This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →
Armed with $70 million in venture capital, Vienna-based Waterdrop plans to make significant inroads in U.S. retail.
Waterdrop is known for dissolvable, sugar-free electrolyte cubes, and until now the brand has been mostly focusing on direct-to-consumer sales in the U.S., which have grown by over 400% year-over-year. After raising a $70 million Series B round in 2022, Waterdrop has its site set on the U.S. mass retail market.
In the past 18 months, the company struck several retail deals behind the scenes to create what it calls a heavy DTC-to-retail trajectory. Starting April 3, Waterdrop began rolling out in Walmart, Target and H-E-B all at once, bringing its door number from eight to over 3,000 doors within a couple of weeks. With the new set of American locations, the brand is now available in 15,000 doors between Europe and the U.S. Waterdrop says that this strategy helps the brand quickly gauge local preferences for flavors and SKUs, while also sussing out regional demand in each country.
Waterdrop’s approach is drastically different than most DTC startups. For young brands — especially those that don’t have a lot of venture capital — the strategy is often to launch in one major mass retailer, learn from that experience and then move onto the next chain. Vitamin brand Ritual, for example, just launched in Target this past month after launching in Whole Foods last year. While entering thousands of doors at once can be risky, Waterdrop’s founder said that this approach has worked for the company in other countries, and allows it to build brand awareness quickly.
Flooding retail doors
Waterdrop first tested out this flood-the-gates approach in its home region of DACH — Germany, Austria and Switzerland — followed by France last year. With each new country, the company first establishes sales via DTC with paid social, influencers and PR, before entering thousands of retailer locations simultaneously.
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This has become a tried-and-true formula for Waterdrop, in other European countries. In France, for example, throughout 2022 and 2023 the brand launched in several retailers, like Boulanger, Fnac, Decathlon, Monoprix and a number of local pharmacies. This chunk of retail jump brought Waterdrop’s French presence from a couple of hundred doors to over 3,100, resulting in a 450% growth in year-over-year sales.
Since its launch in 2016, Waterdrop co-founder Henry Murray said the company decided to build the brand via direct-to-consumer channels to build a strong following. Over the years, he said subscriptions, loyalty programs and limited-edition bottle designs and flavors helped grow Waterdrop’s digital presence in Europe. Currently, over 70% of Waterdrop’s sales come from direct-to-consumer channels, which include 20 of its own storefronts across Europe.
Waterdrop first entered the U.S. through its DTC website in 2021. “We wanted to ensure the product-market fit here before investing in brick-and-mortar,” Murray said. The company first began testing brick-and-mortar last year at smaller retailers like Showfields, The Vitamin Shoppe and by building its own mall kiosks for building awareness.
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Then, the next step was to figure out which mass retailers to target. “When starting out in Austria, we chose a large network of mass retailers to best reach shoppers,” Murray said. “In the U.S., these turned out to be Walmart, Target and H-E-B.” The company’s products have hit 2,051 Walmart locations and are in the process of entering 130 Target stores nationwide.
“In hydration, the truth is people can always find alternatives to your brand,” he said. “So we have to create convenient, accessible opportunities for buying.”
The U.S. launch has also coincided with Waterdrop’s shift to a splashy brand-building strategy that’s being supported by its recent fundraise. A major component is the celebrity and athlete ambassadorships with Taylor Fritz, Olivia Culpo, Adriana Lima and Novak Djokovic, who’s also an investor in the company.
That’s also what, in part, has fueled Waterdrop’s retail expansion in the U.S. “When a big star like Djokovic talks about the brand, we want people to see it on shelves the next day,” Murray said. “We’re doing more out-of-home and TV ads to introduce ourselves to American consumers,”
Murray said that in the U.S., in particular, retailers like Target and Walmart have become well aware of what types of DTC-first brands and categories work for them. They also offer their own advertising networks for additional customer targeting. Currently, Waterdrop has a tasting campaign that gives people $5 vouchers to try its drinks — which are being pushed on the ground, through retailers’ channels, as well as the company’s own organic accounts.
But executing the rollout took a lot of planning, given all the moving parts of working with several retailers at once. “In retail, it’s always about timing,” he said. Sometimes a brand can have a say in the launch’s time, while some retailers dictate when orders are placed. “We started the discussions with these retailers pretty early,” he said. This began about a year ago, when Waterdrop was experimenting with kiosk presence in select U.S. cities, like New York and Miami. “It took over 12 months to get the negotiations and placements going,” Murray added.
Some of these deals fell into place due to the new rollout spring and summer timing, which is a busy time for the beverage category.
Murray said that coming off the heels of the initial multi-retail launch, the company is now in negotiations to add different types of retailers, like sporting goods, drugstores and convenience retailers. These will be stocked with a mini version of Waterdrop’s cube packs than the standard 12-pack, that’s being sold on the company’s website and at big-box retailers.
Part of the strategy is also to give new retailers differentiated merchandise to stand out. Walmart, for example will carry the brand’s new three-packs both in stores and online. These will also be featured on an end cap display for a 60-day window. Other SKUs launching at Walmart are the vitamin hydration cubes and caffeine hydration cubes. Walmart will also be the first U.S. retailer to carry a variety of Waterdrop’s reusable steel and glass bottles.
‘Super high risk and high reward’
Typically, digitally-native brands tend to space out new retail entries and drum up full campaigns to drive traffic to that retail chain.
David Schneidman, director at Alvarez & Marsal consumer retail group, described Waterdrop’s strategy as “super high risk and high reward.” Most digitally-native brands approach wholesale through a local, then regional, followed by a national presence, Schneidman explained. This is because it’s not only an expensive undertaking, but also requires nationwide marketing campaigns to support these simultaneous launches. He went on to say that each of these retailers have a different type of shopper and purchasing patterns, which requires different targeting methods.
“They [Waterdrop] already have validation in Europe, along with the DTC data and cash to pull off this rollout,” Schneidman said. There are some success factors that have to be taken into account, such as high-traffic merchandising displays and an aggressive promotional strategy to drive early repeat purchases especially in crowded segments. “It’s boom or bust, but I hope it’s a proven case study that this model works for startups.”
For Waterdrop, the approach is a gamble as it brings its successful European distribution model stateside. With more retail partnerships coming this year, Murray said the company is well-positioned to compete in the busy category. “We’ve seen this multi-retailer model resonate with European customers,” he said. “We hope to replicate it by rapidly getting in front of U.S. consumers.”
What I’m reading
- Ad Age spoke to founders of DTC brands like Care/of and Fishwife about what they’ve learned from entering retail recently.
- Retailers like Amazon and Walmart are redesigning boxes to save on space and shipping costs, according to The Wall Street Journal.
- Despite ban threats, Business Insider reported that TikTok is still courting retailers and influencers to use its social shopping tools.
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