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Darius Bikoff Vs. Coke And Pepsi business is terrific for the godfather of "enhanced waters." that's why the big guys want a piece of his hide.
By Christine Y. Chen

(FORTUNE Small Business) – On a cloudy afternoon, Darius Bikoff is sitting in his Queens, N.Y., office, talking about a recent celebrity encounter. "So, I'm in Mr. Chow's in Manhattan, and in walks [rapper] Eve with her entourage," he says, leaning forward with excitement. "She sits down, and one of her bodyguards has a bottle of Revive in his hand. I have some on my table. We see each other and go like this"--the 41-year-old entrepreneur raises his hand as if to make a toast, then smiles--"I tell him who I am, and he goes over and whispers in Eve's ear, and then he comes over to me." Bikoff pauses for effect, then mimics the bodyguard, "'Hey, you don't understand, man! This is all Eve drinks! She takes it everywhere, and she wants to meet you.' So I go over and chat with her." Now Bikoff is grinning ear to ear. "Long story short, we're now delivering to her home in L.A."

So what, exactly, is Revive? A purplish, fruit-flavored water laced with vitamin B and potassium and sold by Bikoff's company, Energy Brands. And like Eve herself, Energy Brands has been climbing the charts recently. In the past three years the small, privately held company has virtually cornered the market on enhanced water. The product represents a small but growing niche in the $7.7 billion bottled-water industry, which is also expanding. According to Beverage Marketing, in 1991 the average American bought 9.3 gallons of nature's best (not counting tap water). Ten years later that figure had more than doubled, to 19.5 gallons of bottled water per person. So far, enhanced water represents just 1% to 2% of all bottled waters, but between 2000 and 2001 its sales more than quadrupled, from $20 million to $85 million. Analysts say it's still gathering momentum.

All of which explains why the big beverage companies are moving in. Pepsi, Coke, and Gatorade have each introduced their own lightly flavored, vitamin-enhanced waters in the past year, hoping to offset declining sales of carbonated drinks. "It's absolutely a David vs. Goliath story," says Havis Dawson, the editor-in-chief of trade publication Beverage World. "David's been standing his ground for a couple of years. It'll be interesting to see what happens now that the giants are coming."

Bikoff may not be able to hold off all the giants, but his 20 years of experience in the beverage business should at least give him a fighting chance. His father is a serial entrepreneur who's done everything from importing metals to promoting boxing matches. When Darius was attending Colgate, his father ran an aluminum manufacturer that made products like soda cans and juice lids, where Darius worked on his vacations. Within a few years of graduating in 1983, he was handed the reins. "When I took over, the company had ten employees and $30 million in revenues," says Bikoff. "During the ten years that I ran the business, we built it to 100 employees and over $300 million in revenues."

A far more mundane experience, however, led to his starting his own company. In 1993 a water-contamination scare hit his Manhattan neighborhood, and he was afraid to drink water from the tap. So he went to the grocery store and scanned the shelves. "I was totally confused," recalls Bikoff. "Every brand was making the same product: clear bottles with pictures of mountains and streams." He started following the water industry, and the more he found out, the more intrigued he became. He signed up for dozens of beverage publications and joined trade groups. He circled the globe doing research, visiting springs and wells and meeting with packaging and marketing whizzes. Seeking a mystical edge, he even consulted an Ayurveda guru, a spiritualist with roots in Indian medicine.

Meanwhile, the longtime water skier, windsurfer, and sailor began paying more attention to his health. "It was the typical awakening you have when you realize you're getting older," Bikoff says. He started shopping at natural-food stores, buying organic fruits and vegetables, and taking vitamins. "It all fit together. The single most important thing you can do to improve the quality of life is to drink more water. I didn't want it to be just any water. I wanted it to be better water."

The confluence of those three themes--business, health, and water--drew him to what seems, in hindsight, an obvious solution. "The pattern that stood out was that all of the innovation in beverages had come from entrepreneurs," he says. After all, Snapple was started by three childhood friends who sold natural juices. Nantucket Nectars and Arizona Iced Tea had similar stories. By 1996, Bikoff had extricated himself from the metals business and was working on his new company full-time. He hired food scientists and developed the first Energy Brands product: "glaceau smartwater," which had extra electrolytes, the minerals your body loses during perspiration. More significant, Bikoff splurged on the packaging--which in the water business is at least as important as what comes inside. (That lower-case spelling of the glaceau brand, by the way, is entirely a marketing affectation.) At the time, Bikoff owned a boat that was designed by famed architect Philippe Starck. At a reception he approached Starck and asked him to help design glaceau's first bottle.

By early 1998, Bikoff was able to see his products on store shelves, with his water distributed to health-food specialists first in New York City, then nationwide. He also introduced the second glaceau line: fruitwater, which had no electrolytes, calories, or preservatives but some added fruit flavoring. Bikoff followed the same formula, hitting natural-food stores in the Big Apple, then expanding into the rest of the country. A year later he stumbled onto his biggest success. Early one morning after a yoga session, he walked into his kitchen and grabbed an orange-flavored vitamin C wafer. As he began to suck on it, he reached into the refrigerator for a bottle of smartwater and took a swig. "Hey, I'm getting my nutrients. And I'm getting hydration," he thought. "And this tastes great!" Vitaminwater, glaceau's third product line, was born.

Landing on store shelves in 2000, vitaminwater has stronger flavors than his previous products, plus added vitamins and some hard-to-miss candy colors, which make the bottles stand out on the shelves. Again, Bikoff began in New York, but instead of targeting health nuts, he went mainstream. "Once we introduced it, people said they wanted it everywhere--in universities, health clubs, spas, hotels, delis, grocery stores, gas stations, bodegas"--Bikoff runs out of breath.

By this point he had the marketing perfected, mostly by gut instinct rather than any kind of consumer research. Instead of just labeling his drinks with boring names like lemon or honeydew, he decided to give each type a New Agey moniker, such as peach-flavored Endurance and cran-grapefruit Balance. The labels also have catchy copy: "For best results, mix with individuals showing signs of sluggishness and laziness. WARNING: If severe procrastination occurs, buy a whole case." Energy Brands bought billboards in New York and national advertisements in magazines, including Vanity Fair and In Style. Bikoff's strategy worked--pretty soon you really did see trendy people, like actress Sarah Jessica Parker, on the streets of Manhattan, bottles of vitaminwater in hand.

Ironically, for all its popularity, the stuff might not actually be very good for you. Each 20-ounce bottle contains 125 calories and 32.5 grams of sugar, which is a lot for something that claims to be a health drink. Skeptical nutritionists have questioned whether products like these can even be called water, but the International Bottled Water Association, a trade group, allows companies to add flavors and colors as long as they account for less than 1% of the content.

Bikoff has clearly been asked about the efficacy of his waters before. "We are told by literally thousands of consumers who contact us by phone, by e-mail, by every which way, that it works for them," he says, a tad defensively. "And I know that in my life it works for me." As for the health aspect, he points out that glaceau waters still have a much lower calorie count than most regular sodas and that he refuses to use artificial sweeteners.

The sales numbers, at least, are on his side. Bikoff won't disclose exact figures but claims that Energy Brands' overall revenues have grown more than 270%, compounded annually, since 1998 (sales of vitaminwater are growing over 600%), and that the company has been profitable since the second half of 2001. That financial performance has already brought in outside investors. After starting Energy Brands with his own money, he received a cash infusion in February 2001 from LVMH, which owns luxury brands like Louis Vuitton and Dom Perignon. Neither party will disclose the amount, but analysts estimate that LVMH put up $5 million for a minority stake and a seat on the board. That money has allowed Bikoff to expand, hiring a bigger sales force and rolling out new flavors. He's also lured talent from beverage giants. Rohan Oza, Energy Brands' vice president of marketing, used to head up Coca-Cola's Powerade brand in its fight against Gatorade. And Carol Dollard, who oversees Energy Brands' operations, spent more than 15 years at PepsiCo.

That doesn't mean Bikoff hasn't had a few missteps, of course. He ducks a question about how he might have learned from his mistakes, conveniently omitting some of Energy Brands' product failures, like soywater, which came in flavors like pina colada and orange cream. And when discussing the role of entrepreneurs in the beverage industry, Bikoff points to Red Bull as an example of a small company beating giants, neglecting to mention the demise of Go-Go, his own version of an energy drink. Its eight-ounce can bore an animated drawing of a girl in go-go boots and a tiny red dress; one wag in the British press labeled it an "herbal Viagra for women."

Still, glaceau vitaminwater is an unqualified hit, and it has already attracted big-name competitors. Gatorade was the first of the large beverage companies to enter the market, introducing its Propel Fitness Water in July 1999. Marketing director Marie Devlin makes sure to mention an advantage that Propel has over competitors: "Sometimes we've been inappropriately lumped with those drinks that have 40 or 50 calories per eight ounces. We have only ten." Similarly, Pepsi introduced its flavored Aquafina Essentials in grocery stores this past June. And the newest entrant in the enhanced-water race is Coca-Cola, which launched its Dasani NutriWater in three test markets in November. If that catches on, Coke plans to go nationwide in the spring.

Bikoff welcomes such competition with good cheer. "The fact that bigger beverage companies are copying us means they think we know better than they do," he says, pausing to chuckle. "Which, of course, we do." The marketing buzz he's been able to generate should help too. Now that he has conquered Manhattan, Bikoff's next stop is completing the move into Hollywood. In addition to those special deliveries to Eve's house, he enjoys offering his drinks at what he calls "lifestyle events." A recent ploy was to provide beverages for the Entertainment Tonight-sponsored Emmy Awards party at the Mondrian Hotel in Los Angeles.

Analysts say the glaceau brand has more than a fighting chance of survival, predicting that the company will continue to thrive despite its challenges. But if the history of small entrepreneurial companies like Snapple and Arizona is any indication, does that mean Energy Brands could be swallowed by a titan too? For the first time, Bikoff doesn't have an immediate reply. "Um ... my total focus is on building a great brand that has long-term relevance for consumers," he answers slowly. "I don't really have any thoughts on that because I don't think of it all." Nice try, but no cigar. What if someone came along with the right offer? Would he be open to the idea? Darius Bikoff sits up straight in his chair, clasps his hands, and smiles. "No."