LaCroix was a category leader and then National Beverage changed the sales strategy

’m sure most people reading this have heard of LaCroix, a sparkling water brand owned by National Beverage. It’s an undisputed leader in the sparkling beverage category. Led by smart marketing and forward-looking management, the colorful cans are a bright spot in an otherwise declining aisle. Despite almost a decade of positive results, not everything is sunshine and roses in the land of fizz and refreshment. In the fall of 2019, Businessweek published a cover story on the rise and recent stumbles of the company — most notably around management’s decision not to provide additional sales support to retailers.

National Beverage’s management believed that LaCroix wasn’t just a brand that added a bit of flavor to carbonated water, but one whose “innocence” and targeted marketing propelled it to the top of the segment. By not acceding to the sales demands, the company decided to play chicken with the most powerful group in the retail industry: retailers.

Now that some time has passed we can begin to analyze: Did National Beverage’s game of chicken work? Was the LaCroix brand as powerful as they thought? Before we answer that question, it’s best to look at how it went from a third-tier soda company to the sparkling water leader.

Reinventing LaCroix

In 1982, Heileman Brewing Company founded LaCroix in La Crosse, WI, as a mass-market alternative to premium European sparkling water brands. About ten years later, it sold the modestly successful brand to National Beverage, where it languished for a few years. This isn’t exactly scientific, but I went to college in La Crosse, and I don’t remember a single person under the age of 65 drinking it. Suddenly, ten years later, LaCroix is one of the most millennial centric food brands in America.

What happened?

When customer preferences change

Within the consumer goods world, sparkling water is categorized as a “sparkling beverage.” Giants like Coca-Cola and Pepsi have long dominated the category with sugary drinks like soda. If you are health conscious, for generations, a walk through the sparkling beverage aisle felt like being surrounded by a bunch of explosives. The explosives had super long fuzes, but each time you pulled a product from the shelf, the inevitable health catastrophe inched closer.

In the past few years, the risk is now out in the open. Sugary drinks have been linked to everything, from diabetes to poor bone health. Soda, the sales anchor of the category, now faces an existential decline. Almost two-thirds of Americans actively avoid drinking it. “The drop in soda consumption,” Margot Sanger-Katz wrote in the New York Times, “represents the single largest change in the American diet in the last decade.”

LaCroix is located in the same aisle as soda. Most importantly, with zero calories, it doesn’t have a fuze.

Businessweek detailed how the transition wasn’t an accident:

In 2006, Beverage Digest released a report showing that soda sales in the U.S. had declined for the first time in two decades, as consumers grew concerned about obesity and Type 2 diabetes. That year, LaCroix staked out an early position as a health-conscious alternative to soda, becoming a sponsor of the Susan G. Komen Breast Cancer Foundation.

In hindsight, this was a risky move. Implicit in the branding was pulling demand away from sugary drinks and into sparkling water. There was one problem. National Beverage’s most significant brands were Shasta and Faygo — two sugary drinks. “I would say to him [CEO Nick Caporella], ‘It’s great to be behind it a hundred percent,” a longtime executive told Businessweek, “but we should remember to dance with the one who brung us. This company was built on soft drinks.”

Caporella made the gutsy decision to cannibalize existing sales.

In the meantime, a small team of executives quietly began working to revitalize LaCroix. They decided to market it as different from both elegant mineral waters and sugary sodas, aiming squarely at diet soda drinkers. The company expanded LaCroix’s distribution outside its traditional regional markets and into major retailers such as Target and upscale national grocers like Whole Foods that would prominently feature the product. By 2013, National Beverage was touting “double-digit volume gains” for LaCroix.

Perhaps most impressively, the company did all of this without a massive traditional marketing budget. It didn’t create a single expensive advertisement with a celebrity spokesperson. Instead it gave away coupons on social media to a variety of influencers.