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Editorial Coverage: The downside of the coronavirus pandemic
and how crippling it was to certain industries has been well
documented, but it should not be overlooked that some companies
benefited from lockdowns and a focus on healthier habits. Beverage
makers, particularly those emphasizing health and alternatives to
carbonated sodas, saw a spike in sales as consumers stocked up
bottled water, sports drinks and more. Higher demand created an
exceptionally attractive market climate and rising revenue for
The Alkaline Water Company Inc. (NASDAQ: WTER)(CSE:
WTER) (Profile), the U.S.’s largest independent
alkaline water company, and its Alkaline88(R) brand. Bigger peers
lent further credence to the trend, as evidenced by impressive
financial reports from beverage makers such as Keurig
Dr Pepper Inc. (NASDAQ: KDP), Celsius
Holdings Inc. (NASDAQ: CELH), NewAge
Inc. (NASDAQ: NBEV) and National
Beverage Corp. (NASDAQ: FIZZ), many of which have
leaned on acquisitions to fuel their growth.
- With sales surging 28% in full-year 2020 to $41.1 million, WTER
is now the largest independent alkaline water company in
America.
- Alkaline water is an emerging market forecast to reach $1
billion by 2022.
- On average, each American drank 43.7 gallons of bottled water
in 2019, contributing to $34.6 billion in industry sales.
- NBA icon Shaquille O’Neal has become an equity partner in WTER;
will serve as advisor, marquee brand ambassador.
Click here to view
the custom infographic of The Alkaline Water Company
Inc. editorial.
The Dominant Player in Alkaline Water
In 2019, bottled water for the fourth consecutive year was the
most popular beverage in America by volume, outselling carbonated
soft drinks yet again, according to Beverage Marketing Corporation;
sales in 2019 reached $34.6 billion. Data from
market research firm Statista shows that 88% of Americas drink
water every day, and 26% buy name brand water as part of drinking,
on average 43.7 gallons, of bottled water in 2019. That’s about
15.3 ounces per day for every person in the country.
The megatrend the water majors are now trying to capture is the
increasing consumer health consciousness towards enhanced water as
a replacement for sugary drinks, a trend that was emphasized by the
pandemic. Fact is that people bought more of or were introduced to
value-added water for the first time during COVID-19 lockdowns for
any number of reasons, and many of those consumers have now
incorporated
these functional beverages as part of their lifestyle.
The Alkaline Water Company
Inc. (NASDAQ: WTER) (CSE: WTER) is
the largest independent player in the alkaline water market with
expectations of reaching $1
billion by next year. As the name implies, the Scottsdale,
Arizona-based company specializes in producing drinking water with
trace minerals and electrolytes. Its “secret sauce” is in using
technology to offer water with an alkaline pH of 8.8, compared to a
neutral pH of 7.0 for regular drinking water. The higher pH is
believed by advocates to have a bevy of
benefits, potentially slowing the aging process, regulating the
body’s pH level (neutralizing acidity commonly presented in some
diseases) and deactivating pepsin, a principal culprit in acid
reflux, although WTER does not make any of these claims.
In 2019, WTER widened its portfolio beyond its flagship
Alkaline88 brand with the launch of six flavor-infused products
branded A88 Infused(TM). The products are sold in an estimated
75,000 retail stores, which while impressive, leaves plenty of head
room for growth as it represents only 8% of all retail and
hospitality outlets available to consumers. Management has a goal
of reaching 90,000–100,000 retail locations in the next year. Any
bigger peer looking for immediate market share could leverage
WTER’s existing distribution — plus its direct-to-store Delivery
("DSD") platform that now reaches over 10,000 customers — combine
it with their network and dominate the alkaline water market
segment.
Customers Keep Coming Back for More
The idea of brand awareness and lifestyle changes related to
water during the coronavirus pandemic was put on full display by
independent data showing 31% of the people who drank Alkaline88
during the 52-week period ended March 6, 2021, were first-time
buyers. Furthermore, the research showed that almost half (47%) of
the people who tried Alkaline88 during that time span purchased the
water a minimum of four times.
The Alkaline Water Company checks all the boxes with respect to
social culture and brand loyalty today. Millennials and younger
generations are passionate about ethos and factor that into
decision making about purchases and sticking with brands. The
company adheres to the most stringent industry guidelines enforced
by individual states, Food and Drug Administration, Environmental
Protection Agency and International Bottled Water Association
("IBWA"). WTER was the first company in the industry to offer
environmentally friendly aluminum packaging and even redesigned its
ionization system to use less power and water.
Shaquille O’Neal Joins the Team
Shaquille O’Neal is known for many things, including his Hall of
Fame basketball career, humor and insight as an NBA analyst and
business acumen that has resulted in a branded empire. He’s widely
sought after to endorse products as an A-list brand influencer with
a fan base of millions of followers. Shaq is in a position to be
selective as to which brands he chooses to endorse. He currently
stars in commercials for the General, Icy Hot, Papa John’s, Epson,
Ring and Carnival Cruise Lines among other tier-one brands.
As he said in a 2018
interview with HBO Real Sports, O’Neal won’t promote a product
unless he genuinely likes it or uses it himself. “If I am
going to sell to the people, I have to be honest to the people,”
O’Neal said during the interview.
That speaks volumes for Alkaline88, as Shaq recently entered a
three-year partnership with the company. According to the
agreement, O’Neal is now an equity partner in WTER, advisor and
marquee brand ambassador. “Alkaline88 is an innovative product in
the water category and I am so excited to partner with The Alkaline
Water Company to help raise their game to new heights,” said
O’Neal. “I am humbled by the opportunity to join the Advisory Board
while also being a brand ambassador.”
“[Shaquille’s] reputation as an astute investor,
larger-than-life brand partner, and phenomenal ambassador makes
this partnership extremely exciting,” said Aaron Keay, Chairman of
The Alkaline Water Company. “We want to welcome Shaquille to the
Company’s advisory board and believe his positive presence and
global outreach will enable Alkaline88 to aggressively push
our growth trajectory even faster.”
Growing Sales and a Multiple Story
With 47% customer retention, Alkaline88 can become a household
brand through additional exposure. Shaq certainly brings that to
the table as a strong complement to other partnerships and team
additions being made. For instance, WTER recently partnered with
Hensley Beverage Company for DSD throughout the state of
Arizona.
All this is translating to improved sales, including reporting
record
numbers in the last full year. Q4 2020 revenue totaled $12.1
million, representing 51% year-over-year growth, while sales for
all of 2020 were $41.1 million, 28% higher than 2019. These sales
figure are particularly relevant in the food and beverage industry
as a quantifiable metric of value. Beverage companies traditionally
sell between four to six times gross revenue.
In Q3 fiscal 2021, which ended December 31, 2020, the company
reported record
revenue of $10.2 million, up 20% from a year earlier. Even
factoring zero growth resulting from WTER’s recent partnership
announcements, which seems extremely unlikely, the company’s FY
2021 forecast would be approximately $41 million, holding steady
with last year’s performance. Currently, WTER’s market cap is
an estimated
$105 million, or 2.5x gross revenue. In a market that has seen
segment leaders such as Core (see below) and Essentia (by Nestle)
acquired at highly favorable multiples, The Alkaline Water Co.
stands out as a potentially undervalued takeover candidate.
Capitalizing on the Trend in Beverages
The writing has been on the wall for two decades that consumer
trends were headed away from sugary drinks and straight toward more
flavorful and functional waters that are perceived as far
healthier. Beverage companies have had to adapt, and the majors
have shown that they’re not afraid to open their checkbooks in
order to carve back some of the evaporating soda revenue via
value-added waters.
Keurig
Dr Pepper Inc. (NASDAQ: KDP) made its foray into
the premium water market in September 2018, agreeing to pay
$525 million
in stock to acquire CORE(R) Nutrition LLC. In its three years in
business, CORE quickly emerged as a leading player with its two
flagship products: CORE Hydration, a premium, nutrient-enhanced
bottled water, and CORE Organic, USDA-certified organic enhanced
fruit hydration. The two were already close allies, with KDP
managing about two-thirds of CORE’s U.S. distribution
pre-acquisition. After posting an 11% increase in company-wide net
sales to $2.9 billion in Q1 2021, KDP increased its
outlook for 2021 net sales growth to 4%-6%, from prior guidance
of 3%-4%.
Celsius
Holdings Inc. (NASDAQ: CELH), a
maker of five certified kosher and vegan beverage lines in the
performance energy beverage sector, showed this month that 2021 got
off to a great start. The Boca Raton, Florida-based company
reported 78% revenue growth in Q1 to $50 million
compared to $28.2 million in Q1 2020. Domestic revenue surged 101%
year-over-year to $39.0 million during the quarter. International
sales rose 25%, including 22% growth in Nordic sales to $10.4
million where the launch of a new Tropical Twist flavor late in
March helped offset stocking voids related to COVID-19
lockdowns.
NewAge
Inc. (NASDAQ: NBEV) has a
storied history dating back to 2003 when the company was originally
formed as a beverage distributor. Adding its first product, Aspen
artisanal water sourced from the Colorado Rocky Mountains, in 2004,
the company has since grown into a global diversified organic and
healthy products company centered on helping people to live
healthy. Owing largely to closing the acquisition of
ARIIX and four other e-commerce/direct selling companies in
November, sales exploded in the first quarter of 2021, jumping 97%
from the year prior quarter to $125.5
million as the company eyes its goal of annual revenue over
$500 million.
National
Beverage Corp. (NASDAQ: FIZZ) is
best known today for its sparkling waters, juices and energy
drinks, but its origins go back nearly 40 years with its flagship
brand being Shasta carbonated sodas. Today, the company remains a
sparkling water juggernaut that controls about 15% of the market
despite having to overcome a frivolous lawsuit in 2018 that
temporarily tarnished the LaCroix water brand. The COVID-19
pandemic didn’t slow sales at FIZZ as evidenced by the best Q3
(ended Jan. 30, 2021) ever for the company with sales of $246
million, led by LaCroix sparkling water.
As the functional water sector grows, companies that
consistently meet key performance indicators will most certainly be
those catching the attention of majors when they start looking to
score big in the revenue and profits game.
For more information about The Alkaline Water Company, please
visit The Alkaline
Water Company.
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