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Glacéau: Revisiting Opportunities and Challenges

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Seven years after being part of The Coca-Cola Company (TCCC) family, Glacéau has received considerable attention from its parent company and the media. The Glacéau acquisition was one of the most expensive deals in history at US$4.1 billion (20xEBITA). According to DE Master Blenders, the average transaction of acquisition is 12.7xEBITA for the food and beverage industry. Nevertheless, the deal was completed before Lehman Brothers’ collapse, when the market appeared to be booming, buyers were frenzied and advisers were pushy. It is now perhaps time to assess the brand and see if its development has lived up to expectations. The industry consensus is that Glacéau has made little advancement and the brand has not met its original objectives.

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Glacéau Outpaced by Mizone

In the global functional water arena, Glacéau was overtaken by Danone’s Mizone in 2013, in off-trade volume terms. Over 2012-2013, Mizone increased off-trade volume sales by 175 million litres, a sharp contrast to Glacéau’s decline of 14 million litres, pushing Glacéau down into second place. By off-trade value, Glacéau ranked first with US$1.9 billion sales in 2013, compared to Mizone’s US$940 million. Glacéau is a much more expensive brand than Mizone.

Mizone’s key market is China and it is Danone’s core international soft drinks brand in the country. Ever since Danone split from Wahaha, Mizone has become a major focus, developing rapidly. However, focusing its energy in one single market can also be risky. If the Chinese Government’s policy or competitive situation changes, and there is a significant impact on the category or the brand, Mizone’s global status will be undermined accordingly.

What Has Glacéau Achieved?

Immediately following acquisition, the initial intention for Glacéau was to build it into a global mega brand. With this in mind, the brand was rolled out in the UK, Canada and Australia. Euromonitor International’s data shows that Glacéau registered off-trade value shares in 13 countries by 2013. The general consensus is that if a brand registers a value share in over 10 countries, it can be considered a major global brand. However, so far, over 80% of Glacéau’s value sales are still generated in the US. The importance of this single market is clear, with remaining international sales underdeveloped and less robust. This was certainly not the result and level of development expected at the time of acquisition.

Glacéau has had a bumpy ride in recent years, despite TCCC’s efforts in making the brand work. In its core US market, it reached its peak in sales, at US$1.8 million in 2008, and has declined or fluctuated ever since. High unit pricing has restricted volume consumption, particularly during recession, and the high calorie content has also raised concerns. This was exacerbated when TCCC was sued for a claim that the Glacéau vitaminwater name was misleading. In 2009, TCCC addressed the issue by launching vitaminwater10, followed by vitaminwater zero in 2010, in an attempt to regain consumers.

In 2012, TCCC reformulated the conventional product with stevia, and introduced this version to the UK – Glacéau’s largest market in Europe. Value sales in the UK continued to grow rapidly in 2013, thanks to improved shelf space and wider distribution in a greater number of outlets; however, there is no conclusive evidence to suggest that stevia has been a key contributing factor to this growth.

In 2014, the stevia version was introduced to the US. So far, it has not been so well received; apparently, some consumers are not yet used to the new taste, according to recent feedback, albeit through informal channels such as social media. Many established beverages brands, recently sweetened by stevia, are now facing similar issues, with consumers expecting a certain taste, and reluctant to embrace a significant change accordingly.

Smartwater – An Attempt for Premium Still Water

TCCC has also introduced another brand extension - Glacéau Smartwater - to the US, to capitalise on growing interest in premium water, such as Sparkling Ice and Fiji. Globally, Sparkling Ice grew by nearly 90% by off-trade volume, contrasting with Glacéau’s decline of 2% in 2013. TCCC had no strong premium still water brands in the US, and Glacéau’s premium image provides a working platform to develop in this category.

Smartwater is basically a purified water with added electrolytes. Euromonitor International’s US field analysts commented that TCCC seems invested more in Smarwater than Dasani, while PepsiCo is launching Qua as a premium alternative to Aquafina. Both players are making an attempt to increase value sales, as their economy brands struggle to compete against cheaper water brands. In the US, consumers of Smarwater might be attracted by the sleek look and pure taste instead of the formulation.

In Western Europe, Glacéau vitaminwater has few sales in Spain, Germany, France and Italy. While TCCC’s coconut water is performing well, the prospect of Smartwater is uncertain, given competition from the well-established and still popular natural mineral water category. As health benefits are currently of high interest to consumers, functional water brands could perform well if positioned to accentuate their specific health benefits.

To conclude, from the current geographic expansion and off-trade sales, in comparison to the acquisition expenditure and initial expectations for the brand, it is perhaps accurate to say that the Glacéau acquisition has been less than successful for TCCC. Seven years on, things are still on working in progress stages, but consumer behaviour has moved on, and far away from seven years ago. It is still unknown if TCCC will explore Glacéau’s prospects in China, as Chinese consumers seem to accept the functional water concept. This example confirms that large scale acquisition is financially risky and no acquisition is a guaranteed success; even deals made by leading multinationals. But TCCC is flexible and pragmatic, and determined to revamp the brand to progress, according to the changing environment.

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