Pouring Profits for Talking Rain

The Challenge
You’re the vice president of operations at the sparkling water company you joined four years ago, where management has struggled mightily to build share in the fast-growing bottled water market. Despite burning through more than $35 million of investors’ funds, sales are stagnant.

Outgunned by the likes of Coke’s vitaminwater and Pepsi’s SoBe brand, your company’s regional brands fail to catch on. Then comes the kicker: in 2010, over a six-week period, the CEO, president and head of sales all abandon ship. Rather than join the exodus, however, you decide to take the helm and start steering.

The Context
Back in 1987, the founders of Preston, Washington-based Talking Rain Beverage Company hoped to follow the regional-to-national growth track forged by startups like Starbucks, Snapple and Nantucket Nectars. When sales failed to soar, they sold out to investors, who began aggressively pitching its regional brands—Twist, a lightly flavored water, and Active Water, a vitamin-enriched water—nationally. Deals with Costco and BJ’s brought brief sales surges, and the Sparkling ICE flavored sparkling water brand launched by the company in 1992 gained some popularity.

Still, by 2010, the company’s situation was dire. Where others saw the need to bail, Klock spotted opportunity. “I had always wanted to be a CEO some day,” he recounts. “I thought that would mean going back to school to get an MBA, but then [the top three executives] all left at once. So I went to the owners and they gave me the title of senior vice president and put me in charge.”

Deciding to pour all their resources into the Sparkling ICE brand, Klock, his investors and his team went into a lengthy huddle. “We spent about 11 months working on a vision, which was to be recognized as a solid, leading beverage company with brands that people trust and enjoy,” he says. “That was important because funding is so difficult today that a lot of entrepreneurs make noise in the press and talk up strategies. We were able to really bore down and focus on business.”

The Resolution
Klock and his team focused first on retooling both the product itself and how it was marketed and sold. Talking Rain fine-tuned the flavor profile and appearance of each of eight products in the Sparkling ICE line and redesigned its packaging, adopting a black label that really “popped out on the shelves,” explains Klock. When reintroduced to the market, the revamped Sparkling ICE’s sales surged, jumping from $2.7 million in 2009 to more than $100 million in 2012. It didn’t hurt, of course, that the re-launch came at a time when cola-weary Americans were actively seeking soda substitutes.

According to a recent Wall Street Journal article, soft drink sales have been in decline for 10 years straight. “When you look at where our sales are coming from, it’s mostly from diet and regular soda,” notes Klock, who says Talking Rain purposely kept a low profile during Sparkling ICE’s initial sales run-up for that very reason. “We didn’t go out and trumpet it. This was not a category that Coke and Pepsi were in at the time and we wanted to steal as much share as we could before we got figured out.”

The Hurdle
Rapid growth often brings growing pains, and such was the case for Talking Rain. When sales spiked, the company had to scramble to meet demand. In 2012, the company expanded its manufacturing to six plants across the U.S. and one in Canada. Then, to sustain growth by expanding into convenience stores and food service outlets, it needed to bring its distribution capabilities to the next level in order to hold its own against its vertically integrated competitors.

“Last year we put in one of the independent national direct-store delivery (DSD) networks,” says Klock, who will now distribute products directly to retailers through relationships with Anheuser-Busch, Miller-Coors, Snapple and independent distributors.

The Endgame
Today, beverage industry experts estimate Talking Rain’s sales revenues at over $400 million. While the company holds just a 6 percent share of the overall market, Klock notes that it is the largest single-serve (purchases of less than 20-ounces) brand in the water category in the food, drug and mass-market retail channels. Now poised to extend Talking Rain’s retail reach, Klock is optimistic about the future. “If we can get our brand as well-established in convenience stores as we are in food, drug and mass-market retail, we should double sales right there,” he says. “We’ve also started global expansion, launching in Australia and exploring outside-the-country partnerships. So we have plenty of things in the pipeline.”

The Lesson
His tenure at Talking Rain has given Klock a new appreciation for the role pricing plays in a brand’s premium status. As a result, he urges CEOs to resist the temptation to resort to promotions for a sales bump. “You’ll never see Sparkling ICE for under $1 because we find that once you go below a dollar, your brand loses value for consumers,” he says. “You can destroy a brand by pricing too low.”