Waterdrop challenges Coke and Pepsi in the water market

Micro-beverages startup Waterdrop is looking to capture the water drinking market and beefing up its financial reserves to go after key markets and consolidate the fragmented sector.

Waterdrop [WDH] hopes to capture the market vacated by Nestlé’s [NESN] Vittel bottled water and challenge other large brands like Coca-Cola’s [KO] Kinley and Pepsi’s [PEP] Aquafina, founder and CEO Martin Murray told Opto.

The company is trying to capture the water and flavoured water market as consumer awareness on sugared drinks increases and transporting tonnes of ready liquids becomes unviable because of its carbon footprint.

“We’re definitely cannibalising energy drinks. We’re cannibalising flavoured water and we’re certainly cannibalising bottled water,” Murray said.

“We’re definitely cannibalising energy drinks. We’re cannibalising flavoured water and we’re certainly cannibalising bottled water” – Waterdrop CEO Martin Murray

 

It has found a blue-chip backer in its endeavour: Temasek, Singapore’s leading private equity investor, which is known for its early bids in emerging sectors. Temasek led Waterdrop’s Series-B funding round of €60m. The investment could be a precursor to others, Murray said, but the time window these investors have is a long one.

“They have a very long investment horizon. So, they will support anything we want to do, like both raising new capital or going public.”

Consumption trends are changing

According to Murray, people have been consuming beverages differently since the pandemic. There is an increased focus on water and low-calorie drinks, but the younger generation prefers flavoured to plain water. This has spawned the growth of the flavoured water market, but it is still fragmented and inefficient. The bottled water market in the US is worth around $150bn, said Murray.

“The market is huge, from the sheer shifting from sugar water to water and from bottled water to tap water... and there’s no real brand that owns hydration globally.”

Waterdrop manufactures micro-drinks, or flavouring cubes that a consumer can drop into the bottle at the time of drinking. Along with encouraging customers to drink more water, one of the company’s main goals is to “change the way beverages are consumed, which is a massive decrease of packaging and CO2,” Murray said. There are two key environmental benefits: “the carbon footprint reduction and the plastic bottle reduction”.

In terms of transportation, the cube is far simpler than an entire package bottle. An anticipated carbon tax, imposed on the emissions created during production and delivery of the bottled drink to the consumer, will make many bottled drinks unviable, Murray argued.

“Nestle still have brands like San Pellegrino. Those premium brands, glass bottles will remain in restaurants and hotels, but the blockbuster brands will slowly decline because it’s free tap water they’re selling in a plastic box,” said Murray, citing the example of Nestlé’s discontinued Vittel water brand.

Crucial year ahead

Waterdrop is also asset light in its marketing. At the moment the company sells and ships directly to customers over online orders, although some stores have begun stocking its products. “I think the next year is going to be critical, because if we establish ourselves in the US, that’s going to be a big milestone. Once we do like, let's say, $50–70m a year in the US, that's the point where we start to get established,” Murray said.

“If we establish ourselves in the US, that’s going to be a big milestone. Once we do like, let's say, $50–70m a year in the US, that's the point where we start to get established” – Waterdrop CEO Martin Murray

 

However, the end goal is to penetrate emerging markets, where bottled water is often used because of a lack of potable tap water. Waterdrop has filtering solutions that compete with brands like Brita and PWT. Murray expects that these will proliferate in developing regions or areas where tap water is not drinkable.