HOw a new "micro-drink" is disrupting the USD 600bn beverage industry
While working at the Boston Consulting Group, Martin Murray harboured a desire to venture into the beverage industry. He had always found it remarkable that this USD600bn behemoth had barely changed in over half a century. ‘You have this massive industry, which for 70 years has consisted of putting stuff in plastic bottles and driving it with a truck onto a shelf and expecting people to carry it back home,’ he explains. ‘It just fascinated me that such a massive industry was so archaic.’
However, it wasn’t until he began studying for an MBA at Insead in Singapore back in 2015 that he started researching the sector in earnest. Although it appeared ripe for disruption, there was no easy way in. ‘The three biggest beverage companies own 50 per cent of the market,’ he says. ‘If you’re not massive, you will die.’ Everyone, including his professors at Insead, told him he was naïve for thinking he could disrupt these giants. ‘But I felt not just in my heart, but also rationally in my head, that it made sense,’ he says. ‘So I said I’m going to jump, I’m going to build this and I don’t care how long it takes.’
Today, it’s clear that Martin’s decision to make that leap was a shrewd one. His Vienna-based company, Waterdrop, is thriving, and it’s taken far less time to build than even Martin might have guessed.
The premise behind Waterdrop is simple. Through a uniquely developed manufacturing process, Martin and his team have found a way to compress the best natural ingredients into a small cube. This cube, packed with real fruit and plant extracts, can then be dropped into a glass or bottle of water to make a healthy, sugar-free beverage or ‘micro-drink’. In Martin’s words, the crucial point is that Waterdrop uses tap or filtered water ‘as a platform’, so that the product is not the drink itself but the cube.
This model has a number of benefits. It allows Waterdrop to sell online, direct to its consumers. Very few of the big beverage companies have e-commerce channels, because drinks are too heavy to ship and the basket sizes are rarely big enough to make it worthwhile. ‘Waterdrop has a completely new supply chain in the beverage industry,’ says Martin. ‘We sell online and people make their own drinks from de-centralised water.’ In this way, he has gone against the core model of the beverage giants, for whom the business is ‘a supply-chain game, not a product game’.
“We have a completely new supply chain in the beverage industry. We sell online and people make their own drinks from de-centralised water.”
But most importantly, Water-drop’s model means it is far more sustainable than the average brand. This sustainability has two core components: reduced plastic and lowered emissions. On the plastic front, Martin claims that his product creates between 97 and 98 per cent less packaging than a plastic bottle and that all the plastic he uses is recyclable. ‘If you take a pack of 12 Waterdrops,’ he says, ‘that has less packaging than even the cap of a normal bottle.’ With so much focus today on reducing waste, particularly single-use plastics, this is a crucial piece of messaging. Indeed, the only reason Waterdrop uses plastic at all is because it is the only available material capable of ensuring the cubes sealed within remain fresh; otherwise it would have to use preservation chemicals, something Martin is unwilling to countenance.
The other main way that Waterdrop helps protect the environment is through reducing emissions. ‘If you look at the end-to-end cycle of a plastic bottle, it has to be produced, it has to be filled, put on a truck, carried to a shop, carried home, consumed, and then thrown away,’ he says. ‘That end-to-end cycle creates a massive amount of CO2.’
Transport alone is a huge problem. ‘Somewhere between 10 and 20 per cent of daily truck loads are beverages being transported across the continent,’ says Martin. Waterdrop reduces these emissions. ‘One of our parcels has a fraction of the weight, we sell online and the packages go through your postal box. There’s no need to carry home heavy stuff.’
However, while these sustainability credentials are impressive, they also create challenges, because consumers often struggle to absorb concepts that are more intangible and abstract. Understanding consumer behaviour has been one of the most important lessons Martin has learnt through building the company. ‘Consumers are very often misinformed,’ he notes. ‘So you can either be naïve and try to change everybody or you have to just go with what people perceive to be better.’
Rather than trying to lecture his customers, Martin took a different tack. One of his tutors at Insead, Joerg Niessing, had a saying: ‘There is no reality in the market; there is only perception of reality. And that means, even if I know it’s the best solution, consumers have to think it’s the best solution,’ Martin explains.
As a solution to this, he decided to bring his customers onboard early in the product-development process. ‘People don’t want to be talked to, top-down,’ he says. ‘And that’s why it’s very important to be close to consumers and to develop something together and get buy-in from them.’ For Waterdrop, this meant getting lots of feedback and changing things in an agile way based on that feedback.
Pop-up shops were a big part of this. Even though Waterdrop is predominantly sold online – in fact, 80 per cent of sales are currently through e-commerce – physical pop-up stores have provided a vital channel, less for shifting product and more for gauging consumer intentions. Martin has also built Waterdrop with what he calls an ‘extreme focus on digital marketing’, thereby upending the way traditional players have marketed themselves on ‘every channel there is’, which he saw as ‘the ultimate cash-burning exercise’.
“There is massive demand for change. People want more health, they want more customisation, and they’re sick of plastic bottles.”
With its innovative model, its core brand promise, and its smart approach to marketing, Waterdrop is now profitable and is on course to produce over 100 million Water-drops next year. But Martin has some big plans for the brand over the next five years, which will transform it into a more diversified and global company.
The brand messaging will stay rooted in water, though. ‘Anything that helps people drink more water, we will own as a brand,’ says the founder. Yet the product line is set to expand, with a tea product and a slow-release-caffeine product currently in development.
Martin also sees Waterdrop becoming increasingly global, with a long-term plan to add offices in Singapore and LA to the headquarters in Vienna. This expansion is possible thanks to Waterdrop’s online-focused, direct-to-consumer model, which means it can easily sell globally. ‘The only reason we’re not selling in the US,’ he says, ‘is that we don’t have enough people to take care of the US market.’
As such, Martin’s plans for the next five years involve bringing onboard investors who can help Waterdrop enter new markets. ‘We will need more international investors in the next one and a half to two years, to help scale across the US, Asia, South America, Africa,’ he says. ‘We can go anywhere, but we need a lot of local expertise, local branding, local product development, local teams.’ With all of this in place, Martin believes Waterdrop could be bringing in between EUR100m and EUR250m in revenue in five years’ time.
The founder has clearly put a lot of thought into each aspect of the business, from its product development to its marketing. But for Martin, the key to success is about being attuned to broader macro trends. For Waterdrop, a few major and well-documented trends are relevant. ‘There is a massive demand for change,’ he observes. ‘People want more health, they want more customisation, and they’re sick of plastic bottles.’ On all three counts (and a few more besides), Waterdrop provides a solution.