Food & Beverage

Coca-Cola unveils new sparkling water brand with a jolt of caffeine

Key Points
  • Coca-Cola will launch a sparkling water brand called AHA in early 2020.
  • American consumption of soda is falling as consumers turn to healthier alternatives, like sparkling water or seltzer.
  • PepsiCo expects that its flavored sparkling water brand Bubly will become one of its next billion-dollar brands.
Coca-Cola's Shane Grant on the company's new caffeinated seltzer water

Coca-Cola on Thursday unveiled a new sparkling water line, its first new brand in more than a decade.

The beverage giant will launch AHA on March 2 in the United States, with the potential to expand globally.

The announcement comes as American consumption of soda continues to fall, forcing Coke and its rival PepsiCo to invest more in marketing of their legacy soda brands and think of healthier alternatives.

Flavored sparkling water or seltzer has become a popular alternative for consumers. In 2018, bottled sparkling water volume grew by 26% to 531 million gallons, according to data from Beverage Marketing. While the drink is just a small fraction of the overall bottled water market, sparkling water is growing at a much faster clip than still water, which saw its volume increase only 4.2% last year.

LaCroix, which is owned by National Beverage, was once the leader in the category. But it is now losing market share as upstarts like Spindrift and more established companies enter the arena. Pepsi, for example, expects that its Bubly brand, launched in 2018, will become one of its next billion-dollar brands.

Coke is trying to position the new brand as different from the competition. Two of AHA's eight flavors, Citrus + Green Tea and Black Cherry + Coffee, will contain added caffeine. But not too different: AHA will be sold in cans, not bottles.

AHA is not Coke's first entrance into sparkling water.

"For us, we're not new to it, we've been watching for a differentiated space," Shane Grant, Coke's head of its North American still beverages unit, said on CNBC's "Squawk on the Street."

The Atlanta-based company launched Dasani's line of sparkling water in 2014, which will be replaced by AHA in retail stores. In 2015, Coke also launched a sparkling version of Smartwater. Coke will also introduce flavors to its nonsparkling Smartwater drinks in 2020. In 2017, it acquired Topo Chico, a sparkling mineral water brand with a cult following in Mexico and Texas.

In 2018, retail sales of Coke's North American sparkling water drinks jumped 27%, according to Nielsen. But the company's net revenue declined 10% to $31.9 billion that year.

In the future, Coke plans to keep growing its sales through innovation.

"We never rule [acquisitions] out, but we're fairly focused with this on extending our new brand and creating a new brand, as well as extending in other categories of our core equities," Grant said.

Coca-Cola shares, which have a market value of $226.2 billion, have gained more than 11% since the start of the year, while Pepsi's stock, valued at nearly $188 billion, rose nearly 22% over the same period. Shares of LaCroix's parent, which has a market value of $2.1 billion, are down 37% year to date. Its stock fell more than 5% during morning trading Thursday on Coke's announcement.

Coca-Cola seeks a piece of sparkling water action