Here is something that caught our eye this week:
This week we spent some time learning the story behind sparkling water brand LaCroix (pronounced “la-croy”, as in “enjoy LaCroix”). Started in La Crosse, Wisconsin in 1981 by the G. Heileman Brewing Company, LaCroix, which was initially marketed primarily to mid-western women, grew modestly until financial difficulties at Heileman in 1992 forced the sale of the brand to its current owner, National Beverage Corporation, for an estimated $25 million. Today, LaCroix is reportedly the number one selling sparkling water brand in the United States with an estimated 30% market share, twice that of Perrier. The parent, National Beverage, had revenues of $826 million in 2016 and a market cap of $4.5 billion, with LaCroix accounting for an estimated 35-40% of the portfolio’s value. Not bad for some carbonated water in neon aluminum cans.
To be sure, there is a macroeconomic tailwind supporting LaCroix’s growth. Americans are continuously drinking less soda and in turn drinking more water, both flat and sparkling. However, there are lots of providers of sparkling water, and objectively, not too much to differentiate within the category. As Quartz notes, “There’s literally basically nothing in LaCroix except carbonated water and ‘flavors,’ a proprietary mix of chemicals that the company prefers to call ‘essence.‘” Despite this, to say LaCroix is a popular culture phenomenon is somewhat of an understatement, as described by Bon Appetit:
“If you live in America or have any exposure to social media, you’ve witnessed the juggernaut that is LaCroix sparkling water. You’ve heard its praises sung by paleo bloggers, #Whole30 devotees, fashion designers, and late-night TV hosts. Maybe you’ve even bought a LaCroix-themed needlepoint, designed your own LaCroix meme, or dressed up as a can of Pamplemousse for Halloween.”
So how did something relatively generic become so popular? The answer is great marketing combined with smart business sense. It seems as though from 1992 until 2002, the brand plugged away on a limited advertising budget until the company hired Lyle Zimmerman, head of branding and design firm Alchemy Brand Group, to lead a logo refresh intended to make LaCroix stand out on market shelves against generic alternatives (one and two liter soda bottles) while remaining more approachable than fancy, higher-end brands (Perrier and Pellegrino’s green glass bottles). Bon Appetit again:
“’The logo, for example, started out black but they changed it to blue to connote water. In a sea of logos that were more sedate, precious in size, and often sans serif, the script denoted movement, energy, and fluidity—all traits applicable to water and especially the effervescence of LaCroix,’ says Zimmerman. ‘The swirly background also suggested flowing water, while the multicolor layers gave it depth and allowed the company to ‘code’ the design according to flavor.'”
Using this theme, Zimmerman came up with 20 design options, of which National Beverage executives chose three to submit to consumers for feedback. Although consumers unanimously chose the design least favored by management, Nation Beverage capitulated and applied the design concept across all products. The next year, LaCroix won a Gold Global Design Award for packaging, catapulting the brand from something just for mid-western moms into mainstream popular culture.
To support the design efforts, LaCroix conducted ongoing marketing campaigns targeting its core customer base which further cemented its positioning as an accessible but cool, all-event drink. In 2014, Zimmerman worked on branding for a LaCroix spin-off line, Cúrate. The result was a taller, slimmer can, and, as Zimmerman puts it, “a more saturated color palette and fruit illustrations, cued a flavor profile that spoke to a new generation.” Apparently, Millennials like saturated color palettes because LaCroix’s total sales tripled within a year of bringing Cúrate to market. Now, association with LaCroix represents something more than just the contents of any given can. Vox explains further:
“A filtered photo of LaCroix can show that you’re the kind of person who’s both in touch with trends and a little ironic about them, or brag that you’re healthily forsaking booze for bubbly water, or simply invite heart-eye-emoji comments from your equally LaCroix-dependent friends… This creates a sort of self-fulfilling prophecy. LaCroix highlights its fashionable users, who make it clear that it’s popular to both drink LaCroix and talk about it. And so more fashionable people talk about and Instagram their cans of LaCroix, and more people find out about it, and the cycle continues.”
We have to admit that if we had been receiving Zimmerman’s invoice at the same time as he was advising us to change a logo from black to blue because of “effervescence,” we probably wouldn’t be working with his firm anymore. That’s because while we know if done properly marketing can be incredibly powerful, to us, the play-by-play tactics often seem like a lot of smoke and mirrors. When we think about whether or not to buy a new dough overhead system, it’s relatively easy to calculate a return on investment that fits very neatly into our internal capital allocation framework. When we think about allocating similar dollars to marketing or branding, the analysis is much less tangible, much more subjective, and ultimately much harder to justify within our framework.
The obvious downside is a structural bias for budgetary line items with easily quantifiable return thresholds, which is to say, tangible assets over swirly designs and movement-inducing script. Learning about marketing success stories like LaCroix helps us chip away at our analytical biases and understand marketing to a point where we can use it intelligently to support the growth of our portfolio companies. Sans serif logos, beware, the effervescence is coming.
Have a great week,
Your Chenmark Capital Team