Clearly Canadian Beverage Corporation Business Information, Profile, and History

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History of Clearly Canadian Beverage Corporation

Clearly Canadian Beverage Corporation is a British Columbia-based maker of so-called "new age" or "alternative" beverages that include flavored sparkling water and fitness drinks. The company's original Clearly Canadian brand has been joined in recent years by Reebok Fitness Water Beverages, vitamin-enhanced drinks made under license from the shoe manufacturer; Tre Limone, a beverage flavored with a blend of lemon, ginger, and spices; and Clearly Canadian O+2, bottled water that has several times the amount of oxygen found in plain water. The company's products are sold throughout Canada and the United States and in select overseas markets. Spectacularly successful during its early years, the company has been struggling to adapt to a highly competitive marketplace since the mid-1990s.

1980s Beginnings

Clearly Canadian was founded by Donald Mason in Vancouver, British Columbia, Canada. Mason had worked for 15 years in the grocery business before finding success as a stock investor and promoter. His first beverage venture was launched in the mid-1980s when he acquired the Canadian rights to distribute Jolt, a highly caffeinated cola drink. Coke and Pepsi had a tight hold on the cola market, however, and once its novelty value had worn off, Jolt quickly fizzled. Needing a new product, Mason decided to try the opposite side of the soft drink spectrum and create a beverage for health-conscious consumers. He renamed his existing publicly traded company International Beverage Corporation and began to produce Clearly Canadian, which was made from spring water flavored with natural ingredients and less sugar than typical soft drinks. Funding for the launch of Clearly Canadian was obtained in part from beverage distributor Camfrey Resources, Ltd., which was granted a royalty on every case sold in certain territories outside Canada. The new drink, which was distinguished by its clear color and blue-tinted bottles, began shipping in January 1988. Along with an unflavored version, the premium-priced soda was offered in Mountain Blackberry, Country Raspberry, and Orchard Peach varieties.

Having virtually invented the category which became known as "alternative" or "new age" soft drinks, Clearly Canadian quickly found favor with the public, particularly in California. Over the next several years, International Beverage undertook a rapid expansion of its distribution area, gaining full penetration of Canada and the United States and also reaching Japan and England. Sales, which had totaled 800,000 cases in 1989, jumped to 2.5 million in 1990, and revenues took a similar leap, going from under $5 million to $17 million.

In May 1990, the company changed its name to Clearly Canadian Beverage Corporation, reflecting its now exclusive focus on the natural soft drink. At the same time a 3.5 to 1 reverse stock split was effected to boost the share price. The stock was being traded on both the Vancouver and NASDAQ exchanges.

Despite its rapid growth, Clearly Canadian had just 34 employees, and owned only the wells, the trade style, and the formulas of its flavors. The firm's rapid expansion was facilitated by a strategy of contracting out most of its functions. Of major importance was the company's network of regional distributors, many of whom normally handled alcoholic beverages. Each one was asked to invest in the company, which gave them greater incentive to promote the drinks. Production was also contracted out, with spring water trucked to a handful of regional bottlers from the company's wells in eastern and western Canada. Though it had originally used little advertising, by this time a campaign featuring the slogan "Get Wild--Naturally" was in place, which helped spur the company's astronomical growth rate. Fiscal 1991 saw revenues nearly quadruple, to $61.2 million, and a first-ever profit of $5.9 million was recorded.

Competition in the Early 1990s

The company's growth was drawing the attention of investors, who boosted the share price almost six-fold by the end of 1991. The competition was heating up, however, and soon similar products were being marketed by giants like PepsiCo, Coca-Cola, Seagrams, and Perrier Group. Clearly Canadian sent a letter to the latter firm in July 1992 demanding that it cease production of Ice Mountain, a similarly packaged drink. Perrier subsequently filed suit, which was met by a countersuit from Clearly Canadian. The dispute was later settled out of court. Despite the tightening market, sales for fiscal 1992 continued to grow by leaps and bounds, hitting a record $155.2 million, with profits of $14 million.

The agreement that had been signed early on with distributor Camfrey Resources, which guaranteed Camfrey 25 cents per case sold outside Canada in exchange for a $1.6 million loan, was proving to be an albatross around the company's neck as its rapid revenue growth forced it to pay out millions in royalties. In early 1993, Clearly Canadian made a deal to pay Camfrey C$22.9 million to terminate the agreement and buy up its options to distribution rights in the United States, Europe, and Australia.

By mid-1993, the fierce competition from rivals such as Coca-Cola's Fruitopia and other types of alternative beverages like bottled teas had begun to take its toll, and Clearly Canadian's revenues and high-flying stock price began to wither. The company soon cancelled plans for a $40 million European stock offering and relied on other funding to pay the settlement with Camfrey.

Nonetheless, Clearly Canadian was still the alternative beverage leader with an 18 percent share of the market, and it was continuing to focus on growth abroad. Deals were inked with companies in Poland and the Middle East and expansion was ongoing in Mexico, where distribution had commenced the previous fall through Natural Beverage of Tucson, Arizona. The United States remained the firm's major source of revenue, accounting for 90 percent of sales. The company was by now marketing seven different flavors and had added six-ounce bottles to its standard 11-ounce size to help generate sales in hotel bars and restaurants.

The intensity of the company's competition was dramatically revealed in its results for fiscal 1993, which showed revenues of $90.9 million, a decline of more than a third, and earnings of just $293,000. At the start of 1994, the company announced it was taking several measures to boost market share, including the creation of two new drinks: "Clearly Two," a 2-calorie diet variety, and "Clearly Tea," a lightly carbonated iced tea drink. New flavor and packaging options were also added to the Clearly Canadian line, and an aggressive $10 million ad campaign was planned. In addition to seeking new customers, the company was cutting costs by consolidating production capacity and inventories. A wage freeze and a reduction in executive salaries of 10 percent were instituted as well.

Writedowns and Legal Troubles in 1995

In early 1995, Clearly Canadian scrapped the national rollout of Clearly Tea and ceased its operations in Mexico, resulting in a combined write-off of C$4.2 million. In May, a judge ruled that the company would have to pay C$5.9 million to Blue Mountain Springs Ltd. for breach of contract. In 1988, Clearly Canadian had arranged with Blue Mountain to buy up to 100,000 gallons of water a day for 99 years at 10 to 20 cents per gallon. However, the company had soon thereafter found a different source and had not used any water from Blue Mountain, which later sued for $75 million. Later, in November, several investor-initiated class action suits were settled for $2.5 million. Other controversy erupted during the year among shareholders over the company's generous compensation of its executives, which included a plush retirement package.

The year 1995 also saw Clearly Canadian begin a campaign to buy back distribution rights from its U.S. and Canadian distribution network, a move that was expected to help boost the beverages' presence on store shelves. Over the next two years the company spent $10 million to recover more than three-fourths of this territory. Twenty-one employees were hired to promote the firm's drinks, replacing the outside contractors previously utilized. Revenues continued to drop, hitting $48.2 million for the year with a loss of $4 million.

In 1996, the company again sought to make an impact with new products, this time introducing fruit-flavored, non-carbonated "Orbitz," which featured floating, flavored gel globules, and "Quencher," a lightly carbonated fruit juice sold only in California. During the summer a bid was made to purchase beverage and snack food producer Sun-Rype Products, many of whose shares were owned by fruit growers in British Columbia. Sun-Rype management opposed Clearly Canadian's offer, labeling it hostile, and the $40 million stock swap wound up in front of the British Columbia Securities Commission before it was rejected by nearly 90 percent of Sun-Rype shareholders.

While this drama was unfolding, Clearly Canadian arranged to buy Blue Mountain Springs Ltd. for C$4.5 million, eliminating paying the C$5.9 million judgment, which had been under appeal. The purchase involved just the Blue Mountain name, as well as 44 acres of land adjacent to its spring, but not the actual source or a nearby bottling plant.

In the months following its introduction, the company's Orbitz beverage had proven to be a hit, and its availability was expanded across the United States, with new flavors and color combinations added during the year. The premium-priced drink, which cost as much as 50 percent more than regular sodas, found favor with younger, novelty-seeking consumers. Quencher, which had been launched at the same time, was soon shelved, however. Sales results for 1996 showed a slight improvement, hitting $50.1 million, with earnings back in the black, at $450,000.

Cascade Clear Purchased in 1997

In fall 1997, the company acquired Cascade Clear Water Co. of Burlington, Washington. The $15 million deal gave Clearly Canadian a bottler of non-carbonated water under its own and other labels, as well as a home and office bottled water delivery service. Early 1998 saw the company expanding its imports to Europe and launching a new beverage brand, REfresher, produced at the Washington plant, which was located close to British Columbia along the United States-Canadian border. The noncarbonated, vitamin-enriched sports drink was aimed at 15-30 year olds and came in four fruit flavors.

In May, a lawsuit with Bush Boake Allen (BBA) was settled. BBA had charged Clearly Canadian with infringement of a patent in its manufacturing of the Orbitz beverage, for which BBA had previously supplied raw materials. The company agreed to pay BBA a licensing fee as part of the settlement. In June, Clearly Canadian bought back the rights to distribute its beverages in several key Mid-Atlantic U.S. states, completing the process of taking full control of North American distribution.

In September 1998, another new beverage, Battery, was introduced. The caffeine-enhanced, berry-flavored energy drink was licensed for sale in the United States and Canada from Oy Sinebrychoff Ab of Finland, which had successfully marketed it in Europe. The fall also saw introduction of Clearly Canadian O+2, a water-based drink that was enhanced with up to 10 times the normal level of oxygen. Available in fruit flavors or unflavored, it was marketed to athletes.

In early 1999, the company announced plans to expand its Washington State facility, adding 9,000 square feet of office space and a new production line for carbonated beverages. Many of Clearly Canadian's administrative operations were subsequently transferred to the new site. The move was made to reduce corporate taxes, which were higher in Canada, and CEO Mason announced that future acquisitions would be made through the company's U.S. subsidiary. Most production would take place in the United States now as well, using water trucked from Canada.

In the fall of the year, Clearly Canadian won a lawsuit against an insurance company for C$1.8 million to cover some of its losses from an earlier legal settlement, and sold its 10 percent stake in Sun-Rype Products for C$3.6 million. The sale of 30 percent of Clearly Canadian to a South African investment firm fell through when the latter failed to secure financing, however, and sales of Orbitz were suspended due to dwindling sales, resulting in a significant writedown. A restructuring was completed that eliminated some leased properties and reduced staffing during the year as well.

A New Look in 2000

In March 2000, the company relaunched its flagship brand with enhanced flavors and redesigned packaging, which resulted in writedowns on now-unusable bottling materials. The size of single-serving bottles was increased from 11 to 14 ounces, though the price was not changed, and a new line of diet flavors was added. The company had also begun distributing a licensed coffee-flavored beverage, Jamaican Gold, and had added to its home and office water delivery operation with the acquisition of Home Service Networks, Inc. of Washington state.

Another new beverage was launched in April 2000 when the company introduced Tre Limone, a carbonated lemon-ginger drink. The premium-priced, "European style" Tre Limone shared the new packaging approach of Clearly Canadian, a shrink-sleeve plastic covering over a glass bottle. The new product, along with the flagship brand's packaging changes, were gaining notice at the retail level, and the company announced it was gaining listings with a number of major retail chains.

In the latter half of 2000, reports surfaced that CEO Mason was being investigated by the British Columbia Securities Commission for failing to report insider stock trades that had been made through offshore companies. He vowed a vigorous defense of the allegations. Later in the year, Clearly Canadian hired McDonald Investments, Inc. of Cleveland to advise it on strategic options, including the potential sale of the company. The firm suffered another blow in early 2001 when its stock on the NASDAQ exchange dropped below $1 and was delisted, subsequently moving to the Over-the-Counter bulletin board.

In the spring, another new product was announced as part of a three year licensing deal with Reebok International Ltd. Reebok Fitness Water contained a blend of vitamins and minerals and was available in 24-ounce bottles in one unflavored and two low-calorie varieties. It was first marketed in April in select locations around the United States. Seeking capital to promote the new product, in May Clearly Canadian's U.S. subsidiary sold its home and office water business to Cullyspring Water Co., Inc. for $4.8 million. The following February the company also sold its Burlington, Washington, production facility and the Cascade Clear and private label water businesses to Advanced H2O, Inc. for a total of $6.3 million plus future royalty payments. Advanced also agreed to provide Clearly Canadian with at-cost bottling services for ten years. The numbers for fiscal 2001 continued to prove disappointing, with revenues of $23.26 million and losses of $7.2 million reported.

In the decade following its peak year of 1992, Clearly Canadian had experienced a series of strategic missteps and legal troubles, as well as shrinking revenues due to increased competition in the marketplace. Struggling to regain its footing in the $10 billion alternative beverage market, which it had more or less started, the company was now shedding unprofitable lines and refocusing on its core brand along with the new Reebok-licensed sport water.

Principal Subsidiaries: CC Beverage Corporation (U.S.); Clearly Canadian Beverage (International) Corporation (Barbados); 546274 Alberta Ltd.; Blue Mountain Springs Ltd.

Principal Competitors: Cadbury Schweppes Beverage Unit; Coca-Cola Company; PepsiCo Inc.; Quaker Oats Company; Laurent-Perrier U.S.; Great Brands of Europe; Hansen Natural Corporation; Ferolito Vultaggio & Sons; Odwalla Inc.

Chronology

• Key Dates:
• 1988: Clearly Canadian flavored sparkling water is introduced.
• 1992: Annual sales for the beverage company hit a peak of $155.2 million.
• 1993: A royalty agreement with Camfrey Resources is terminated for $22.9 million.
• 1994: Clearly Tea and Clearly Two beverages are test-marketed.
• 1996: Orbitz, with free-floating gel spheres, debuts.
• 1997: Cascade Clear Water Co. of Burlington, Washington, is purchased.
• 1998: Clearly Canadian O+2, Battery, and REfresher drinks are introduced.
• 2000: Packaging of flagship line is redesigned and diet flavors are added.