How a Sparkling Water Upstart Is Dominating the Market

Neither Coca-Cola nor PepsiCo nor Nestlé nor any other beverage behemoth recognized the potential in flavored, zero-calorie carbonated waters—so Klock clocked them.

“No one is a solid threat” yet to the first-mover dominance of Sparkling Ice.”

Competitors are reacting now, introducing their own versions into the category. But Klock told CEO Briefing that “no one is a solid threat” yet to the first-mover dominance of Sparkling Ice.

Sparkling Ice wasn’t an overnight success story, exactly; but founded about 25 years ago in Seattle by a couple of natural-food suppliers to restaurants. Talking Rain didn’t start growing much until they promoted Klock from within four years ago. And since then, he has helped Sparkling Ice take advantage of a number of trends in the U.S. beverage business to create a brand that is on the way to about $500 million in sales this year compared with only about $25 million in 2010.

The company seems to be taking most of its business directly away from traditional carbonated soft drinks, whose consumption is sliding both in full-sugar and diet forms.

“The consumer, for a long time, drank carbonated soft drinks for two purposes: one was as a pick-me-up, the other was for refreshment,” Klock said. “Energy drinks are capturing those who are looking for alternatives for a pick-me-up, and coffee too. And we’re capturing those looking for refreshment.”

Tom Pirko, one of the leading consultants in the global beverage business, told CEO Briefing that he expects a great run from Sparkling Ice. “They’ve found a niche and done a very good job of filling it,” said the president of Bevmark Consulting, based in Santa Ynez, Calif. “They’re also benefiting from a confluence of different trends—consumer reactions against carbonated soft drinks and sugar, and their self-identification with the esthetics of well-made products. Consumers think Sparkling Ice gives them a combination of all beverage types: the flavor and carbonation of a soft drink and no calories.”

“Sparkling Ice has found a niche and done a very good job of filling it.”

Klock said that Talking Rain is “really bullish” on further growth for Sparkling Ice for a number of reasons. “So much more category opportunity is available to us,” for instance, he said, including convenience stores and food service.

He’s got other believers, including Wells Fargo Securities analyst Bonnie Herzog, who said recently that it “could be achievable” for Sparkling Ice to become a $1-billion brand by 2018 because of increased domestic distribution and brand extensions such as Sparkling Ice Tea.

While competitors haven’t yet gained much hold on American consumers, they are trying other tactics to slow down Klock. Nestlé Waters, for example, is arguing to regulators that the brand’s advertising is misleading because it is using “water” language to describe Sparkling Ice but the product doesn’t meet federal identity standards for “spring water” or “sparkling water.”

Klock is undeterred. “We have gone up against competitive threats already,” he said, “and we’re winning.”

" Dale Buss : Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.."