12 Jun 2019 US: Effervescent LaCroix goes flat
America’s darling sparkling or seltzer water, LaCroix, appears to be victim of a burst market bubble and is quickly losing its fizz…
Sales of sparkling water have surged over the past decade, nearly tripling between 2008 and 2018. LaCroix, a decades-old brand, was in the right place at the right time to tap into this trend.
Brand owner, National Beverage’s sales have soared, nearly doubling in the past decade – topping out at around $120 last year, up from around $12 per share in 2010 – as LaCroix became the top-selling sparkling water brand. It seemed like LaCroix was everywhere.
But the wheels have now started to come off. The stock is down 60% from its high, and sales of LaCroix have begun to drop.
National Beverage’s sales declined in the first quarter of this year, and one analyst said that LaCroix sales are “effectively in free fall” amid declining sales and rising competition, according to a new research note from Guggenheim Securities.
The premise behind the LaCroix sales bubble was, and still is, sound. Consumers are shifting away from soda, which is loaded with sugar, toward healthier beverages.
So what’s gone wrong?
“The LaCroix brand has gone from bad, to worse, to disastrous in a relatively short period of time following negative media attention regarding the ‘natural’ claim of the brand’s flavouring ingredients that surfaced in October of last year,” the analyst Laurent Grandet of Guggenheim Securities says.
A lawsuit last year alleged that LaCroix contains artificial ingredients, contrary to the company’s “all-natural” marketing claims. LaCroix has denied the claims in the suit.
- LaCroix is facing a lawsuit over the mysterious ingredient that has made it a huge hit — here’s what we know about it
- ‘Please stand with us’: LaCroix slams ‘misleading’ lawsuit
Following the lawsuit, sales of the seltzer, which had enjoyed years of explosive growth, suddenly dropped off a cliff, according to Nielsen data cited by Grandet.
In the past 12 weeks, LaCroix sales have declined 9.4%, according to the Nielsen data. The data also suggests LaCroix is losing customers to other sparkling-water brands, with its market share dropping to 23% from 28% in October.
LaCroix is “unlikely to rebound” as some customers have discovered that “LaCroix doesn’t have much that distinguishes it from the competition in terms of intellectual property or added value,” Grandet wrote.
The company reported in March that profits declined nearly 40%, to $24.8-million, in the most recent quarter, and that revenue fell 2.9%, to $220.9-million.
While the lawsuit appeared to kick off LaCroix’s downturn, several other factors are hindering its recovery, Grandet wrote.
“While we think it’s true that this event likely catalyzed the brand’s deceleration, we also think it’s only part of the story — and ultimately not the reason the brand hasn’t been able to subsequently recover,” Grandet wrote.
LaCroix is facing growing competition from PepsiCo, Nestle, and Coca-Cola, as well as from private-label seltzers that tend to have an edge over LaCroix on pricing, he said.
Other barriers to LaCroix’s recovery, he said, include “the lack of meaningful innovation to offset core declines and bring new news to consumers, and inexperience managing a rapidly growing brand, made worse by ongoing missteps in public messaging and crisis resolution.”
At one point, National Beverage was trading for 50 times earnings. The lofty growth expectations built into the stock at its high have now given way to a more realistic assessment.
Source: Nasdaq.com; BusinessInsider.com