Photographer: Randy Shropshire/Getty Images

The Seltzer Market Is Holding Its Water

There’s nothing flat about sparkling beverage sales.

If there’s a box of LaCroix Sparkling Water peach-pear flavor on sale at the Whole Foods Market on North Main Street in Providence, Rhode Island, Walter Farber, a 33-year-old consultant in database administration, is buying it. 

Farber was once a soda drinker, consuming two 20-ounce bottles of Diet Coke a day, until he made the switch to seltzer a couple of years ago. “I’ll admit that I still love Diet Coke,” Farber said. But concerns over artificial sweeteners led him to satisfy his love for carbonated beverages with seltzer waters instead. He drinks a variety of brands: Polar, Poland Spring, and Target’s in-house brand, Simply Balanced, as well. But he really waxes poetic about LaCroix, which he just tried for the first time due to the reduced price at Whole Foods.

“I was blown away by the flavor,” Farber said.

Farber is not alone. The market for both carbonated and flavored waters is, well, bubbling over. American retailers sold more than 1.9 billion liters of the beverages for more than $2 billion in 2016, according to data from Euromonitor International.  

That is still just a small fraction of the 34.4 billion-liter, or $21 billion, bottled water segment, but the growth is impressive. Between 2011 and 2016, boring old still water grew 29.9 percent in retail sales by volume. Carbonated water was up 70.4 percent and flavored water was up 59.5 percent over the same period. Sales of carbonated sweetened drinks like soda, meanwhile, were down about 8 percent by volume.

“People want more natural products and are moving away from sugary drinks,” said Daryl Weber, an Atlanta-based brand consultant. “Even diet drinks are declining because people are worried about artificial sweeteners.”

While water satisfies basic thirst, it doesn’t satisfy a person’s craving for a flavored beverage. “LaCroix gives you the experience without the negative,” Weber said. “The bright, fun packaging and the bold flavor—but no sugar or artificial sweeteners.”

For once, health advocates are actually cheering a consumer trend. “From a health perspective, this is a no-brainer,” said Lindsay Moyer, a senior nutritionist at the Center for Science in the Public Interest. She warned that certain brands—such as Vitaminwater—are hardly improvements on sodas. “Don’t be fooled. Some ‘waters’ are still sugary drinks.”

Major beverage companies have noticed the trend.

Coca-Cola Co. recently acquired Topo Chico, a small sparkling water company based in Monterrey, Mexico, that has built a cult following in Texas. Its new parent company hopes to expand that following with an artisanal image: The product comes in a retro glass bottle and has no added flavors.

Last spring, PepsiCo unveiled a line of three flavored Aquafina waters, each with 10 calories or less. But investors don’t seem especially satisfied. During a third-quarter earnings call on Oct. 3, Chief Executive Officer Indra Nooyi took responsibility for the company’s lackluster response to competition from LaCroix. “In a couple of cases, we were slow to respond to some of these newcomers,” she said. 

Pepsi’s standard, noncarbonated, and nonflavored Aquafina was still the third-largest bottled water brand by volume in the U.S. in 2016, but the company had yet to crack the top three in either carbonated or flavored offerings by year’s end. And that, both the numbers and experts say, is where the growth is.

“Growth right now is low-calorie, fruit-infused, or seltzer waters flavored with ‘natural’ ingredients,” said Kenneth Shea, a food and beverage analyst with Bloomberg Intelligence. “How long can it rise until the bubble bursts? Nobody knows—but everybody’s watching.”

In Western Europe, where carbonated and flavored waters have long been popular, the beverages account for about a third of the overall market. In the U.S., they’re still at just 5.5 percent. Brands such as LaCroix (volatile share price notwithstanding) and Topo Chico appear to have plenty of room to find new devotees.

There’s always the risk that the beverages could lose some of their inherent coolness as they go mainstream. Frida Garza, an editor in New York at TrackRecord, a website owned by Gizmodo Media Group, was born in Monterrey and loves her hometown drink. But she’s also wary of it gaining a mass following. 

“I’d like to be able to run into a bodega and buy one for a dollar,” she said. “But if I saw people bringing Topo as mixers to parties, I would be like, ‘Ugh.’”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE