September 4, 2018 8:51 pm ET
Starbucks Inc. (NASDAQ: SBUX) is one of the most successful companies in the world. While anyone could go out and buy coffee grounds at the grocery store, the company envisioned a world where people would pay extra for premium versions of coffee. The stock soared from a split-adjusted $0.34 back in 1992 to more than $52.00 today, and the brand has become iconic in the United States and around many other parts of the world.
The Alkaline Water Co. (TSX-V: WTER) (OTCQB: WTER) hopes to accomplish a similar feat with bottled water. While tap water is nearly free and bottled water has become commoditized, consumer demand for premium, functional bottled water is on the rise. Investors looking for an early-stage success story may want to take a closer look at the stock as it gears up to expand its distribution and reach to even more customers in 2019 and beyond.
The $16.5 Billion Market for Water
Tap water may be nearly free but that hasn’t slowed the meteoric growth of the bottled water industry over the past 20 years. According to the Beverage Marketing Corporation, Americans drank about 13.7 billion gallons of bottled water last year, which represents a strong seven percent year over year increase. Bottled water revenue similarly rose 8.8 percent to $16.5 billion last year—and the faster growth in revenue suggests margins remain strong.
These trends show little sign of slowing. A Harris Poll conducted for the International Bottled Water Association found that more than 3-in-5 Americans (63%) say bottled water is among their most preferred beverages, which is slightly higher than coffee (62%) and much higher than soft drinks (58%). In addition, nearly all Americans (94%) believe that bottled water is a healthier choice than soft drinks and should be available wherever drinks are sold.
The biggest concern for the industry has been waste—but, data is on it’s side. Bottled waters, including caps, are 100 percent recyclable and are the most common item in curbside recycling programs. In fact, they make up just 3.3 percent of all drink packaging in landfills. Bottled water also contains much less PET plastic than soft drink containers since sodas need thicker plastic, and bottled waters are produced with a very low energy and water footprint.
Why Premium Waters Are the Future
Flavored and functional waters are projected to reach $36 billion in annual revenue by 2019, according to FoodBev. While carbonated soft drinks (CSDs) are still the largest beverage category, per capita consumption has been on the decline as consumers seek out healthier alternatives. Higher margin categories that have traditionally appealed to niche health and wellness customers are being welcomed by retailers into conventional channels.
High-alkaline water is one of the fastest growing segments in the premium functional beverage industry. By ionizing water, alkaline waters have fewer bitter low pH ions and higher overall pH levels. They are considered both cleaner tasting and more hydrating since higher pH levels translate to smaller clusters of molecules that are more readily absorbed. These waters may also have numerous health benefits.
While alkaline water research is early-stage, Healthline cites several studies that have shown it might help everything from acid reflux to diabetes and high cholesterol. The medical reviewers are quick to point out that more research is required beyond these small studies, specifically into other claims made by supporters, but the early research is promising and the functional water could help people improve their health.
Investing in the Next-Gen Industry
The Alkaline Water Co. (TSX-V: WTER) (OTCQB: WTER) offers investors with exposure to both of these trends. Unlike many development-stage companies, the company’s flagship product, Alkaline88® is already a leader in the beverage space and is available in 40 of the Top 50 Grocers in the United States. The company’s products are available in over 40,000 retail locations across the U.S. and is forecasting 50,000 retail locations by the end of their fiscal year.
With seven strategically placed co-packing facilities throughout the country, the company is well positioned for continued expansion. These facilities have a combined wholesale production capacity of over $100 million and are located within 600 miles of 95 percent of the U.S. population. The company continues to regularly add new national retailers, most recently Walmart, Kroger, and Shopko.
The company’s revenue growth has been equally impressive. Between 2014 and 2018, the company’s fiscal year end revenues have grow from $600,000 to almost $20 million. The company is projecting $40 million by the end of fiscal year 2019. If it were included in the Inc. 5000 list of the fastest growing private companies, it would be #168 overall and in the top five beverage companies with its 435 percent growth since 2014 and projections for a 102 percent year over year increase in 2018.
The Alkaline Water Co. (TSX-V: WTER) (OTCQB: WTER) represents a compelling investment opportunity in the bottled water space. With an established brand that’s already rapidly growing, the company is well positioned to continue capitalizing on industry trends. The recent M&A in the beverage space could also prove beneficial for its multiple as many competitors are acquired at attractive multiples to help larger companies diversify. Furthermore, Alkaline was mentioned as a likely “Bolt-On M&A Target” in a recent report from Beverage Marketing Corporation.
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