“The pandemic accelerated this whole idea of ‘enhance my water.’”
One brand that stands to gain from an increasing and potentially disruptive consumer acceptance of single-serve beverage mixes is Nuun (pronounced Noon). The 16-year-old hydration brand is among a number of just-add-water mixes from companies including Liquid IV, Celsius (a ready-to-drink beverage company), and Oregon Chai that have translated functionality to a powdered domain previously focused more on lemonade, punch and tea. Growth for single-serve beverage mixes will be driven by: 1) consumer desire for function, 2) sustainability trends, 3) lower distribution costs coupled with premium pricing, and 4) the shift to ecommerce and direct-to-consumer sales.
PRODUCT PRIMER. Nuun, sold in plastic tubes of ten dissolving tablets, gained a devoted following among endurance athletes and has since expanded to a mainstream audience, CEO Kevin Rutherford said in an interview. The product contains various combinations of electrolytes, vitamins, botanicals, herbs, minerals, and other ingredients to address consumer needs including “sport” hydration, “rest,” and “immunity.” This month, Nuun added a caffeinated Energy line in four flavors to further tap into functional beverage trends. Nuun tablets are formulated to be dissolved in 16-oz of water. However, the attraction for some consumers is the ability to customize the strength and flavor by changing the amount of water or number of tablets. Nuun also sells powders in single-serve sleeves and sachets. Nuun is short for "nutrition uncompromised."
PRICING COMPARISON. At Kroger, a Nuun tube sells for about $6.50 for ten tablets, or 65 cents per tablet. That equates to almost 4.1 cents per ounce once mixed as directed with 16 ounces of water (not including the cost of the water from a tap or package). At the same store, a 32-ounce bottle of Gatorade sells for $1.25, or about 3.9 cents per ounce.
RACE TO $1 BILLION. Rutherford estimates that Nuun’s retail sales will “conservatively exceed” $100 million this year and surpass $250 million by 2025. He said he sees no reason why Nuun can’t eventually become a $1 billion brand. Nuun’s annualized average growth rate from 2016 to 2020 was +27% from sales across all channels, according to the company. The brand is sold at more than 21,000 stores and has a 41 ACV (all commodity volume), according to Nielsen data provided by the company. Retailers include sports and outdoor merchants such as Dick’s and REI, natural food stores such as Whole Foods and Sprouts Farmers Market, and mainstream chains including Target, Kroger, Walmart, and Sam’s Club. Distribution is almost entirely by warehouse delivery. Nuun employs about 80 people and is privately held by investors including Roundhouse Collective and TSG Consumer Partners. TSG has invested in beverage brands ranging from Stumptown Coffee Roasters (exited 2011) to Voss water, according to the firm’s website.
The following Q&A with Rutherford has been edited for clarity and space:
BD: Some believe beverage mixes are poised to have a moment. Why?
KR: With the pandemic, 2020 is the year of the accelerant across industries and the same holds true for beverage mixes. Preventative health is at the forefront for consumers. This extends to exercise, drink more water, electrolytes, boost my immune system, and even reducing alcohol. The consumer mindset has shifted. The pandemic accelerated this whole idea of “enhance my water.” It is true that one can get these benefits through ready-to-drink but with people spending more time in the home versus on-the-go, accessibility to water is more convenient than ever. Disruption also comes from the growing consumer concerns around our planet’s health. As a result, reducing society’s reliance on one-time-use plastic bottles is coming to the forefront. A simpler solution today is to switch from traditional ready-to-drink and move towards water supplements. Lastly, beverage mixers will disrupt through a favorable supply chain model. Nuun is just so compact, portable, and makes for efficient use of retailer shelf space as well as cubed space required for shipping. Intuitively, just think about how much more efficient this beverage mix format is in an omni-channel world. In short, if we had to create a beverage category all over again, surely we would lean in with the efficient approach of water supplements versus RTDs. The beverage category disruption is really just beginning.
THE CONSUMER IS ‘NOT GOING TO LEAVE ECOMMERCE.’
BD: How have things changed for you during the pandemic?
KR: Digital has changed everything, as fast as the world is moving today, it will never be this slow again. Fortunately, our team was positioned well when things accelerated in the ecommerce world. Shopping behavior completely shifted. We were really strong on our digital platforms already, both our DTC [direct-to-consumer] business but also with ecommerce e-tailers like Amazon, Thrive, and The Feed. When you combine the team’s strong competencies here and the massive shift in shopper behavior, the digital business surged. For context, our DTC business more than doubled in 2020, while the surge in our digital business was 2X the growth of in-store. With consumers’ confidence strengthening with on- line shopping, we don’t see these trends shifting back.
BD: Will the shift to ecommerce stick?
KR: It’s definitely going to stick. To be clear, I’m not suggesting that in-store won’t come back but the way we shop has forever evolved to omni-experience. The good news is that we are experiencing increased velocities in stores as foot traffic is starting to pick up. Further, we are accelerating learning toward optimized communication in digital, which has in turn, helped us be proactive in finding space on our consumer’s shopping list prior to entering a store. Today’s reality is that consumers will shop in both in-store and on-line. Be rest assured though, they’re not going to leave ecommerce. The stickiness of digital is that this platform removes friction points for the consumer and just makes shopping more convenient. As an example, think about a subscription program. If a consumer purchases multiple times in month, now they can automate this for convenience and get loyalty benefits with those purchases. This is a significant opportunity for any business, generating recurring volume that brings benefits to the consumer needs through convenience and personalization. Those same benefits can’t be achieved in-store.
‘NOTHING’S EASY IN LIFE.’
BD: Mass participation events like triathlons were a large part of your marketing. How have you adjusted during this time of pandemic lockdowns?
KR: Oh my gosh, the loss of events was a huge challenge on our strategy and to our teammates in experiential marketing. For perspective, we projected that Nuun would be the second-most served hydration on run courses across the United States, behind only Gatorade. And we would have been the most served hydration on course in Canada. Knowing this, one could see what a major pivot we needed to make in 2020. We quickly redeployed this part of the marketing team to other areas of the company. Today, we continue to collaborate with race directors to see what that comeback looks like, whenever that is, in 2021. We can’t wait to get moving and hydrating together again.
BD: How did you offset that loss?
KR: Nothing’s easy in life and we had to pivot and redeploy resources based on where the consumer was going. For the most part, the solution for us was digital so we could meet our consumer where they were. As an example, consumers shopped differently in store once the pandemic hit. They were predetermining shopping lists before they went in store. If you weren’t on the list, they were not going to discover you shopping because they’re on a mission with each trip to the store to get in and out as quickly as possible. The alternative is that they order for pick up or delivery directly to their home. Even effective trial mechanisms like sampling in stores and displays were simply either gone or less effective. We needed to get creative and adapt and keep evolving. The good news is that retailers were more open and provided more tools than ever before to do that. You have to adapt quickly and be decisive and try and learn and keep moving, otherwise you’re going to be left behind.
‘IT JUST TAKES TIME TO CHANGE HABITS.’
BD: Has Nuun been able to capitalize on the disruption brought by BodyArmor to the sports drink category?
KR: The hero and flagship of our portfolio is our Sport product. It’s growing at an exponential clip. Nuun is tapping into a consumer movement that’s looking for better-for-you options that in this category segment would be a low-sugar sports drink alternative that also includes cleaner ingredients. Coming full circle, when it comes to BodyArmor specifically, we haven’t seen any impact from them on our business.
BD: What is the barrier for a consumer to shift from ready-to-drink to a mix like Nuun?
KR: Put simply it comes down to education and awareness. Nuun is on trend on so many levels including being better for you, and better for the planet. Our retention rates are very strong. So once people try it, they stick with it. But it just takes time to change habits, so that’s the biggest barrier of why it’s not a billion-dollar brand today. Nuun absolutely can be a billion-dollar brand. We are just getting started.
BD: Your website says reliance on ready- to-drink beverages should be reduced, not eliminated. Why do you stop short?
KR: As a purist I wish this wasn’t the reality, but there is a place for RTDs. You could be on the go and you don’t have access to clean water to fill up your vessel. In essence, we must drink more water, so access to hydration is needed and must be convenient. The issue is more of our reliance on RTDs. You don’t need to completely walk away from what’s out there today to shift to a more sustainable way of doing things.
BD: Would Nuun ever launch an RTD version of the product?
KR: There is zero intention to do that. I don’t have it anywhere in our strategy or innovation pipeline.
BD: What’s next on the distribution front?
KR: Our focus at this moment is on accelerating velocities within our already great retail partners. In the future, we will drive more expansion with the Club Channel. Outside of the USA, we see plenty of growth through geographic expansion. Today, we’ve got some good things happening north of the border in Canada, my homeland which is our highest priority outside of the USA. All other geographies will follow as soon as we are certain that Nuun is ready to activate flawlessly and successfully.
BD: Where is Nuun typically located in a grocery store?
KR: Nuun is a category creator of functional hydration supplements and enhancers. Because we are creating a category, there is education and collaboration with the retailer to create space. You’ll typically find Nuun in two different places depending on the retailer – with Water Enhancers, or with Hydration Supplements/Sport Nutrition. In H-E-B, for example, you’ll find the functional hydration set that’s been created by Nuun in the water enhancer set. So, it’s taking function to water enhancers in a more premium way, with higher efficacy than existing products like Crystal Light and Mio. But if you go to Target, you’ll find it with over the counter [pharmacy] products in the sport nutrition area of wellness supplements.
‘SELF-INFLICTED CATEGORY LINES’
BD: Won’t positioning at retail be critical for the continued momentum of this category?
KR: I agree. As a leader and disrupter to the multi-billion-dollar beverage industry, Nuun is sourcing from multiple categories. Nuun is sourcing volume from the supplements. It’s sourcing volume from RTD beverages. It’s sourcing volume from water additives. It’s sourcing volume from so many different places. So where do you put it? It’s a challenge and we’re collaborating closely with our retail partners for the right spot that serves their guests best. This is a challenge that all category creators face. Think about the time when soy milk was merchandised in the center store in a tetra pack. Today, the dairy-alternatives are merchandised in the refrigerated dairy case. This was a game changer, shifting the paradigm to show these products could be a better alternative to milk. Knowing this, I believe placing Nuun near beverages would help consumers quickly see this new category as a better alternative to legacy beverages.
BD: Are you finding resistance from RTD companies?
KR: The beverage industry has failed to evolve quickly enough. We’ve created these self- inflicted category lines that aren’t actually how the consumer wants to shop. They were told to shop that way because they only had the choice of bricks and mortar. Now with online shopping, the way consumers shop is not the same as it once was with in-store only. How does the consumer shop? Point and click. All of these category lines are starting to blur and vanish. So that’s why retailers need to rethink their categories, as opposed to how we’ve merchandised it in the past. This is a great example where we’re completely disrupting how people consume beverages and that’s a big paradigm shift. Those self-imposed barriers are harder to shift with the buyer for many reasons. It’s going to take some time. As we keep proving it, it will happen.
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