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Clearly Canadian recently hit a turbulent time with its business, but the company is implementing changes to win back consumer loyalty and investor confidence.
Backed up by a strong management team, Clearly Canadian CEO Brent Lokash is adamant that the Vancouver-based bottler can complete a successful turnaround.
In 2006, Clearly Canadian laid the foundations for revival by strengthening its management team, implementing a fresh marketing strategy, boosting its cash position and cancelling debt. With a clean balance sheet, the company’s sparkling, flavoured waters brand was relaunched in a design not too dissimilar to how the brand originally looked nearly 20 years ago.
Excitement has been reignited by trading on the heritage of the brand and by developing a new, humanitarian partnership with the Global Water Initiative.
In March 2007, the company developed new products, including the Clearly Canadian line of enhanced waters consisting of dailyENERGY, dailyHYDRATION and dailyVITAMIN. In November, the company secured distribution for its latest range through the US Midwestern convenience retailer Casey’s General Stores.
There has also been a focus on expansion of its distribution network and improved cross-selling. A recovery is now in full swing and Clearly Canadian is poised for a return to revenue growth for 2007.
Platform for growth##
Clearly Canadian has also been busy repositioning itself as a combined food and beverage business, delivering healthy, natural and organic products. This reinvention of the business has been helped along by two key acquisitions: snack food company DMR Food Corp and organic baby food maker My Organic Baby.
The moves are already bearing fruit and have allowed the company to withstand bumpy results in its core beverage activities, which were dented by lower than expected summer sales.
Despite weak beverage sales in the third quarter of 2007, the company reported a 64% leap in revenue to $3.3m due to growth from Clearly Canadian’s healthy snack and organic baby food businesses (acquired in February and May respectively). That said, Clearly Canadian finished the quarter with a net loss of about $1.4m – more than double its loss in the same period of 2006.
Meanwhile, Clearly Canadian’s consolidated revenue in the first nine months of 2007 was up 22% at $7.8m, with the turnover of DMR Food Corp increasing 48% on a standalone basis and My Organic Baby growing almost 340%. But revenue from the company’s beverage division, which produces its signature line of sparkling, flavoured waters and recently added still enhanced waters, fell 38% over the same period. The company’s stated goal is to place its My Organic Baby product in over 1,600 retail stores by the end of 2008.
Brent Lokash said: “We're very pleased that the company now has positive revenue growth for the first time in many years. While this growth is derived from our acquisitions, both of these divisions are demonstrating strong internal growth rates. We're addressing the decline in our beverage sales through the introduction of new products, such as our new, natural enhanced waters and our new 1-litre format of our core sparkling, flavoured waters.”
There's positive distribution news, with the company recently securing distribution for its natural enhanced waters with 7-Eleven and Couche-Tard convenience store chains in Canada. But it will be the US market that will make or break any prospect of a complete business recovery. In the 1990s, a very successful era for the company, about 90% of Clearly Canadian was traded in the US.
Clearly Canadian continues to enhance its US distribution network by adding distributors. The company recently entered into partnerships with Haralambos Beverage Company and Big Geyser to distribute its eponymous sparkling, flavoured water. The company has announced distribution agreements with Cencal Beverage, Valley Wide Beverage, Eastern Sierra Wholesale, Benitas Distribution, Maita Distribution and GBL Distributing to build its California distribution network.
Recruiting expertise##
Significantly, Clearly Canadian has hired INOV8 Beverage Company led by Mike Weinstein, former CEO of Snapple, and Brian O’Byrne, former CEO of Yoo-Hoo/Orangina. Under Weinstein’s leadership, Snapple grew from a declining brand valued at $300m to a $1.4bn business within three years – a turnaround that Clearly Canadian is obviously hoping to emulate. Both men now face the challenge of achieving rapid, yet sustainable growth for the company’s flagship brand of sparkling, flavoured water.
A more recent arrival is Bobby Genovese, whose BG Capital Group became Clearly Canadian’s controlling shareholder in 2005. Since 8 November 2007, Genovese has taken a more active role in the business as Chairman of the Clearly Canadian Board.
The company also recently recruited David Reingold, the former majority owner of DMR Food Corporation as its new President.
Marketing blitz##
Clearly Canadian already enjoys extremely high brand recognition in the US for its flagship Clearly Canadian brand. The company diversification into new, healthy snack and baby food product lines, along with the development of new drinks products, can be used to leverage the Clearly Canadian brand name and distribution network further.
Not prepared to rest on its laurels, Clearly Canadian has pursued an aggressive marketing strategy to enhance its brand value. Exclusive endorsements include a three-year deal with basketball superstar Steve Nash to serve as the company’s ambassador, and a one-year agreement with Justin Morneau, a baseball star selected as the American League’s most valuable player in 2006. These appointments will become a focal point of upcoming sales and marketing initiatives .
The company has also reminded consumers about the heritage of the Clearly Canadian brand at the same time as the modern thinking it has embraced, by creating an interactive and fun online forum. In celebration of a loyal fan base who love to reminisce about the good old days, the company encouraged consumers to visit the website to share stories and photos for a chance to win some great prizes.
Future outlook##
The Clearly Canadian brand has exceptionally strong brand recognition throughout North America and beyond. Leveraging the brand name into new businesses, manufacturing ‘better for you’ products should lead to increased distribution and sales across the company’s product portfolio.
In the meantime, Lokash has confirmed that he will continue to steer the business towards the development of innovative products and strategic acquisitions to drive growth and profitability in the future.
With financing from institutional investors and a convertible debenture from the acquisitions of DMR Food Corporation and My Organic Baby, the company has over $10m in working capital to support the execution of its business plan. While the company is not certain when it will move into profitability, the results of new accounts being handled, a new sales force being hired and more money spent on marketing should boost growth in the first quarter of 2008.
Despite management optimism, there are a number of risks associated with the business and Clearly Canadian is still incurring losses. Indeed, at the end of 2006, the company had accumulated debts of more than $77m.
Lokash told bottledwaterworld: “The company has travelled so far in a short period of time. It hasn’t been in a better position in the past five years. All money is being directed towards sales and marketing activities. There's a clear commitment to growth over the next few years.”
“The company is in the early stages of a turnaround and we can't be certain when it will become profitable,” says Lisa Springer, a market analyst with Beacon Equity Research. “The alternative beverage market is competitive and highly fragmented. Although Clearly Canadian has a strong brand name, similar product offerings by competitors could adversely impact the company’s sales volume. Moreover, some rivals have far greater financial, distribution and marketing muscle.”
That said, Springer remains positive about the value of the company in the long term, concluding: “Clearly Canadian is set to increase revenues substantially faster than peers over the next five years. We expect the company will produce long-term revenue growth exceeding 25% annually.”
Interview with Brent Lokash, CEO##
To what extent is the Clearly Canadian success story about a renaissance?
The Clearly Canadian success story is absolutely about a renaissance. We have established a remarkably powerful relationship with consumers across the globe. These consumers are well aware and very fond of both our brand and our products. We have already built the trust and loyalty of a strong base of consumers who have great interest in any new innovations that come from Clearly Canadian.
The evolution of change in packaging for Clearly Canadian is fascinating to behold. Why was a return to the brand’s roots chosen?
Packaging decisions made by our company in the past – largely just responding to the cultural trends at the time – changed our product to the point where our loyal following of consumers didn't even recognise us any more. Returning to a clear glass bottle, along with our traditional logo and simple fruit depictions, was the best possible way to reconnect with our consumers who had been longing for our product.
Who has helped play a role in the company’s return to winning ways?
There have been many partners that have played a role in the relaunch and rebirth of the brand, from our largest distributors Big Geyser, Haralambos and Burke to many other distributors; our bottlers; flavour houses; and the INOV8 Beverage Company. Everything has really been a team effort.
What lessons can be learned from failings in the past?
I think what went wrong with Clearly Canadian was that the company didn’t adapt to adjusting costs and distribution. The company tried to control distribution rather than recognise that the industry is controlled largely by a small group of companies that have built up distribution over a number of years, presenting them with a phenomenal advantage in the marketplace. The company became a victim of its own success and chose to go it alone rather than take partners on board.
Can you reveal more details about the humanitarian partnership with the Global Water Initiative?
We felt that this was a particularly suitable partnership for Clearly Canadian due to the nature of our core beverage business. Because we are in the business of providing water based refreshments within Canada and abroad, we felt it would be appropriate to assist those in developing nations - many of whom do not even have access to this most basic need.
We recognised that way too many people in this world suffer and perish due to the fact that they simply do not have access to safe water supplies, which is something we take for granted on a daily basis. This is the key reason for Clearly Canadian getting involved.
We've made a commitment to complete 20 projects by 2010 and are well on our way to achieving this goal. In May 2007, members of Clearly Canadian were able to witness this first-hand.
Can you discuss the success of Clearly Canadian dailyENERGY, dailyHYDRATION and dailyVITAMIN waters?
Our new, enhanced waters have been received well in the market. We've secured about 20 or so new distributors across North America, a few chains and are continuing to increase distribution from month to month. We have received phenomenal interest from the beverage community about our new line and think we offer a fairly unique proposition with a well recognised and trusted name.
Will the company’s water ranges address increasing functional benefits in the future?
We're consistently examining future opportunities and new innovations that would be a suitable addition to the Clearly Canadian family of beverages. We're also looking into various new occasion-based offerings that we think will continue to drive distribution in different channels.
About Brent Lokash##
Clearly Canadian CEO Brent Lokash is responsible for all facets of Clearly Canadian’s corporate operations. He has considerable experience in corporate financing, mergers and acquisitions and was earlier associated with BG Capital.
He began his career in commercial law and subsequently focused on providing business consulting services to public and private companies seeking acquisitions and financings. He is a member in good standing of the Law Society of British Columbia.
Company background##
Clearly Canadian was founded in 1988. The company has produced innovative beverages that have captured the imagination of consumers. Clearly Canadian has helped pioneer a segment of premium alternative drinks now called the New Age Beverage category and has proven itself as a consistent beverage innovator from the launch of its first product line, Clearly Canadian Original sparkling flavoured water. It has sold over two billion bottles of its core product since inception.
Clearly Canadian has also been one of the first to market in beverage sub-categories including energy drinks (Battery), vitamin enhanced water (Reebok Fitness Water) and oxygenated water (Clearly Canadian O+2). The company recently introduced Clearly Canadian dailyENERGY, dailyVITAMIN and dailyHydrationYDRATION natural enhanced waters.