When Nestlé announced last month it was officially selling much of its water business, the deal was trumpeted as a way for the CPG giant to focus on its international premium brands including Perrier and San Pellegrino, as well as local natural mineral waters, healthy hydration products and functional water.
Unlike the offerings the company sold, which face growing competition from private label products, premium beverages are increasingly sought after by consumers who want their beverages to do more than just hydrate. Nestlé wasted little time adding to its portfolio in the enhanced water segment.
“With the addition of Essentia we continue to transform and best position our water business for long-term profitable growth here in the U.S. and globally,” Steve Presley, chairman and CEO of Nestlé USA, said in a statement. “Essentia gives us an immediate strong presence in the high-growth, functional water segment and supports our efforts to capture opportunities with emerging consumer trends such as healthy hydration.”
Essentia reportedly tapped Credit Suisse to handle a sale of itself in 2018. At the time, the company had an estimated $100 million in revenue and projections were it could attract bids in the range of $500 million or more. In the time since then, Essentia’s sales have nearly doubled. Based on the earlier price tag, it’s possible Nestlé is paying close to $1 billion for the brand.
In 2018, Technavio analysts projected the global functional water market will show a compound annual growth rate of nearly 9% through 2022. With beverage companies looking to boost sales, it’s no wonder many are bulking up their presence in this space.
Keurig Dr Pepper purchased premium water brand Core Nutrition for $525 million in 2018, adding Core Hydration, a nutrient-enhanced bottled water, and Core Organic, a USDA-certified fruit-enhanced hydration beverage. Coca-Cola has Smartwater, and PepsiCo owns Lifewtr in the trendy functional premium water category. With Essentia in the mix, Nestlé will find itself going up against these beverage giants, which are working aggressively to move beyond sugar-laden sodas with more teas, sports drinks and waters.
Founded in 1998, Essentia made functional claims early on through its proprietary ionization system. The process takes water, filters it and comes out with ionized alkaline water with a pH of 9.5 or higher. The company markets the higher alkaline content as better for rehydration, although the Center for Science in the Public Interest has said evidence for that and other health-related product claims is skimpy, and alkaline water is not worth the price.
Regardless of the claims, consumers are turning to waters like this in bigger numbers. Now with Nestlé owning the brand, Washington-based Essentia will immediately be able to tap into the food and beverage giant’s distribution network, relationship with retailers, innovation prowess and global scale.
Since 2017, Switzerland-based Nestlé has closed or announced more than 75 transactions, representing about 18% of its portfolio, as it jettisons slower growing, less profitable brands and bulks up on businesses that are more in tune with changing consumer tastes. In the last year, it has added companies such as Freshly, a provider of fresh-prepared meal delivery services in the U.S., and Vital Proteins, a maker of collagen bars, beverages, capsules and powders.
Nestlé posted 3.6% sales growth during 2020 — its highest rate in five years. It is forecasting organic sales growth to accelerate to mid-single-digits in the coming years. For Nestlé to attain that goal, it will need to depend in part on innovation and acquisitions like Essentia and other purchases yet to come.