Energy Brands Inc.

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Energy Brands Inc.

17–20 Whitestone Expressway
Whitestone, New York 11357
U.S.A.
Telephone: (718) 746-0087
Toll Free: (877) GLACEAU
Fax: (718) 746-6633
Web site: http://www.vitaminwater.com

Private Company
Incorporated: 1996 as Energy Brands Inc.
Employees: 1,000
Sales: $355 million (2006 est.)
NAIC: 312111 Soft Drink Manufacturing

Energy Brands Inc. is a leading marketer of functional beverages. Energy Brands has two main lines of business: Vitaminwater, fruity sweetened drinks containing various nutrients, and Smartwater, zero-calorie bottled waters enhanced with electrolytes. The Glaceau brand was launched in 1998 and grew extremely quickly to become an industry leader within a decade. In 2007, about a year after India’s giant Tata Tea group acquired a minority holding in Energy Brands, industry goliath Coca-Cola announced it was buying the entire company for $4 billion.

SEEKING SMARTER WATER

The Glaceau brand was launched in 1998 and grew extremely quickly to become an industry leader. Its founder, J. Darius Bikoff, started the business after being unable to find an existing beverage that suited his needs.

This was not Bikoff’s first entrepreneurial experience. He had previously taken over his family’s New York aluminum can plant, growing its sales tenfold within a decade, to $300 million, he told Fortune Small Business.

Concerns about the quality of Manhattan tap water led Bikoff to an interest in the bottled water industry. Bikoff launched his own brand, dubbed Glaceau Smartwater. Tapped from a glacial source in Connecticut, then distilled, it also included electrolytes (calcium, magnesium, and potassium) to enhance its hydration value for exercise aficionados. A second product in the Glaceau Water + family soon followed. Called Fruitwater, it was simply bottled water with fruit flavoring and no calories.

Bikoff’s new company, Energy Brands Inc., also dived into the nascent market for energy drinks, which included additives such as caffeine and ginseng and promised to give a boost to athletes, club hoppers, students, and others in need of a lift. Energy Brands’ entrant, Go-Go, was launched in 1996.

Energy Brands shipped 15,000 cases in its first year. In the late 1990s Bikoff was reportedly hauling shipments of drinks around in his Porsche as he solicited independent grocers for shelf space. Energy Brands’ revenues were said to be tripling every year.

CREATING A NEW CATEGORY

All that would have given Bikoff a relatively small beverage company in a very crowded marketplace. However, in February 1998, he had an insight that would lead to the creation of a new industry segment, with his own company leading the charge. He was sipping a bottle of water and savoring a vitamin C tablet when he had the inspiration: why not combine the two? This was the inspiration for Vitaminwater.

Vitaminwater drinks were described as “enhanced bottled waters” rather than soft drinks. Different formulations were fortified with various vitamins and electrolytes, but not salt. They did include some sugars, about half the amount in a Coke, and no high-fructose corn syrup. All-natural flavorings and vivid colorings completed the concoction. The different varieties sported conceptual names such as “Revive” or “Balance,” with chatty, engaging copy on the packaging.

Vitaminwater began shipping in fall 1999 and saturated the New York marketplace first. Bikoff then took aim at California, with its trend-setting population leading active outdoor lifestyles and consuming a lot of fluids in the process. Beverly Hills celebrities such as Paris Hilton were photographed clutching distinctive, brightly colored containers of Vitaminwater, giving media exposure far beyond the company’s purchasing power.

Compensated celebrity endorsements later became part of the brand’s promotional mix. Pitchmen included David “Big Papi” Ortiz of the Boston Red Sox, Allen Iverson of the Philadelphia 76ers, and Brian Urlacher of the Chicago Bears. Rather than paying hefty advances or royalties, Glaceau offered stars equity in the company, giving them an incentive for the brand to do well.

Subsequent product labeling seemed to indicate a change of direction. The copy on a bottle of Vitaminwater’s Endurance flavor, quoted in Advertising Age in 2004, read, “professional athletes have not endorsed this product … excessive use will not lead you to have a desire to be like Mike, Magic or even athletes named Ned,” the latter part a reference to Gatorade ads.

Energy Brands acquired America’s Best Coffee in the fall of 2000. It had planned to use its canned coffee beverages as a basis for energy drinks, but shifted its attention to its top selling brand as Vitaminwater took off.

BUILDING A BILLION-DOLLAR BRAND

French fashion conglomerate LVMH acquired a small stake in Energy Brands in February 2001. The investment launched new flavors, some including various teas, as the Vitaminwater brand gained momentum. Bikoff hired marketing and operations professionals with years of experience at Coca-Cola and PepsiCo to lead these efforts. Mike Repole, a veteran of Mystic and Crystal Geyser, began heading sales and eventually became company president.

Bikoff told Fortune Small Business that the company had become profitable by the end of 2001. According to Brandweek, most of Glaceau’s business was coming from small, independently owned delis rather than grocery store chains, at least in the New York market. Crain’s New York Business reported estimated revenues of $30 million for 2001, when the company had 62 employees.

The company had entered the California market in a small way. A couple of years later, it stormed Los Angeles and San Francisco with 100 sales and marketing staffers flown in from New York for a week, handing out cases of free product and engaging in guerrilla marketing tactics. The sampling was replicated across the country, reaching an estimated 10 million people by mid-2003.

By this time, Vitaminwater had 14 different flavors and was making up 70 percent of revenues. The company had abandoned all its other products (including one protein-enhanced drink brought out in March 2000 called “Soy Water”) except for Smartwater, as it concentrated its efforts on taking its top two brands national. Glaceau by then had 200 independent distributors in 45 states. The drinks were produced under contract by five bottling plants.

Trade journals were beginning to refer to Glaceau as “the next billion-dollar brand.” By the end of 2005, Glaceau had distribution at 50,000 outlets and annual revenues of $350 million. Glaceau was expecting sales of more than $350 million for 2006, with Vitaminwater, by far the fastest-growing product, accounting for 80 percent.

COMPANY PERSPECTIVES

Glacéau is all about helping thirsty people like you hydrate responsibly with products that are free of sodium and artificial ingredients. That means no artificial sweeteners, no artificial colors and especially no artificial intelligence (never to be trusted).

This success caught the attention of the giant manufacturers of sports drinks, soft drinks, and bottled water. They rushed products to market to compete in the new category created by Glaceau. Bikoff dismissed these as mere imitators, and indeed they seemed unable to put a dent in Glaceau’s phenomenal growth rate of 270 percent a year for the previous five years for the company as a whole, according to Fortune Small Business; Vitaminwater was growing twice that fast. Energy Brands successfully sued PepsiCo Inc., reaching a settlement in which the soft drink producer’s South Beach Beverage Co. altered the packaging of its new SoBe Life Water to make it look less like Glaceau’s. Another competitor, Arizona, earlier had to change the labeling of its Water Aid as well.

CONGLOMERATE OWNERSHIP

In August 2006, India’s Tata Tea Ltd. acquired a 30 percent stake in Energy Brands for $677 million, a deal that valued the entire company at $2.2 billion. Tata Tea, part of the giant Tata Group, was a leader in the global tea industry. The sale gave Glaceau the backing to grow much larger, especially if it entered Tata’s vast markets in India and the United Kingdom. Company founder Darius Bikoff continued to own 60 percent of the company.

Glaceau was soon traded again in an even bigger deal. In May 2007, the Coca-Cola Company announced it was buying Energy Brands for $4.1 billion in cash. The acquisition was scheduled to close in the summer of 2007. Afterward, Glaceau would be a business unit of Coca-Cola North America. Bikoff and his top deputies were to remain with the business for at least another three years.

At the time, Glaceau was said to be second only to PepsiCo Inc.’s Propel in enhanced water sales to the U.S. market. Coca-Cola was purportedly interested in gaining market share there, as well as growing the brand internationally.

Frederick C. Ingram

PRINCIPAL DIVISIONS

Smartwater; Vitaminwater.

PRINCIPAL COMPETITORS

BooKoo Beverages, Inc.; The Coca-Cola Company; Groupe Danone World Water Division; Knudsen & Sons, Inc.; Nestlé Waters North America Inc.; PepsiCo Inc.