificially sweetened drink called Fruitwater. Vitaminwater, on shelves for more than a decade, contains sugar.

Sales of products like Mio, a “liquid water enhancer, ” are booming. These egg-shaped containers of flavor and artificial sweetener are designed to be squirted into water. Mio, from Kraft Foods GroupInc., KRFT +0.68% was also one of the 10 best-selling new products in grocery stores last year, according to IRI.

Slightly less than 20% of households that buy bottled water also buy “liquid water enhancers” to flavor it, says Geoff Henry, brand director of Dasani, one of the largest bottled water brands in the U.S., made by Coca-Cola. Dasani introduced Dasani Drops, a container of liquid flavoring for water, last year. Still “water purists” make up the majority of households, he says. Coca-Cola sees “upside” in all its sparkling brands, which includes Seagram’s sparkling seltzers, over the next several years, a spokeswoman says.

About a third of people trying to cut down on no-calorie sweeteners like those found in diet soda—sales of which have declined in the past six years—struggle to do so because they don’t find water “as satisfying,” according to internal consumer research from Hint Inc., maker of unsweetened water flavored with “fruit essence,” Hint Water and Hint Fizz.

“I hate water,” says Tish Birt, who lives in Dallas. The 35-year-old, who works in accounting for a heating and air conditioning company, has tried for years to drink more and kick a Diet Coke habit to no avail. Water “just has no flavor,” she says.

About a month ago, Ms. Birt started adding Sweet Tea-flavored Mio to water, hoping to feel less dehydrated. It is “the first time I’ve ever enjoyed water,” she says. She hopes to eventually train her palate to like non-flavored water.

Nestlé Waters North America, the largest seller of bottled water in the U.S., maintains that the vast majority of people like how water tastes. About 51% of people who have stopped drinking traditional soda replace it with still, non-flavored bottled water, says a spokeswoman for the company. About 3% switch to sparkling and 12% to sweetened or enhanced water, she says.

Internally, Nestlé refers to six “need states” like “energize” and “relax and brighten mood.” People “increasingly want to drink natural and healthy and it isn’t just about zero calories,” says Kim Jeffery, chairman of Nestlé Waters.

How much water does a person need? The oft-heard goal of drinking eight glasses of water daily isn’t based in fact. Most people are fine just drinking whenever thirsty, as that urge generally hits before the body is dehydrated, says Barbara Rolls, professor of nutritional sciences at Pennsylvania State University.

Water drinkers generally fall into two categories—those who enjoy carbonation and those who don’t.

Carbonic acid—created when CO2 in carbonated beverages reacts with an enzyme in the tissue of the tongue—activates several nerves. “Some are pain receptors,” says Bruce Bryant, senior research associate at Monell Chemical Senses Center, a research organization that studies smell and taste based in Philadelphia. The acid also has a cooling effect on the tongue, Dr. Bryant says.

Many consumers report they get their soda “fix” from sparkling water, says Nicole O’Connor, senior consumer insights manager for Nestlé Waters. “Before they were willing to accept that it would be bad for then, that it was a treat,” she says. Now they want the fix to “feel natural,” she says. Nestlé believes most people aren’t going cold turkey on soda, but swapping out a few sodas each week for other drinks like bottled water.

Sales of Nestlé Waters unsweetened sparkling water with “flavor essence” such as lemon and raspberry grew 24% last year—much faster than still bottled water, say executives from Nestlé, though it is still less than 10% of its bottled water sales.

Products like Mio and Dasani Drops, popular with younger consumers, are a riff on powdered drink flavors like Crystal Light or Kool Aid, sold for decades, and made by Kraft. The new liquids are less messy, simpler to carry in a purse and make it easy to immediately see how much flavor has been added, say their makers. SodaStream,SODA +11.85% an at-home water carbonator that allows users to add flavor and control the level of bubbles, is spreading rapidly in U.S. homes.

Enhanced and flavored waters have been around for years, but this new generation are always zero calories.

People want flavor, sweetness and zero-calories, says Mr. Klock, of Sparking Ice, a drink that fits that profile. They are less picky about drinks being 100% natural.

Two years ago the regional bottled water company reviewed its product portfolio as it came close to going out of business. It noticed customers vastly preferred its orange-mango Sparkling Ice flavor. It tasted “true to the fruit,” bold, but not heavily sweet, says Mr. Klock. The company altered all its flavors to mimic that and redesigned the packaging.

It considered stevia, a sweetener from a plant often used by food makers hoping to tout a “natural” product. But the sweetener left an undesirable aftertaste, says Mr. Klock. Instead it used an artificial sweetener, sucralose, says Mr. Klock. “We are not water, but we are not soda.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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