Coca-Cola announced today that is has completed its acquisition of a growing Mexican sparkling water brand Topo Chico for $220 million.
The brand is about as old as Coke, although you may not have heard of it yet as it hasn't traveled much outside of Texas, where it is known as a refreshing drink and a hangover cure. But as with most small brands taken under the mighty wing of Coca-Cola — such as Honest Tea and Zico coconut water — Topo Chico is on the path to become a household name.
"What our group does uniquely is incubate correctly," said Matt Hughes, vice president of incubation at Coca-Cola's Venturing and Emerging Brands unit.
That involves opening Coke's extensive distribution network, which can put the company's brands on store shelves around the country. Topo Chico is now available in 35 states and several national chains, including Whole Foods outlets in the Southwest and some Walmart stores. But its presence is strongest in Texas.
The zero-calorie beverage fits into Coca-Cola's small but growing group of sparkling waters, which now includes Dasani Sparkling and Smartwater Sparkling, as sales of sugar-sweetened beverages slide and cities impose soda taxes. Topo Chico will be sold in 12-ounce glass bottles (a la the much beloved Mexican Coke) — which the company sees as a differentiator — as well as 20-ounce and 1-liter plastic bottles.
Sparkling water has been a bright spot for bubbly beverages. Sales are up 13% so far this year, and Topo Chico sales are up 28%, according to Nielsen data. Meanwhile, per capita consumption of soda last year fell to the lowest level since 1985.
"Nestlé’s Perrier and San Pellegrino and Interex Corp’s Topo Chico all registered double-digit value sales growth in 2016," according to a report by Euromonitor International, the market researcher. "Many consumers in this category are former carbonates drinkers who still enjoy carbonated beverages but are looking for options which are low in sugar and calories."
Earlier this year, Coca-Cola CEO James Quincey said the company would focus on more low- and no-sugar options. The company needs to "encourage and enable our consumers to control added sugar consumption. We are making a very conscious effort to not just expand our portfolio, but to shape our portfolio in a very deliberate way," he said at a conference.
Duane Stanford, executive editor of Beverage Digest, told BuzzFeed News that soft drink executives always say how much people love bubbles — whether sweetened with sugar or not — and "the growth of sparkling water shows that the sentiment isn’t mere rhetoric. Sparkling water has become a go-to alternative for consumers who want less sugar with their fizz."
"Topo chico" means "little mole" (as in the animal) and is the name of a mole-shaped mountain by the aquifer that this particular mineral water comes from, Huges said.
Topo Chico has long been in the presence of Coke. The brand was founded in 1895 and its manufacturing facility later became Coca-Cola's first bottling partner in Latin America (it made Coca-Cola beverages for that market) in the 1920s. The bottling company, now called Arca Continental after a series of mergers, had remained the parent company of Topo Chico until this deal, and is one of Coke's largest in the world.