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Startups can lead kids to water but it’s harder to make them drink

Honest Kids organic juice drinks in an arranged photograph taken in Tiskilwa, Illinois, on Oct. 29, 2018. (Daniel Acker / Bloomberg)
Honest Kids organic juice drinks in an arranged photograph taken in Tiskilwa, Illinois, on Oct. 29, 2018. (Daniel Acker / Bloomberg)
By Matthew Boyle Bloomberg

The quest to improve on water persists.

Beverage makers are scrambling to unlock riches in the $1.5 billion U.S. market for children’s juice boxes.

Most kids don’t drink enough water, according to a 2015 study in the American Journal of Public Health. But they’re so accustomed to sugary drinks that they find clear, unsweetened liquids unpalatable. Enter a steady stream of startups and longtime industry players who’ve left a trail of failure in their wake.

“It’s the Bermuda Triangle of beverages,” says Gerry Khermouch, founder of Beverage Business Insights, an industry publication. “They’ve tried every permutation of recipe – unsweetened, juice-sweetened, naturally sweetened – and almost all inevitably fail.”

New companies such as Rethink Brands, Hint Inc. and Hello Beverages Inc. are trying to reverse the trend with sugar-free, zero-calorie beverages that are essentially flavored water in a box. Mainstream brands like Capri Sun and Mott’s have recently introduced better-for-you options, while Coca-Cola Co.’s Honest Kids drinks are available in McDonald’s Happy Meals.

The beverage makers are keen to distance themselves from longstanding accusations that sweetened juice boxes are no better for kids than soda pop, which contributes to obesity. Their dream is to replicate the surprise success of National Beverage Corp.’s LaCroix, the sparkling water embraced by millennials.

It’s a tightrope. To sell to mom and dad, more than three-quarters of new kids’ juices touted their lower sugar content in 2018, according to consumer researcher Mintel, up from just one-third in 2004. But kids love sweet drinks. And they can be fickle. Even Kraft Heinz Co.’s Capri Sun, the longtime segment leader, has gone through three straight years of market-share decline, according to data tracker Euromonitor, even with the introduction of “Fruit Refreshers” and “Fruit & Veggie Blends” with no added sugar. The broader industry’s U.S. sales volumes have fallen to half of what they were in 2007.

A cautionary tale is Wat-aah, which debuted in 2008 with what its makers called “natural fruit essences.” The company tried to “make water cool” by aligning with pop stars like the Jonas Brothers and Ariana Grande. Wat-aah generated a lot of chatter on social media, but when the buzz died down, so did sales.

A rare success is Honest Kids, an organic offshoot of Honest Tea that hit the market in 2007 with less than half the sugar of most juice boxes at the time. Sales of Honest Kids, acquired by Coca-Cola in 2011, now eclipse those for Honest Tea. The brand has grown by pushing into fast-food chains like Wendy’s, Subway and McDonald’s.

“It’s very easy to say kids should drink more water,” said Honest co-founder Seth Goldman. “But kids need some flavor.”

Into that cauldron leaps Hint, which promises to “end the age of sugar water” with a product free of all the bad stuff. It’s available at Costco Wholesale Corp. and other retailers, but about 40 percent of its sales come from online orders.

“Everyone told me I would be roadkill doing an unsweetened flavored water,” said Kara Goldin, Hint’s founder and chief executive officer. “But it’s a significant business.” Sales grew 70 percent in the past year to more than $100 million, she said.

For its part, Rethink wants to follow Honest’s path. Founder Matt Swanson, who worked at Procter & Gamble Co. and Google, linked up with Todd Fletcher, an industry veteran who spent time at Red Bull and Vitaminwater, and the pair tailored their zero-calorie beverage, originally targeted to adults, for the kids’ market.

For flavor, they use “organic essences” derived from oils and aromas released from organic fruit during the concentrating process.

“We looked at kids’ beverages and there was very little innovation,” Swanson said. “When I was five years old, I drank Capri Sun. And five-year-olds today are still drinking it.”

Rethink cites its presence in more than 10,000 U.S. retail outlets, including Target Corp., Kroger Co. and Walmart Inc., as proof of its success. Yet Wat-aah, that cautionary tale, was also once found in 10,000 stores.

Still, new entries keep coming. Mike Weinstein, the former CEO of Snapple Beverage Group who now runs his own consulting firm, said he fields calls all the time from entrepreneurial moms who want to get into the business.

His advice: “I tell them to save their money.”

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