Sunday Strategist: How LaCroix Lost Its Fizz
Sunday Strategist: How LaCroix Lost Its Fizz
(Bloomberg Businessweek) -- It was an intoxicating few years, but the long, nasty LaCroix hangover is here.
National Beverage, the fizzy-drink maker, served up a tepid financial update this week, as Coca-Cola’s Topo Chico and PepsiCo’s bubly continued to siphon off its share.
LaCroix is still reeling from a 2018 lawsuit claiming its ingredients are not nearly as “natural” as billed, assertions that the company refutes. Now, a growing crowd of sparkling water fans are either skeptical or prefer other products—or both.
“The LaCroix brand has gone from bad, to worse, to disastrous in a relatively short period of time,” Guggenheim Securities Analyst Laurent Grandet wrote in a note Wednesday.
The company’s turnaround plan is simple: eschew expensive national advertising for savvy social-media campaigns, play the health card and leverage the “optical effect” of its packaging and store placement. That’s right, the LaCroix barrier to entry, it argues, is literally a barrier to entry—those grocery-store pyramids of 12-packs.
The only problem is that LaCroix has been doing this all along. It worked great in 2015 when fewer people were drinking flavored sparkling water. Today, when scads of consumers are buying the stuff and racks of competing cans have come to the market, the returns are diminishing. Meanwhile, National Beverage appears to have dialed up discounts and poured more money into marketing campaigns, dangerously diluting profit.
To be fair, catching lightning in a can is an extremely tricky thing for a company. When a company creates—or at least defines—an entire category, competition comes quick (see Lululemon, yoga pants). The best playbook to keep the momentum going has three steps: build out other product lines quickly, burnish the brand, and, if possible, cut out the retail middleman (which further burnishes the brand). This is all easier said than done.
The cautionary tale is GoPro, another Wall Street darling essentially built on one product. By the time, GoPro launched onto public markets it was trying to be a media company and then a drone company; both strategies crashed hard. Today, sales have shrunk for three straight year and GoPro is mostly back to making great cameras (now with night vision!) and pushing a trade-in program that spurs customers to upgrade. It trades at one-fifth of its IPO price.
Yeti, another one-product wonder, appears to have handled the transition a bit better. As knockoffs mounted, it locked in a roster of endorsees—Instagram-famous hunters, surfers and fishing guides. Meanwhile, it built a content shop, churning out a steady stream of videos and podcasts featuring those same Yeti-heads. And it started building its own stores, where fishing videos play on loop and tourists order bespoke coolers in custom colors. The brand is burning brighter than ever and, as a result, Yeti can sell an empty bucket for $40. Today, less than half of its revenue comes from coolers and its biggest and fastest growing business is selling koozies, coffee mugs and water bottles.
As for LaCroix, believe it or not, there’s a case for more flavors. Grandet at Guggenheim thinks the company needs innovation, specifically more products with juice, like Spindrift, a popular rival. National Beverage also owns Shasta, a long-suffering soda brand that once had the tagline "It hasta be Shasta!" Today, it's pushing the brand as a soft-drink alternative—SDA. Sound familiar?
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To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net
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