The sparkling water stalwart, first launched in early 2018, has roared into a market eager for low calorie alternatives to Pepsi's trademark products, especially among younger, health-conscious consumers.
"We have a huge opportunity ahead of us on bubly in creating a whole new category of beverages," CEO Ramon Laguarta told analysts on Tuesday morning. "On bubly, we're super happy really with this opportunity. And sparkling water, it's been underdeveloped in the U.S. if you compare with some of the European markets and we saw there was a big opportunity there."
Aside from the secular trend in sparkling water sales, which are slated to continue to surge globally, the company appears to be eating into Lacroix's leadership in the North American market.
National Beverage stock has declined nearly 50% from its February highs as bubly builds market share in the space and undercuts the smaller competitor on price.
"FIZZ acknowledged 'many less nimble-competitors gaining distribution' (e.g., PEP's bubly), which is reflected with LaCroix's market share down close to 500 bps in Nielsen channels," Jefferies analyst Kevin Grundy noted in a recent channel check. "PEP's new CEO, Ramon Laguarta, is very focused on investing behind the bubly brand, which creates protracted market share risk for LaCroix, in our view."
Laguarta added that the increased flavor selection and testing of more environmentally conscious non-plastic packaging has increased loyalty to the millennial-focused brand and could unlock significant value for shareholders in coming quarters.
"Consumers are coming back to bubbly," Laguarta explained. "I think there's a lot with us distribution opportunities yet, and it takes a while for our partners, our retailer partners to give these brands that are growing so fast and the rights space in the store."
He noted that retail partners are eager to scoop up supply as well, setting the stage for further growth into key grocery retailers like Walmart (WMT) , Kroger (KR) , and even among dollar stores like Dollar General (DG) and Dollar Tree (DLTR) given the beverage's low price point.
"We see this brand as a brand of the future," Laguarta concluded. "So we're feeling very good about this brand. This would be one of our next $1 billion brands."
While Coca-Cola (KO) has made inroads to the market with sparkling options offered from Dasani and Smartwater brands, neither have managed to take the foothold bubly is clearly building. If Pepsi can continue to build a moat around the brand, its market share should continue to trend towards dominance.
However, his ambitions in fizzy water move further than simply bubbly sales by adding a key integration avenue for recent blockbuster acquisition SodaStream.
"SodaStream is doing very well," Laguarta said. "We're understanding more about this platform. We're starting to put more of the PepsiCo capabilities against the SodaStream business, especially around flavors and around some of the consumer experience with flavors, which I think were under-optimized direct-to-consumer capabilities."
The brand also has the advantage of further encouraging more environmentally conscious consumers that may be concerned with the waste created by traditional soda packaging.
According to a Glass Packaging Institute report, 75% of millennials "actively look for changes they can make in their home and lifestyle to be greener," indicating that ditching wasteful plastic packaging for sodas could be an important movement in the industry.
From a youth perspective, this is another big consumer trend tapped into.
Still, the business is running separately from the broader Pepsi brand at the moment, provoking some probing questions about its integration.
Nonetheless, the acquisition at the very least means that Pepsi will not encounter any cannibalization risks that the brand may have presented as a competitor rather than a subsidiary.
All of these factors should help the overall brand continue to sparkle and potentially even push towards that very bullish $1 billion target that Laguarta is touting.