La Croix's Succession of Coca-Cola & Pepsi

Soda consumption has substantially declined in the past two decades. Consumers worldwide have become more conscious about what they eat, what they drink, and the consequences of those choices on their health. By 2017, soda consumption had plummeted to a 30-year low.

If soda wasn’t selling anymore, juice was out of fashion, bottled water was commoditized, and premium water was never able to outgrow its niche, the beverage industry was faced with a big question. Who would be the successor to Big Soda? What drink could directly replace soda? What company could take over Coke and Pepsi’s multi-billion dollar market share?

In 2016, a small beverage company that had been under the radar since 1991 suddenly exploded in mainstream popularity and record sales. The Chosen One had seemingly arrived, boasting growth rates, unit volume, revenue, virality, consumer excitement that the beverage industry had not seen in decades. La Croix, a fruit-flavored sparkling water brand, owned by National Beverage Corporation was suddenly the hottest beverage in town. A fizzy seltzer that was once laughed at as a Midwest mom’s occasional indulgence seemingly overnight became the primary drink of choice for millennials.

0:00 Big Soda At Work
5:42 Triumph of Science
10:00 The Industry's Reckoning
12:45 The Chosen One
15:51 Long Way Home
18:47 New Players, Same Threats
19:18 A Future of Known Unknowns

[ModernMBA]

Viewers may find some clips in this episode to be pixelated and low quality (480p at best or 240p at worst). It was an intentional decision to use pre-2010's footage for certain segments. I felt it would be a more authentic viewing experience to use footage directly from the era that this episode covers - notably the mid 2000's when Internet was dial-up, information was communicated exclusively through magazines or cable news, and Americans were coming to terms for the first time with obesity / nutrition / health / diet.

*Topics that didn't make the final cut of this episode to read after watching:*

- M&A is truly the tool of corporate America. Pepsi did acquire SodaStream in 2018 for ~$3B in an effort to bring sparkling waters directly into consumers' homes as a few commenters have kindly shared their experience below. To me, SodaStream's at-home sparkling water maker (having a machine that can carbonate your water and consumers mix in the syrups / flavors they want) is eerily similar of Keurig's Kold at-home soda maker. Kold was eventually discontinued due to product issues and too high of a price point at ~$350. SodaStream on the other hand has a significantly more favorable entry point (starting at ~$100).

- It's interesting that both SodaStream and Kold have elements of the old HP printer model, where consumers pay for one fixed $$$ cost upfront (machine) but have to regularly spend $-$$ over the lifespan of the product to continue using the product (gas canisters with SodaStream, pods for Kold / normal Keurig, ink cartridges for printers).

- To me, the appeal of sparkling water consumption is the opening of the physical aluminum can that's identical to soda. That crack and sip sound is engrained deep and primed in consumer psychology as a satisfying sound. I can't speak for SodaStream or Keurig, but the notion of filling up a mug or Hydroflask with sparkling water without that cracking opening the can feels like it would take away from some of the appeal.

- Topo Chico was acquired by Coca-Cola for ~$220M, which has a cult following in Texas. But the strategy Coca-Cola is taking Topo Chico sparkling mineral water these days is less in La Croix / bubly / AHA's direction and more in the alcoholic Truly / WhiteClaw / High Noon hard seltzer market.

- In the context of United Airlines only serving bubly comment, I'm fairly confident what's happening with La Croix is that it's losing its seat at the table when it comes to B2B institutional deals, where PepsiCo and Coca-Cola have a much more established sales network and stronger existing relationships with corporate clients. If I put myself in the shoes of a major airline, hotel, restaurant, gas station or any business that sells beverages for $$$, it is far easier for me to procure all my beverages (soft drinks, juice, sparkling water, bottled plain water, diet soda) through 1 single contract with PepsiCo or Coca-Cola. In return, I'll probably get a discount because of my exclusivity with PepsiCo or Coca-Cola so my beverage profit margins are even better + consumers will get what they want.

- If I really want La Croix in my business, I have to sign my own contract with National Beverage which adds operational overhead and supply chain complexity when I don't need it - while they can give me a leading sparkling water brand and some juices, I would still need another entirely different supplier to give me my plain bottled water, soft drinks, diet sodas and more. I'm sure the same is playing out in grocery stores where La Croix's shelf-space is being eaten away by Bubly and AHA as Big Soda can easily cut deals with the supermarkets to get the best shelves / aisles / exposures.

- Not sure why international expansion is not a strategic investment for National Beverage Corporation. Big Soda has made APAC and EMEA as its most strategic high-growth markets and the demand for sugary soda in those regions has not declined (in some cases, has even gone up) vs. America. As the episode says, sparkling water seems to still be mostly an American phenomenon.

[sonderlateka]

Another hit against La Corix in especially Europe is that the sparkling water market already is saturated. The market is filled with alternatives, even Coca-Cola and PepsiCo have their local brands and partners.

[quiet]

I've been drinking La Croix my whole life, so it was really weird to me how it all of a sudden got popular. I still don't know that I've ever seen a proper ad for it. It used to be generic (cheap) Perrier, which is why we bought it.

[BertTrautmann]

Big credit to the level of research man, where do you find these clips/interviews? It's amazing and really helps tell the story more than just graphs and numbers.

[Grifflicious]

I was surprised you didn't mention the "sparkling" insurgence into other beverage industries such as beer and alcohol. Brands like White Claw leading the charge that then prompted the rise in other sparkling or seltzers in brands like Bud Light, Dos Equis, as well as non-alcoholic brands like TopoChico

[dannyboytubeable]

Great video bud, FYI La Croix have been available in New Zealand supermarkets for a few years now, it is getting around. Love the stuff.

[rhettorical]

It never even remotely crossed my mind that soda might be a temporary thing that society eventually outgrows. It's always felt like a staple of society, an immovable, irreplaceable axiom of modern life. The last few decades have shown that it's entirely possible that sugary soda might eventually decline to a specialty item over the next century. To me, that's an odd thing to consider, since "fizzy water with light flavoring" is incredibly unappealing. But that's just me.

[QuixEnd]

Holy $hit coca cola!! the fact that they could with a straight face suggest that sugary drinks arent correlated to obesity or bad health is INSANE!

[immortan-valkyrie]

During my pregnancy I switched from diet sodas to Bubly or LaCroix, and its definitely made a difference in my consumption towards sodas; the occasion craving hits but I don't actively seek it out anymore. I grew up in a house where diet soda was a constant. I definitely agree that sodas shouldn't be sold in schools, I taught middle school previously and holy shit, my students would crash hard after lunch. It was like pulling teeth to teach after 12pm.

[apileofrocks]

While it is true that too few people exercise as much as they should to keep healthy, Big Soda approached this in a way that clearly was not going to work. "Soft drinks do no more to blood sugar than any other food or beverage" is such an absolutely baffling statement. Sure, hindsight is 20/20, but that in 2010 I'm sure that was still as bad.

With that much invested in sugar-filled drinks, wonder if there could've been a better way to approach this. As Coke or Pepsi, you can't jump out ahead of this before it becomes an issue - you reduce the sugar, people like it less, and buy less ; you reduce container sizes to reduce per unit calories, people complain the container isn't big enough and drink the same, no real changes to health; you release more diet options, but you still have the sugary products as your real money maker.

I personally don't drink soda, but did drink nothing but sugary drinks as a kid. I may be biased in seeing a decline in soda here, but it has become infrequent that I meet someone my age who drinks soda. The beverage market for my age group seems to have moved to energy drinks, teas, and flavored sparkling water. Coca cola still gets some money from me for Topo Chico, but even still that's such a simple product that it could possibly be replaced as a staple for me. Coke and Pepsi, simply put, are no longer mainstays for me and people I know.

[emrazum]

Love that clip at the end "that's what parents are for" lol. This is a great channel, your videos are amazing.

[somethingsomething]

5:20 I don’t see this as a problematic interview. He didn’t lie?
I could go eat a kilo bag of sugar, that doesn’t mean they should stop selling sugar by the kilo?

[nickskier]

Like you briefly mentioned. La Croix is only big in the US really. You can find it in Canada at a good amount of groceries stores now, but not all, and their stock of it isn't huge usually. PepsiCo with the Bubbly brand really took over here, everyone likes it and there is tons of it in every store now. Lots of marketing and they entered the Bubbly brand into Canada while La Croix was still only in a select few high-priced grocery stores. Which is another huge factor, The price for an 8-pack of La Croix is the same as a 12-pack of bubbly in Canada.

[kyle]

I'm happy I found your channel. You produce videos on interesting topics with easy to digest information. Keep up the good work!

[masterbaiter]

"That's a terrible business practice" to "that's what parents are for" my God that guys double speak is strong.

[enticingmay]

I will never get people’s obsession with drinking anything and everything except water. People’s fear of drinking water is worrying. I’m so glad that I was not conditioned as a kid to have a fizzy drink with every one of my meal. I know it’s going to be hard but people should really learn to be content with drinking water, your wallet and health will thank you for it.

[cmyk]

I’m Japanese, so it goes without saying I have never seen a LaCroix in person. But I have seen the Coca-Cola and Pepsi soda brands, so I feel like I can weigh in.

I don’t know if most Japanese people feel the same, I consider sodas to be a very heavy, “sometimes” drink that you only get with fast food or at a concession stand. Relatively nutritious and low-calorie food is available from everyday restaurant chains as well as convenience stores.

However, I just kind of assumed that LaCroix was an iced tea brand! Sparkling water is not well known in Japan unless you like making cocktails. Our healthy “replacement” for soda is iced tea. Whether it be black tea, green tea, or oolong tea, we have bottles and cans of tea in every vending machine. Oh, and our tea is usually unsweetened, and we quite like it that way.

I guess the point is that I find flavored sparkling water to be an odd choice of beverage to replace soda. I would feel a discomforting void in my mouth if I felt the aggressively bubbly energy of soda without none of the equally aggressive syrupy sweetness.

[TakoyakiDonuts]

I love how in all these charts sales just tank in 2020 and we all know why sales so badly went down, it really tells us how badly impacted everyone around the globe was by the pandemic.

[xdranzer]

As someone living in Paris, I’ve never drank La Croix once in my life…

[ultraviolettp]

As someone who was diagnosed with Diabetes in 2019, I needed an alternative to Coke. I chose to drink sparkling water though I have not taken to the brand mentioned due to its higher cost compared to store branded flavored seltzer water. As I weaned myself off of sugar, I found the taste of seltzer water to be refreshing and not as startling as it was at first. Now almost four years later, I drink seltzer water exclusively changing up on the flavor and when a flavor I like goes on sale that is not a house brand, I treat myself to that. Over the course of nearly 4 years I've dropped and kept off 30 pounds and can assure you that Coke and other such beverages is essentially a death sentence on a long delayed fuse. These are damaging drinks and that doesn't even consider the harm of high fructose corn syrup on your liver (fatty liver).