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Tapped Potential: Vertical Water CEO Discusses Challenges and Prospects for Maple Water

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With brands like Vita Coco (US$268 million in 2013 off-trade sales), Coca-Cola’s Zico (US$86.7 million) and PepsiCo’s ONE (US$40.4 million) all seeing tremendous growth in the US over the last five years, coconut water has gone from niche novelty beverage to American powerhouse. Health-conscious consumers, already accustomed to paying premium prices for locally sourced foods or organically certified and GMO free fruit and vegetables, have helped grow this product into one of the most important beverage trends since Red Bull came to American shores. Manufacturers have promoted coconut water as a natural sports or energy drink due to its high potassium and mineral content, as well as its lower levels of calories and carbohydrates when compared to other flavoured soft drinks.

While coconut water is the benchmark for natural hydration, manufacturers and media are already seeking the “next” coconut water by focusing on single-ingredient or naturally sourced beverages that cater to these health-conscious consumers. Over the last year, maple water has garnered much attention from analysts and media outlets across the United States, as a potential candidate to benefit from the success of coconut water. To better understand this beverage, Euromonitor International Industry Analyst Jonas Feliciano spoke with Valentina Cugnasca, CEO and co-founder of maple water brand Vertical Water.

When people ask you what maple water is, what do you tell them?

I tell them that it’s water from a tree, as bizarre as that sounds. It seems like a strange concept, as most people are unfamiliar with the idea that water does flow through trees. I start by telling them about maple syrup and maple sap – that the sap, the water from the tree, is boiled down, resulting in maple syrup. People ask “is it really water?” and I tell them, yeah, absolutely – the water comes from the earth, up through the roots, and then vertically through the trunk and branches of the tree and brings the tree back to life after it has been dormant through the winter. We tap that source, that flow of water, and process and package that beverage to consumers. However, the real joy comes when I see people try Vertical Water for the first time – seeing their eyes light up as they discover how refreshing it is especially when they never really considered maple tree sap as a source for such a great tasting beverage.

How did you come up with the idea for Vertical Water?

We did not set out to become a beverage company. My background is in securities and hedge fund management. My work at Emcor Securities led to the creation of Feronia Forests, which was set up as a timberland investment fund – basically an investment that would serve as a hedge against inflation. In 2008/2009, I had started looking at combining my interests in sustainability and impact investing with various entrepreneurs, switching our mandate from timber investing to sustainable forestry – a model to defer, strategically, the cutting of trees by looking at other ways to generate revenue from the forest. One of the initiatives to come from this was Vertical Water. We didn’t set out to become a beverage company in some trendy, niche space.

What are some of the challenges that you have faced in producing Vertical Water?

From a production standpoint, our success is a testament to the strength of our logistics and the relationships we have fostered with our suppliers – as these present the largest challenges. There is no set timetable for when the ideal tapping of maple trees will occur. It roughly could happen anytime between January and April but each grove has its own timeframe based on topography and temperature and other factors. You can generally guesstimate, but it is not as predictable as having a grove of orange trees and knowing you’ll show up at a co-packer on Wednesday at 9AM with a truckload of oranges. This creates a very complicated business model, raising the barrier to entry, and requiring quite a bit of logistic and operational strength. It’s one thing to produce a small number of bottles, but when you look at what we’ve done – to be able to produce on a commercial scale, you really need to have strong relationships with sap producers and co-packers and everything in between so your supply-chain in and out runs as smooth as possible. This is something we’ve worked on for several years because the sap business is very fragmented. While many of our suppliers are themselves maple syrup producers, we were able to demonstrate that maple water is another viable source of income for them. A large part of our mission is to engage as many suppliers and stakeholders as possible in order to have an economic impact on their lives, and thus have a social impact, as these growers increase their revenue stream, and thus an environmental impact, as this opportunity allows them to keep their trees “vertical” rather than selling them off as lumber.

That said, we have established strong relationships with producers in New York, where only 1% of the 2 billion maple trees in the state are used for maple syrup production. By opening up new sources of revenue for these suppliers, we encourage them to keep their trees standing. We have plans moving forward to expand this network of suppliers across the US, but, once again, our operational structure must be strong, as each new region presents new seasons and new challenges to our network.

One of the biggest challenges facing new beverage manufacturers is securing distribution. How has Vertical Water fared and what can we expect in the future?

We were very lucky early on in securing distribution. We were accepted by Sprouts (a US chain of specialty grocery stores across much of the American Southwest specialising in fresh and healthy foods) to do an in-store market test at the end of 2013. We were in 10 stores for eight weeks. Sprouts was really impressed by our sales in those eight weeks and now carries our product in all 172 stores of its stores. Having that national footprint was great – and a great way to get us set up with other distributors. We then designed a sale and distribution strategy that will allow us to increase our penetration further. Plans are already in place to increase our penetration further. We will be in all Wegmans stores (a US supermarket chain with distribution across the US mid-Atlantic region) in a week or so and, by the end of June, we will be in over 400 stores nationally.

Many comparisons have been made between coconut water and maple water. Some media outlets are reporting on the nutritional claims, and some maple water brands are also using those claims to promote the product. Is there a functional or nutritional claim that Vertical Water or other maple waters are making?

When we first started examining maple water as a sustainable alternative for our forests, I thought to myself “if it’s good for the trees, it’s gotta be darn good for us too”. I know that is not a scientific statement – it was just an educated guess at that time, but I think speaks to the reasons why consumers are seeking single ingredient beverages, or beverages with sourcing that people can understand – looking more toward mother nature’s laboratory instead of a human laboratory. As for the scientific or nutritional claims, we don’t try to make too many comparisons as people start getting into a “more than or less than” game – comparing to soda or tomato juice or any other beverage – which isn’t really instructive to the consumers. However, people do ask, so we focus on the fact that it’s a low calorie, low sugar beverage that has trace minerals and nutrients, including things like manganese – it has more manganese than a cup of kale, for example. Many studies have shown that manganese is good for the bones and for the metabolism of fats in the body and good for the nervous system. We aren’t making the claim that Vertical Water will help all those things, but it’s a fact that manganese is in there.

Also inhibiting the ability to make claims is the fact that the research is new. Studies have been done on the concentrated maple sap, ie, maple syrup but we don’t want to make any claims that we can’t support. We can point to studies that others have done – like the study out of the University of Rhode Island that looks at polyphenols and plant nutrients – but this research continues. Until there is really strong research, I will not come out and say “this is great for diabetics because the sugar in there is naturally occurring and is sucrose and thus more easily processed”. These are all things that, with the success of maple water as a category, more researchers will take a closer look, but until then, you won’t find Vertical Water making any claims that can’t be backed by solid science. We’d much rather say that this is an amazingly refreshing beverage. Long story short, we’re not marketing this as some sort of magical elixir.

That said, why should consumers pay the suggested retail price of US$2.99 and choose this product over other soft drinks or regular tap water?

As much water as we’re told to drink, a lot of people have issues drinking that much water and this a more delicious way to hydrate. On top of that, maple water does have trace minerals and nutrients not available from plain tap water. When compared to other beverages, whether it be soda or juices, our calories are much lower. Furthermore, not many of those beverages come directly from a single source. And, consumer response to the taste of the product has been extremely strong.

Last again, to sustainability, Vertical Water is sourced and packaged in the United States, not transported half way around the world. On top of all that, maple water is a versatile liquid that pairs well with anything – used for cooking or to make coffee or tea or cocktails. This is another option. We aren’t looking to replace your regular water consumption – but want to provide a tastier option to stay hydrated.

Looking beyond distribution, what else is on-tap for Vertical Water in the future?

Our biggest challenge on the consumer front is awareness. Many consumers are unaware of the highly refreshing taste that comes directly from a maple tree so reaching out to a larger consumer base is extremely important. In terms of innovation, as our production, distribution and sales expand, everything is on the table: from larger serving sizes to flavour extensions. We hope that higher sales will also allow us to lower prices and make the product more accessible. We have many plans in place to support the product, not just for Vertical Water but for all of maple water. Our mission of creating more sustainable forests across the US remains the same, and future sales only help this mission. We pride ourselves on trying to be the leaders in maple water and developing technologies to take the entire category forward. Coconut water has opened doors for maple water and other tree waters, but the education process is an uphill battle. We know that the category is extremely niche, but as we grow, our mission to keep trees vertical via Vertical Water grows with it.

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