- After an effervescent stint at the top, LaCroix stock is going flat, according to Bloomberg.
- National Beverage Corp., which owns LaCroix, saw its stock reach a 52-week low Friday morning following Guggenheim's announcement that sales are "effectively in free fall" and cutting its price target on the stock to $36 from $45.
- Analyst Laurent Grandet told Bloomberg that greater competition, lack of meaningful innovation and inexperience were reasons for downgrading the stock to a sell rating.
People love bubbles. As consumers search for better-for-you beverages that are not loaded down with sugar and artificial flavors, sparkling water has poured in to fill that need. One of the first to do so was LaCroix.
When National Beverage relaunched LaCroix from a sleepy Midwestern brand to hip, alternative beverage, it was the first company to breathe new life into a drink that was generally associated with country clubs and European cafes. The result was astronomical sales. For the 2018 fiscal year, it reached $975.7 million in revenue. With fresh branding and labels that touted "natural" flavors, LaCroix landed on shelves just when consumers were searching for healthy alternatives to soda and plain water.
But competition came quickly. From old-school standbys like Perrier and San Pellegrino to PepsiCo’s bubly or newcomers like Spindrift, consumers are now inundated by choice and consumers are snapping it up.
Coca-Cola purchased Topo Chico in 2017 and PepsiCo bought SodaStream last year. Both acquisitions prove the continued strength of this category and its advantage in helping soft drink companies transition away from sweet beverages while still appealing to consumers with carbonated drinks.
So much competition has left LaCroix to stagnate. After a geyser of growth in the earlier part of this decade, the company's share price dropped 14.7% on March 8 before falling further yesterday and leaving a wide open market for other companies to step into.
Much like LaCroix almost a decade ago, Spindrift now reports that from 2016-2018, it has seen sales soar 800%. And while that amount of growth does not make them the largest player in the game, it does clearly demonstrate that consumers are looking elsewhere. Consumers are especially interested in this upstart brand for its natural approach to sparkling water.
Spindrift features two ingredients: carbonated water and fruit. Unlike LaCroix, the drinks are colored and have pulp from the addition of real fruit. Despite being a simple differentiation, the company was innovative in taking that step as historically, sparkling water has used flavorings and essential oils to impart flavors.
Although adding flavoring has been the conventional method, it may be the one that has hurt LaCroix in its reign. LaCroix too lists only two ingredients — carbonated water and natural flavor — but there is no Food and Drug Administration definition of "natural" to help consumers understand what that means. Curious consumers, however, alleged that what was hidden behind that term was ethyl butanoate, limonene, linalool and linalool propionate, and that linalool is used as a cockroach insecticide, per a 2018 lawsuit.
Many companies survive lawsuits, but National Beverage Corp needs to also turn around LaCroix sales. Unfortunately, there has been limited innovation in the brand since its initial disruption of the sparkling water category. Flavors and branding have remained sluggish even as the company tries to appeal to a wide and ever-evolving demographic.