Introduces First Flavor Extension More Than a Decade After Founding.
Says Aluminum Next to be ‘Reviled’ as Some Consumers ‘Physically Recoil’ at Plastic.
Expansion Plans Centered on Food Service, Partnerships Rather Than Grocery Retail.
‘The More We Can Expand Our Ownership, the Faster We Can Grow.’
While Boxed Water is Better represents a small fraction of the packaged water category, the company has captured an outsized share of social media and celebrity attention since its founding in 2009. That’s in large part due to the purified water brand’s strikingly plain carton within a premium water category dominated by sculpted plastic bottles. With a package made mostly of paper, Boxed Water has helped drive the consumer conversation around packaging sustainability, an issue that will only grow in impact and importance during this decade. The company pioneered a carton water segment that has since spawned competitors including Just Water in 2012 and Flow Alkaline Spring Water in 2014. As part of BD’s effort to mine insight from brands capitalizing on packaging trends, we spoke to Boxed Water’s Chief Marketing Officer Robert Koenen about growth prospects and how the company is coping with the COVID-19 pandemic. First, some background.
INNOVATION. This quarter, Boxed Water Is Better is launching the brand’s first lightly flavored version of its unsweetened water. Just and Flow already offer flavors. Boxed Water’s innovation move comes on the heels of a commissioned lifecycle study the brand released in October comparing its carton to PET plastic bottles and aluminum cans. Boxed Water, which refers to itself as “part sustainable water company, part philanthropic project,” has reinforced its environmental message by planting more than 1 million trees in return for consumer social media posts and other engagements. This attention has attracted some industry and environmental critics, too, who take issue with the lower recycling rate of carton packages versus plastic bottles. The brand’s use of “Better” in the name almost begs for such comparisons.
SALES, PRODUCTS. At retail, annual sales for Boxed Water Is Better last year reached $1.3 million, following a -22% decline, according to a BD source, citing combined data from IRI, SPINS and Whole Foods. Boxed Water’s total grocery business represents about a about a fifth of its total revenue, said Koenen, who declined to provide annual sales data or results outside of measured retail channels because the company is privately held. Boxed Water is packaged in Elopak cartons that the company touts as 92% renewable, including a plant- based cap. The company said the cartons are 100% recyclable, refillable, and BPA free. Carton sizes are 250-ml, 330-ml, 500-ml, and 1L, which are sold as singles or in multipacks. The new flavors, all in 500-ml cartons, are Lemon, Blackberry, Cucumber, and Grapefruit. Whole Foods retails a 16.9-oz carton of plain Boxed Water for $1.79, compared to $1.29 for the same size carton of Just Water. The brand is closely held by Windquest Group, a private investment firm helmed by former Amway CEO Richard DeVos. Windquest was previously chaired by DeVos’ wife, Betsy DeVos, who recently resigned as President Donald Trump’s Secretary of Education.
Q&A. The following interview with Koenen has been edited for clarity and space:
BD: Why extend into flavors, and why now?
RK: We’ve been around for more than 10 years. We’ve talked about flavors for probably nine of those. It always came back to the awareness of plastic pollution. There wasn’t enough awareness, so instead of diverting our resources into product assortment, we wanted to wait until there was enough cultural awareness of plastic pollution and the alternative. We didn’t want to be the lone voice screaming out that there’s a problem with plastic. Saying CMO Rob Koenen that now sounds ridiculous, but I can tell you that in nine out of every 10 conversations I was having with people as little as two years ago, I was explaining that plastic came from oil. A lot of our close competitors in the sustainability field have come out with flavors in the past couple of years, and they succeeded with them. We wanted to keep our eye on the prize, which is focusing on the sustainability message. Our consumers have always wanted flavors, but we didn’t want to divide our attention until we felt like there was enough critical mass for people to know that paper’s better than plastic.
Aluminum To Be Pressured Next
BD: When it comes to vessels other than plastic bottles, why should we believe that consumers are ready to accept packaged water in paper cartons or even aluminum cans?
RK: That’s exactly the question that a lot of grocery chains have asked us over the years. Never before have there been more conversations about non-renewable resources. Major companies are now using aluminum as an alternative to plastic, and we think aluminum is going to be just as reviled as plastic within the next two or three years. The conversation within the green movement is no longer about recyclability. It’s about renewability, and you can’t put aluminum or oil back into the ground. Consumers are now realizing that recycling hasn’t worked. They’re now looking upstream at the extraction and production of these materials and realizing that the carbon footprint to smelt and form aluminum and blow mold plastic is tremendously bad, as opposed to paper where it’s more folding, not molding. We know that 90% of our consumers consider sustainability before they make any purchase. Last time we looked at that was about three years ago, and the number was closer to 60%. Fashion brands who are now serving our product in their stores have said handing a complimentary plastic water bottle to a consumer under the age of 45 is now being received like handing them a pack of cigarettes. People physically recoil.
BD: How do you respond to criticism that cartons are recycled at a lower rate than plastic?
RK: While frustrating for all of us, recycling rates for cartons have increased dramatically during the last five years and continue to improve as people switch to cartons for more products. And remember, not everyone can recycle PET or aluminum at home yet. So, although not perfect, we look at the global warming impact from the production of bottles and cans versus cartons. Even if landfilled, the impact on global warming is still markedly worse. We do see a day in the near future where the rates will be the same.
‘You’d Better Have Us on the Shelf’
BD: What’s the market penetration of paper within the US packaged water category?
RK: We’re still a blip on the map. We’re 1% of 1% of the bottled water market. What I say to buyers is that if you look at the sell-through data today, you’re not going to get excited about us. But you’d better have us on the shelf because you have to offer a choice. I guarantee we’re going to be stealing shelf space because the numbers are starting to prove it out. Over the last three or four years at Whole Foods, the entire sustainable water segment has gone from zero facings to now more than 10 facings. Nestlé will always have a place in this world for people who are looking to save money as their number one priority. But, there’s still room for Voss and Fiji and Evian, and we are in and are competing in the premium water market.
BD: What progress are you making with major national or regional retailers?
RK: We’re in some but not all major chains. Target. Jewel-Osco. CVS. No Walmart. We’ve talked to Walmart a lot. We’ve talked to Costco. But the price-value doesn’t work for them. We’re a premium product and they want to set a very low price. We were in Kroger maybe five years ago, before everything started to hit. They have not really overcome that taste in their mouth.
BD: What happened at Kroger?
RK: We didn’t sell through. So now every time we go back to them, they’re like, “You didn’t really work.” Of course, five years ago is an eternity in this trend. But stores that are more interested in attracting a greener or more sustainability-minded consumer is where we’ve been. If you’re in a store that is not a leader in sustainability, then the consumer’s not there looking for a sustainable option. Frankly, though, our focus hasn’t been on grocery stores. It’s been focused on getting into the right boutique hotels like Kimpton. Making sure that we’re in fashion houses like Rag & Bone or working with Madewell. And entertainment companies like the Ellen Show. Making sure that we’re going right at the consumer with brands that have equity with consumers and know that their consumers are sustainability minded. So, a large portion of our business has really been with brand partners.
BD: Are those partnerships profitable or an investment in brand awareness?
RK: It falls across the board depending on the partner. None of our partners get products for free. Then it’s a conversation about how much do you want to support us and how much do we want to support you? I want to use my partners to amplify my message, and they want to use Boxed Water to let their consumers in on yet another way to live a more sustainable life. The bottom line is all of them end up paying for the product, because one of the things that we say to them is that you have to have skin in the game in order to have our product. So, yes, most of those partnerships are profitable.
BD: What is the revenue breakdown between your various routes to market?
RK: Obviously, it’s changed dramatically with COVID. Traditionally, our ecommerce business was as much as 20%, including our web store, Amazon and other third-party online retailers. But this year direct-to-consumer is closer to 40%. Grocery was as much as 20%. FSOP [food service and on premise] would be closer to 40%. And then partnerships, part of direct-to- consumer, are probably closer to 10%. These are all places that aren’t really considered FSOP, and they’re giving away product in stores. I’d actually break that out as a line item, because it’s a whole different sort of business model.
Grocery Declines Amid Pandemic
BD: I assume during COVID that FSOP declined dramatically, while ecommerce and grocery increased?
RK: Grocery actually shifted down, which is surprising until you peel back the onion. What happened during COVID is that people threw away sustainability and went right for price, so the premium category suffered because consumers were buying case packs. I will say that in the last quarter, there was definitely a resurgence. People are looking at all the plastic pollution again. We think that COVID has artificially suppressed a lot of demand, both with the consumer and through the trade, because the trade has been reducing SKUs and cutting back. It’s all been a reaction to a very extreme financial situation, and that will loosen up when lockdowns start to get lifted.
BD: Where do you intend to grow your business during the next three to five years?
RK: We see ourselves quadrupling, if not more, in the next three to five years. Again, not so much through grocery, but through FSOP. When we look at the demand at colleges and universities, zoos and aquariums, and hotels and hospitality, our growth will come from primarily institutions that don’t view water as a profit center, but more so as an extension of their brand beliefs. Take your typical hotel. Their revenue is coming from capacity and occupancy, but they can drive occupancy by having people who want to stay there. People want to stay there because one of the aspects is sustainability, right? So that is where we’re finding tremendous value. I see grocery as a secondary opportunity for growth. There is still massive volume there, but it’s not the largest piece of the overall pie. We will grow through grocery, but it’s going to be baby steps because they’re still thinking of water as a tremendous profit center. We’re never going to be their low-end mass market product. We’re always going to be the luxury or the premium brand on their shelf.
BD: Where is your marketing and advertising spend focused?
RK: Digital advertising is our number one spend. That’s obviously the easiest way to communicate with your target consumers. Another major spend is sampling. We can’t forget that we still make water and that we need to get people to taste it so that they know how good it is. It’s also our biggest opportunity to tell the sustainability and tree planting story. When it comes to trade spend at retail, our biggest constraint is really getting the distribution to show up and having the facings to make as much of a statement as we need.
BD: What do you mean?
RK: The thing that’s sad about the grocery channel in particular is that, because it’s more or less a pay to play, you deal with a lot of distributors who have tens of thousands of SKUs and it’s almost like an internal rotation for promotions. They’ll promote you this month, then somebody else next month. It’s hard to create a constant conversation or brand presence. That seems to be the biggest hurdle because our brand, more than any other brand, is not going to jump off the shelf just because it’s water in a box.
BD: You distribute largely through warehouse delivery. Do you use direct-store-delivery (DSD)?
RK: We have some DSD in some of our major markets like New York, Chicago, Florida, and California, mostly in and around LA. Very small.
BD: Do you have production capacity to support your growth aspirations?
RK: We filter and produce all the product ourselves. We have two filling stations, one in Michigan and one in Utah. We have equipment in both places, and actually just made a major acquisition of new equipment in the fourth quarter of last year to anticipate the capacity needs. We’ve got plenty of capacity for this next year, including for upside. We’re now getting into conversations that could double or triple our business just with one or two key customers, so we are fully prepared for that by sourcing the new machinery we did in this last year.
BD: What is your exit strategy? Are potential acquirers knocking at your door?
RK: It’s a constantly evolving conversation that we have every quarter with our board and amongst ourselves. We have been holding the company pretty close to the vest. We are the leader, the brand name for the category, so there are constantly people approaching us. We’re to the point now where we’re hitting critical mass, where these conversations are becoming more and more real. The more we can expand our ownership, the faster we can grow, and we’re starting to have more and more of those conversations about possible capital infusions or equity stakes.
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