"Our mistake was we tried to be a functional beverage firm" - Interview, Kevin Klock, CEO of Talking Rain - Part II
Talking Rain CEO Kevin Klock said functional beverages will start to decline
Talking Rain hit the big time with the success of Sparkling Ice. Growth for the sparkling flavoured water brand started in 2010, but Talking Rain had been around for more than two decades before then. In the second part of his just-drinks interview, CEO Kevin Klock talks about the lessons his company learned before its overnight success and how they informed his views on functional beverages. He also reveals which NBA superstar he invited to meet staff and the problems of competing for talent in a region dominated by global tech firms.
Kevin Klock may admit that his company has benefited from health and wellness trends. But don't tell the Talking Rain CEO that his company makes diet drinks.
"We're focussed on refreshment," says Klock. "We don't go out and say we're a healthy beverage, we leave that up to the consumers."
Part of the aversion to the functional beverages tag lies in Talking Rain's long struggle towards the overnight success that has seen it grow sales from US$10m in 2010 to $659m last year. Before Sparkling Ice hit the big time, Talking Rain invested heavily in two still brands. The gamble didn't pay off and, according to a Forbes article outlining the episode, by 2010 Talking Rain had to downsize and was even at risk of going under.
"One of the mistakes Talking Rain made is that we tried to be a functional beverage company like every one else and it didn't work out," Klock tells just-drinks. "That's why we had a lot of people leave and we were able to change the company around.
"We made a conscious decision in 2010 that the market place was really messed up. The US consumer gets its functional needs through their diet already. The US consumer knows they get what they need."
What Sparkling Ice gave the consumer, then, was not something that aided a healthy lifestyle, but simply a no-calorie alternative to existing soda brands. Klock says this approach has been forgotten in the rush towards making functional beverages.
"We think that people drink because they want to enjoy refreshment. The major companies are now coming back and talking about refreshment. We went right there because everyone had abandoned it."
According to Klock, the so-called functional beverage category - which in the US has exploded in the past five years with well-known examples such as coconut water, and less well-known ones such as black water and fats water - is on the brink of a major decline as consumer fatigue catches up with them. It has also been hit by a number of reports debunking their benefits - by lawyers targetting misleading health claims.
"There's a reason you don't see [many of these functional beverage brands] in the EU or Canada," Klock says. "They couldn't make the claims they make in the US. There's been an absolute explosion in lawsuits over functional beverages. These beverages come out and make claims and people think they are cute. But once they get to any scale, or if the big guys even think about taking them on, they'll get sued."
Klock, however, admits that there will always be a "churning" of small functional beverage brands because for cash-poor start-ups it is the only way to access the market.
But he does forecast a continuation of hybridisation trends in soft drinks as companies cross over categories to fuel innovation. An recent example is Harvest Hill Beverage Co's Juicy Juice Teasers, a blend of fruit juice and decaffeinated tea.
For Talking Rain, however, the biggest potential lies in protein drinks, another category that taps into health and wellness trends and is already a big driver of growth in snacks. Last month, Mars Inc launched two new protein bars under its Mars and Snickers brands in the UK.
"Consumer are now starting to understand it," says Klock of the protein category.
Talking Rain's massive growth over the past half-decade has brought many benefits to the company. Klock talks about staff meet-and-greets with celebrity endorsers such as basketball star Kevin Durant ("We shut the line down and got everyone to take a family picture," he says).
It has, however, caused some employment issues in a company that three years ago only had one person in its supply chain team, but now has 40. Added to the head-hunting woes is Talking Rain's Seattle location, which means it is fighting for talent against the tech companies - Amazon, Google, Microsoft and Expedia - who have HQs in the region.
"We can't beat them in terms of pay but we have a culture of collaboration," Klock says. "There is an opportunity here to see an impact in what they do. Also, our teams go off hiking and we have a lot of get-togethers and charity events. We stay very community-oriented. We show them we care and we have fun."
In an ironic twist, Microsoft's Seattle employees are apparently slightly cultish over one of Talking Rain's original launches. They can't get enough of the unsweetened sparkling water brand, Klock says, a situation that has given him pause for thought over Talking Rain's next innovation.
"Next thing we need to do is give them something to keep them working all day," he says.
Keep your eyes peeled for Sparkling Ice Energy, coming soon to an IT department near you.
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