The Flavor Revolution: How Cirkul is Disrupting the Beverage Industry

Welcome Shareholders, 

Every Sunday, We'll highlight one company to do an in-depth breakdown of their business, financial situation, and whether or not it's a worthy investment opportunity - large or small. In today's edition, we'll look at a flavored water-focused startup looking to break into the competitive beverage industry. 

The food and beverage industry is one of the most fiercely competitive and complex industries to break into. Every month, hundreds of startups are created with lofty ambitions, only to fail shortly after. According to a study, nine out of every ten food and beverage startups fail, with most others being subsequently acquired in an industry that is ever-consolidating. In fact, only ten brands control most of the F&B market in the US, with the likes of Pepsi, Coca-Cola, Kraft Heinz, and Nestle continuing to benefit from the growing market. The high level of consolidation in the food and beverage industry has made it difficult for startups to find a foothold. The industry giants have an immense amount of power, which they leverage to their advantage through economies of scale, deep pockets, and strong relationships with suppliers and retailers. As a result, smaller companies are often squeezed out of the market before they can even make a name for themselves. 

Despite the challenging environment, one startup is determined to stand out in the highly competitive industry by offering customers a better value proposition, a focus on sustainability, and customization for flavored waters. Cirkul has made a name for itself by going viral on TikTok and becoming a household name, but can it maintain its momentum going forward? Today we'll explore the story behind Cirkul, why most startups fail in the crowded and highly competitive food and beverage industry, and how Cirkul aims to address these challenges to deliver its customers a unique value proposition that sets it apart from its competitors.

The Cirkul Journey

Cirkul's origin story has all the hallmarks of a viral internet sensation startup that captures the attention of consumers with its vitality. The company's journey began in the depths of a Dartmouth College locker room, where two football-playing friends stumbled upon an idea that would help Cirkul break into the fiercely competitive beverage industry. Co-founder Garrett Waggoner was pouring flavor powders into a water bottle but kept making a mess and grew frustrated. But from that mess emerged a lightbulb moment: what if there was a way to add flavor to water without the mess and waste of traditional powder or liquid flavorings?

With this question in mind, Garrett and his college mate Andy Gay conceived the idea of Cirkul in 2018. Their concept was simple yet innovative: a reusable plastic bottle that could be filled with water and customized with a flavor cartridge with an intensity dial to adjust the strength of the flavor. When Garrett Waggoner and Andy Gay first came up with the idea for Cirkul, they faced a unique challenge. There was no existing market for a beverage brand that came in a cartridge. So the founders initially launched a few flavors to test the waters. 

Cirkul's success and innovation have really been driven by the feedback it has received from its customers, making it stand out from others in the industry. Consumers continuously share what kind of flavors they want (for instance, iced teas, iced coffees, sports drinks, and unsweetened drinks) and their specific use cases. The company takes this feedback into account and puts its own creative spin on it to deliver the best version of that. This has enabled the startup to go from a few flavors to over 75 recently, with popular flavors like mocha iced coffee and strawberry lemonade being paired with atypical flavors like the coconut pineapple and strawberry banana.  

From Zero to a Billion

Cirkul's meteoric rise to success in early 2021 was nothing short of impressive. The company's website saw an unexpected surge in traffic, which at first was thought to be a mistake. However, it turned out that the company's product had gone viral on TikTok, resulting in an incredible 400% increase in website traffic. In no time, Cirkul's videos racked up over a billion views, and sales conversion quickly followed. Thanks to this unprecedented surge in popularity, Cirkul's fortunes continued to soar, and the company found itself on the shelves of Walmart. After debuting in mid-April, Cirkul quickly became one of the top-performing items in the home department, selling a staggering 1.5 million units. Its success at Walmart fueled its rapid expansion, and the company's products are now available in over 4,200 Walmart stores across the US.

Cirkul's success at Walmart also helped the startup raise an impressive $70 million in a recent funding round, which was led by SC Holdings. This funding round boosted Cirkul's valuation by more than 500% to a staggering $1 billion. As consumer preferences shift towards healthier options, including sparkling and flavored water, Cirkul finds itself in a highly competitive space with some of the biggest names in the food and beverage industry vying for a piece of the $13.5 billion market. Despite its early success, the challenge for Cirkul will be to maintain its position as a long-term player in the market rather than a fleeting trend that fades into obscurity.

Cutthroat Competition 

Beverage companies are a dime a dozen, each one promising a unique taste and experience to its customers. But more often than not, they under-deliver or go out of style, leaving behind a trail of failed products and wasted resources. It's no wonder that many beverage makers struggle to stay afloat in the market. One of the biggest challenges for F&B companies is to get their products on as many shelves as possible, hoping to increase their reach and sales. But this strategy comes with three major issues - quality control, cost, and brand.

One major issue that beverage companies face is the pressure to get distribution on as many shelves as possible. While this approach may seem like a good strategy to increase sales, it can come with several downsides. One of the main issues with this strategy is quality control. As companies try to produce large volumes of products to meet demand, it can be challenging to maintain consistent quality across all products. This can lead to negative customer experiences and damage the brand's reputation.

Another issue with the "get on as many shelves as possible" strategy is cost. There is a cost associated with securing shelf space, whether it's through slotting fees or offering free products. Additionally, companies must invest in marketing efforts to stay on shelves and maintain visibility. While having a great product can help with the slotting fees or free product, "having a great product" in the eyes of distribution partners means one thing: sell-through. If customers aren't actively seeking out the product, it may not sell, which can lead to wasted investments in shelf space and marketing.

Competing for shelf space is also a challenge for beverage companies. In large stores, there can be dozens of options for one product category. This means that even if a company manages to secure shelf space, the odds of a customer choosing their product over the many alternatives can be slim. Additionally, shopping behavior and demographics can also play a significant role in what customers choose to purchase. For example, if a customer is stopping in a store to pick up a quick lunch, they are less likely to buy a large bottle of a new beverage they haven't tried before. Finally, if a company manages to overcome all of these challenges and perform well in a particular category, it may soon find itself competing with store-brand products at a lower price point. This can eat into their margins and make it difficult to sustain their success in the long run.

An example of a company that attempted to implement a business model similar to Cirkul is LifeFuels, which sold bottles and pods for customizing sports drinks at a high retail price of $179. Unfortunately, the company was hit hard by the pandemic and ultimately failed. This serves as a reminder that the $13 billion beverage industry is highly competitive and that companies like Cirkul will need to keep innovating to stay ahead of the competition. 

How Cirkul Looks to Stand Out 

In a world where every drink company is vying for a spot on the shelves, Cirkul is determined to stand out from the crowd. How does it do that? By constantly innovating its product line through crowdsourcing new flavors. With over 75 flavors currently available, the company is well on its way to achieving its goal of offering 100 unique and delicious flavor options. This level of variety is sure to appeal to those who are tired of the same old drinks, as well as those who are looking for healthier options in a market dominated by sugary sodas and artificial drinks. Cirkul's founders believe that modern consumers can be very picky with their choices, may it be their phone, car, or shopping preferences, so it's always helpful to continue to innovate and revamp its product lineup to keep its user base engaged. Beyond the variety in flavors, Cirkul also understands that 75% of Americans are dehydrated and wants to offer a fun, healthy spin on rehydrating. 

In a world where sugary sodas are the norm, Cirkul claims to be a refreshing alternative that's more water and less sugar. With a growing number of health-conscious consumers, the company's approach to creating tasty and healthier beverages has become increasingly popular. But that's not all - sustainability is also at the forefront of Cirkul's priorities. By creating a reusable bottle that can be refilled with a variety of flavors, Cirkul is reducing plastic waste and helping to decrease carbon emissions. In fact, the company claims that its bottles use 84% less plastic and produce 96% fewer carbon emissions than traditional single-use bottles. Not only does this help the environment, but it also provides consumers with a more eco-friendly way to enjoy their favorite drinks. And it's not just the bottles that are sustainable. Each cartridge provides enough flavor for multiple refills, with the company stating that each cartridge can fill up to six bottles. By using these cartridges, consumers can help to reduce waste even further while enjoying the same great taste.

The final piece of the puzzle that Cirkul looks to crack is affordability, which competitors have struggled with. The company's starting kits, which include a bottle and two cartridges, are sold for close to $20, making it an accessible entry point for consumers looking to try the product. Furthermore, Cirkul offers a range of bottle options that are priced between $15 and $30, catering to a variety of budgets and preferences. Consumers can also purchase flavor packs for around $3.75 each, allowing them to experiment with different flavors without breaking the bank. Cirkul's monthly subscription service is another way it has made its products more affordable, with options ranging from $27 for eight cartridges to $82 for 32 cartridges, which can be completely customized in terms of flavors to mix and match from the company's offerings. By providing consumers with affordable options, Cirkul has positioned itself as a compelling alternative to other beverage makers in the market.

The Path Ahead 

With its recent funding round, Cirkul has big plans for the future. One of the main objectives is to develop and launch new product lines, aiming to reach 100 flavors. While the company already offers diverse flavors in its existing product lines, such as fruit, coffee, tea, and unsweetened drinks, Cirkul is looking to constantly innovate and keep up with changing consumer preferences. The company said it would look to reach more customers through an innovation called flavor lab, whereby the company would drop a new limited flavor on the third Thursday of each month. By expanding its flavor options, the company hopes to attract even more customers and solidify its position in the market.

But it's not just about expanding the product line. Cirkul also plans to improve its manufacturing process to reach more customers. Unlike most direct-to-consumer (D2C) brands that outsource manufacturing through contract manufacturing, Cirkul's manufacturing process is vertically integrated and focused on quality control. The company says that it manufactures domestically at its plant in Tampa. This allows the company to be agile and cost-effective while maintaining high-quality standards. However, this manufacturing process can also be a double-edged sword. While it allows for more control over the product and ensures consistent quality, it also requires significant investment and resources. Cirkul will need to continue to invest in this process to keep up with the competition, which may put a strain on the company's finances.

Speaking of competition, the flavored water market is highly competitive, with established players like Pepsi and Coke dominating the space. While Cirkul's unique selling proposition of being a healthier and more sustainable alternative is compelling, proving that it's more than just a novelty option targeting niche markets will be challenging. Furthermore, the company's major growth has come from TikTok, which has helped to create hype around the brand. As the hype dies down, will Cirkul continue to see growth in the future, or will it become just another trendy brand that fades away?

To address these challenges, Cirkul must continue to innovate and differentiate itself from the competition. By staying focused on sustainability and affordability and by constantly expanding its product line and reaching more customers through its manufacturing process, Cirkul has a chance to become a rare brand to crack the market and truly compete with the larger players. Only time will tell if the company can sustain impressive growth and become a long-term player in the flavored water market.

Bottom Line 

The food and beverage industry is one of the most competitive and challenging industries to break into. Despite the constant influx of startups, most fail to survive the cutthroat competition, with only a handful of dominant players controlling most of the market. The industry's high consolidation makes it challenging for new companies to gain a foothold and compete effectively. Additionally, startups in the industry face several other pitfalls, including high operational costs, supply chain management challenges, regulatory compliance, and ever-changing consumer preferences.

However, Cirkul has managed to break through these challenges by offering a unique value proposition for consumers. By focusing on customization, sustainability, and innovation, Cirkul has set itself apart from the competition and gained popularity among the health-conscious crowd. Cirkul has also leveraged social media to its advantage and gone viral on TikTok, leading to increased brand awareness and sales conversions. Its success at Walmart and the recent $70 million funding round have given the company the resources to expand and continue to innovate.

As Cirkul continues to grow and innovate, it will be interesting to see how it navigates the competitive landscape of the food and beverage industry. Its focus on sustainability, customization, and innovation, along with the backing of investors and popularity on social media, could help the company to stand out and succeed in a crowded market.