Waterdrop CEO Martin Murray on exporting a European beverage brand to the U.S.

0:02Hello, everyone, and welcome to the Modern Retail Podcast.

0:30first starting with DTC, then doing a series of pop-ups, and now is doing a bunch of mass retail plays that I want to talk about. Martin will describe how it all works. But how are you doing, Martin? It's really great for you to be here. Thanks so much for having me, Kiel. Very excited to speak to you today. And even though it's a bit later than on your end, I'm back in Vienna, Austria. I was just in New York actually a few days ago. So delighted to be with you. Yes, thanks. It's later my time because I'm based in Helsinki this month, which is why I'm trying to find founders who are on this side of the planet right now.

1:04But we're both talking at night. So it's just how it goes. First, can you give the story? And I gave a really terrible description of what Waterdrop is. Exactly what is Waterdrop? How did it start? Just give the entire Genesis story. Sure. I'll try to keep it short. So Waterdrop started seven years ago. I always say both from emotional insight and irrational insight. The emotional insight is that we believe putting sugar water into plastic bottles just doesn't make any sense. It's bad for the environment and it's bad for people's health, but it's a multi, multi, multi-billion dollar industry. So it's interesting.

1:37And the rational insight we had at Waterdrop seven years ago was why don't we make a little cube that is full of fruit and plant extracts so all the good stuff you would want to have in the beverage that's very convenient, it's very sustainable that people could have on them and allow them to drop it into water, hence the name Waterdrop, and make their own fresh beverages at point of consumption. So that was the founding idea we had back in 2015. And I just fell in love with this idea. I could see it that you have the potential of building a global company around the idea of helping people to drink more water and refraining from all these beverages.

2:16So we started it. Everybody thought we were a bit crazy, which you have to be if you start a company. And over the last seven years, we've grown the business quite a bit. We've expanded for Europe. We've expanded our product portfolio. We've expanded, as you mentioned, our distribution network. And I would say we're on our way of really building a nice global company with a very inspiring mission here at Waterdrop because we really believe how beverages are sold today doesn't make any sense and we want to change that. Got it. Yeah, I wanted to bring you on for a couple of reasons. One is because you're in the beverage space.

2:53uh i the beverage space is a really interesting space but you're doing a very different form factor that is easy to understand but more difficult to market i might say just because it's a little bit smaller and you it's it's different than when you're a canned beverage but also um i i want to bring you on because of your really interesting pathway for growth which we've written about at modern retail which like i i've pretty sure and correct me if i'm wrong but the way that you started in europe and what you're doing in the united states was that You did DTC first, and then you did sort of a blast of retail finding all of the major places that you could.

3:30Is that correct? That's correct. I mean, one of the big advantages we have is because our product is so small, I mean, we call it a micro drink. We have pretty much unlimited potential for distribution. We're not bound to the conventional rules that beverages play after, right? So we're not necessarily only fighting for shelf space in similar categories. we have the potential of reaching our consumers through more creative and various ways. And as you said, D2C was the starting point for us five, six years ago, because it's very cheap, it's very scalable, and our product is perfect for e-commerce.

4:06So it weighs nothing, very easy to ship, low logistic costs, fantastic. But from day one, we believe that if you want to build a real brand, a global brand, you have to be good online and offline. You need both. And so when we felt the time was right back in 2017, we opened our first pop-up stores. We ventured into our first retail deals already in 2017 into a very nice drugstore here in Austria. And as we continued growing, we really got very good at understanding the interplay between offline and online. Because it sounds easy, but they're culturally and operationally very different channels.

4:44and that interplay between the right speed of execution online and offline made us successful in around 15-16 markets in Europe and we did apply a similar approach to the US when we started. I mean the fun side story is we started during COVID so e-commerce was top of mind anyhow so it's a bit easier in that sense but we've also very quickly identified the right partners we want to scale out in the US. We did take time. I would always recommend not to go into retail too quickly. It's very easy to get in, right? But it's very hard to stay in and build a sustainable business. So we chose our partners wisely.

5:22And then we just continued growing drop by drop, as we always say. So yes, indeed, we did expand with D2C, but we had retail in mind from day one. We just wanted to create that brand awareness and that customer base first before we scale into mass market retail, especially in the US, right, for all the obvious advantages. That makes a lot of sense. I wanted to back up a little bit just because I usually ask this and I just went full steam ahead at the beginning. But what were you doing before you started this company? Were you in the beverage space or what were you doing before? And then suddenly you're like, I'm going to be a beverage entrepreneur.

6:01So I'm half Scottish, half Austrian, hence the weird dialect. I grew up in Austria, studied international business, various universities, and spent my time at the Boston Consulting Group. So I was in management consulting. And in 2015, I did my MBA in Singapore at INSEAD, where I had a year with very inspiring people and mentors to really think through this idea because as I mentioned at the beginning, the emotional insight was with me for quite a while. I always knew I wanted to do something in that space because it's such an amazing industry beverages. It's just so massive. There's just so much out there.

6:40But I just saw that there could be a more innovative way to build a brand than being, you know, another drink in a certain category. I did not have a beverage background. I just had a lot of passion and I guess got to actually jump and start this business from scratch. So most of it was passion, not experience, to be honest. I mean, I would say coming from a consulting background and then an MBA background probably helped you write a smart business plan so that you didn't make some rookie mistakes that someone with another background might have, right? Do you think it helped you, I guess is my question?

7:17i think there's no typical entrepreneur you know there's many ways of doing things i think the art is to have the right balance between being very rational and diligent you're correct you know if you're management consulting you're very good of course of of of of computing and making slides and telling stories but people in rational backgrounds become too risk averse because the easiest thing in the world is to tell an entrepreneur why something will not work. And the smarter people get, typically the more ideas they come up with why something will not work. Smart people see risks. So you also need to balance that with, I would say, passion or naivety, almost intentional naivety.

8:02If you're not naive and if you don't have the capability to just ignore all these naysayers, you would not start because literally when I started, of course, I had a nice business plan of course I had a nice concept but it took us almost two years from PowerPoint to actually having a physical first prototype so it was a bit of a crazy journey because typically people tell you to start an MVP minimal viable product test that with your audience get them excited and if they're excited you grow it from there right start very lean I had to do the opposite so I had to develop the recipes the form factor we had to build dedicated machines with a lot of technology to then actually be able to make a cube.

8:43It's extremely hard to make one, hence we're the only one, and then also package it at scale. So only after one and a half years, I had the opportunity to actually show it to people. So yes, the background helped, but you also have to be very intentional around where do you apply your analytical diligence, where maybe business people or consultants are good at, and when do you apply your passion and willingness to go the extra mile to make something happen that only you can see because if other people would see your business they would do it right only the entrepreneur has in mind where he wants to where he wants to go so i helped me long story short but it's not necessarily a prerequisite absolutely well i wanted to dig deeper into this last part that you're talking about because this is something that i i always ask founders in your case when they're going to to an area that they're passionate about but but might not have the proper connections.

9:37So how did you go about building out, you know, the right manufacturing, all of that, so that you would have a product that that works exactly as you saw? And how has the product the water drop today differed from the water drop that came out seven years ago? The sequence of events was, my insight was I wanted to make a micro drink or a water drop for the obvious reasons that I explained but i wanted it to be a cube something that is never done before and i wanted it to be full of plant and fruit extracts that has also never been done before and what i did is virtually i flew around the world more or less i was in singapore at that time and both in asia and in germany mostly in austria to find r &d or manufacturing sites who could tell me how i could actually make this and not being a technician often meant being in meetings with technicians and asking them a very basic questions like how would you make this what's possible what's not and literally out of 20 meetings 19 told me it's stupid and it doesn't work and we don't want to support you but i got really smarter around the way because if you ask people why is it not possible 10 times in a row very often the final answer is yeah because nobody's ever done it before right and so I had a lot of these meetings and I got very smart and then I went to the partner I actually wanted to go that partner didn't fully understand what I wanted to build but they believed in the vision they believed in me and they said okay I'm going to give you an R &D budget to develop the recipe for you that was the first step and with that recipe in mind I went to more technical companies that were able to compress that recipe into a cube.

11:22And now that I had the chicken eggs solved, that the recipe was there, the compression technology companies were willing to help me. And then I was able to persuade them that they would make it for free because we're going to be big. And of course, like you said, I had a fancy business plan, so they believed it. And we actually overachieved it. The one I showed them seven years ago. and then the third industry was people that could actually package it so i had to bring together three industries i had to bring together people that could do the recipe in powder form so take making fruit and plant extracts not easy right but the short version is you take a fruit and you take out all the water and sugar and then you have an extract so one percent of the fruit the rest is just water then you marinate that with a special recipe you compress it into a cube making something flat is relatively easy.

12:13That's why tablets are flat and round. Making something as a cube is very hard. You need special machines, you need special coatings, etc. That was a different industry. And then the third industry was, okay, now you have the cube. How do you package it at scale? And I already had in mind scale not being thousands, but hundreds of millions. So we had to think about a way of building manufacturing sites that could fully automatically do that. and I started with a prototype all three industries believed in me also because I told each of the industries that everything was solved except for theirs so everybody did their part and then after one and a half years we had a prototype to be honest the prototype was really bad like it didn't dissolve it didn't dissolve it didn't taste properly you couldn't open the packaging but it was a prototype and we spent one and a half years in technicalrd working day and night hearing a hundred times a month why we would fail and why this thing doesn't work but we got up every time again again and we motored each other so that we um we actually got to that prototype so i was smart enough to surround myself with people very early as co-founders and advisors that had that technical knowledge i did not i was just an entrepreneur who built it who put it together and then we had our first prototype and then to answer your question after that i think you know let's just say we started with a semi-broken Alcatel phone and now we're like at the iPhone 5, 6.

13:39So we went through a progression of iterations. We know how to build the iPhone 10 plus, but we're on a journey of continuously, you know, making those improvements. So we started the company, we started the product, then we iterated onto the market, got a lot of feedback and since then have been really changing based on what consumers are telling us. So it's been a journey. And I don't believe that journey ever stops, especially with a consumable product. You know, there's always something to improve. And the production side is obviously professionalized. So now we have our own manufacturing sites, actually two of them.

14:13We have fully automated lines where we can create a lot of volumes and we own our own supply chain and R &D, which I think is a great benefit to us because we can, of course, supply a lot of volume and we can also ship it easily because the drops are so small. Wow, that is a wild, I don't know, I love every bit of that. Just hearing someone talk about how they sort of created a process from nothing, I find super fascinating. And I'm assuming that as you went to all of these industries and created these new processes, you've gotten them protected so that you now have like patents for everything that you do, correct?

14:48Yeah, yeah, it's all protected. It's actually very hard to make because as I said, you need different industries and the one industry doesn't go into the other because big companies typically don't do that. So we've blended different industries and we've invested a lot of money and time, obviously, in proprietary technology. So it's a huge advantage and entry barrier, if you like, to Waterdrop, which is why we're the only hydration cube on the market, I guess, to date. Let's see for how long. Yeah, we'll wait and see what happens. Can you talk about just the geographic rollout? I'm assuming you started in Austria because you're based in Austria.

15:32But how did you go from there? Which countries did you go to next? And was there a rhyme or a reason? Or was it just one opportunity presented itself there and you thought, why not try it, etc.? Everybody would tell you they had a clear sequence in mind based on a top-down analysis. Reality is it's a bit more shaky, the country expansion. But yes, in short, we started in Austria, which is great. I love Austria, one of the best places to live. But the good news about Austria is it's under the radar. So we were able to test the product quite a bit. As I mentioned, the first product wasn't any good at all.

16:09So we had to change a lot within the first year on the market. And we tested pop-up stores. We went into our first retailer to 700 stores. we did D2C of course and then when we had the confidence that this could actually work we had sales strategies which back then were just D2Cs or paid social very easy running ads and acquisition costs were a joke compared to today so much much cheaper so then we easily scaled to Germany which is basically the same thing then we expanded into Eastern Europe because we wanted to know okay is this just a German Austrian thing or do we work in other cultures and other kind of buying power areas, also different tap water qualities.

16:51We discovered where early it's literally the same. Then we expanded into France, which is cultured, extremely interesting market. So, of course, you know, the complexity, different culture, different language. But we figured that one out. So we expanded into France. We expanded into Italy. We expanded into the UK. Then, of course, got unlucky with Brexit, which made a lot of things complicated. and then into many other European markets just online, so staying very lean. And then when we reached a certain size, we were like, okay, obviously our value proposition, helping you to drink more water, making something very convenient where people could make their own beverages, getting them off sugar water, getting them off the plastic bottles is a macro trend that is virtually the same in every market.

17:39There's some markets that differ a bit in taste and distribution, but we discovered pretty much the same. And then we brought on more investors. We were funded by a lot of family offices. We had some French entrepreneurs, some great people that supported us. And then back in 2020, we said after a few years on the market, why don't we go to the largest consumer market there is, which is the United States, and why don't we test our value proposition there? Because when I started Waterdrop, my intention was always to build a global company. I didn't want to build an Austrian company or German company or Spanish company, whatever we wanted to be global and the whole branding the whole language we use even the name water drop has global appeal and we were confident we could scale d2c so we tested running ads in the u.s which worked very well i mean the u.s is a bit different than europe i can elaborate on those differences so we went into the u.s have been have been i would say testing the market very successfully now for the last two years and at the same time we also ran experiments in other markets like we said to Singapore.

18:45In 2021, Temasek, the state government fund of Singapore, invested into the business. So we ran an experiment in Singapore. We opened up Australia and many, many other small experiments. So we've shown that we have the aspiration of becoming global and we've become very good at being agile and adapting to the differences amongst countries. So long story short, Europe, expanding across Europe, put our little toe into other waters. And now we're focusing especially on the US now that we have the confidence we can really scale there and make Waterdrop a household name in the United States. Got it.

19:24How many people does it take on your team? Or do you need to add people to your team when you're going to New Geography? Like you said, you have a model that's, I don't want to say plug and play, but it generally works from geography to geography. But at the same time, you need someone who knows what the right distribution, what the right retail stores are. Like, you know, to go to France, you would need someone who has the right ins at Monoprix, for instance, or something like that. So like, how did you go about doing that? Or was it just that you yourself and your team of five people would learn about each geography and go there?

19:57Or would you bring people on as you expanded? That's a great question. Trying to be simplistic, and a lot of people will not agree to this, most countries are much more similar than they think they are. If you speak to an individual country, they're all going to say, ah, you don't understand. My country is different. Things here are different. You know, this is different. This is different. You don't understand. You have to adapt. The reality is there's a lot of similarities. And you can go very deep into countries. But if you stay high level, and, you know, that's one of the advantages we have of having an enormous TAM, so total addressable market, hydration is just huge.

20:37It starts at four-year-olds, goes to 110-year-olds. You can establish a brand very easily by not adapting too much. So long story short, it's very easy for us to open a market. You literally just have to translate your website. Facebook, Google, TikTok is literally the same in all markets. And you get feedback. You see what the acquisition costs are. You see what people get, what they don't get. You adapt the website. You play around with that. You optimize your conversion rates, your visuals. But it's very easy. Supply chain part is also very scalable. tech and e-commerce supply chain will probably not agree, but it's relatively easy.

21:12And then once you get excited about a market and you're like, wow, it works the same way you had expected, then you start doing offline. Then you open a pop-up store. Then you have first discussions with buyers or with distribution partners. And then you potentially look into marketplaces in that country. And then you go either very, very deep and hire a local team, hire a local general manager and give them a budget and say, please build this market. Or you stay very centralized, which we did, because at the beginning, you know, a startup has no budget, so you have to stay very lean. And you do everything centrally and you just run your ads and your supply chain, your tech from one spot.

21:51The big advantage you have in being a European is that you're very good managing complexity. You know, in the States, the big advantage is one massive market, it's one language. which the states would disagree, but it's relatively similar culturally and language-wise. In Europe, every 100 kilometers is a different VET system. It's a different legal. It's a different regulatory. It's a different language. And all that adds complexity because you need somebody who can answer a customer in that language. You have to translate the ads in that language. You have to write the emails in that language.

22:24And you often have to adapt the content to that country because it's culturally a bit different. So that's kind of the story. So we have four sales channels and D2C was for a long time the biggest. Our own retail, we operate 40 own stores, give us a lot of data and brand awareness. We love operating our own stores. We've started marketplaces like Amazon and others. And we now for the last, I'd say, two years are really focusing heavily on scaling B2B, third-party retail. So how do you perform on a display, on a shelf? What does the packaging have to look like? What are the right accounts? What's the right speed of execution?

23:08Too fast is bad, too slow is bad. So all these models then depend a bit on the market. So I wouldn't say it's a cookie cutter. That would be oversophisticated. But our systems are relatively replicable. And the macro trends, the consumption behavior is very similar, to be honest. There's differences, but on a grand scheme, it's quite similar. We have global mass market appeal. You mentioned a couple of questions ago that the US, you know, Europe was relatively similar. The US, at least in terms of convincing people to buy it, I think is what you're saying, was different or it was just a different cultural shift.

23:48Is that what you were saying? I guess my question is, what made the US a bigger beast in general? And what were some of the lessons you learned from the US consumer compared to the other ones you had been in? So, objectively, a few things. So, if you look at it objectively, there's very few European innovations that make it in the U.S. Typically, the innovations come from the United States and then become global. That is many regions. You know, local startups can get much, much larger. There's more funding and it's just easier to scale for many reasons if you have the funding. The U.S. is different because it's just so enormous.

24:23So, within the U.S., there's several countries, as you know. It is technically very different, but you can operate it out of one Shopify store. It's literally an English store. So that's different. What's very different is the level of competitiveness. The level of noise in the US is just so much higher because there's so many other brands and so many other companies out there. There's just more marketing, more noise. It's much harder to stand out. That then leads to the other fact, which is that media prices are higher. So the acquisition costs are much higher. And also the companies pitching at retailers every day is also much higher.

25:02So just the general tension level of competitiveness is higher. There's a few cultural differences. I think the US compared to Europe is more transactional, more functional. Things like what does this thing do for me and what is the deal here? So it's more direct, more aggressive in marketing. Europe might be a bit more sensual, more focused on wellness, lifestyle, taste, whereas the U.S. vary, you know, how many milligrams of vitamin C is in this thing. So the different kind of aggressiveness towards consumer. Fun facts are things like, you know, I'm talking about the cubes all the time. That's the main product.

25:43That's like the majority of the business. But we have complementary products such as drinkware. We're big sellers of glass bottles, steel bottles, because it supports the mission, right? We don't like plastic bottles. And a consumer has to drink out of something, so we like making these bottles because it drives the consumption of the core product. And it's marketing in a way. And we had small bottles and large bottles. And when we launched, consumers were telling us our large bottles are technically too small for the American market. So we had to create new products to adhere to cultural differences.

26:17like there's you know there's half a gallon bottles out there in the states and that doesn't really exist in europe so there's there is things that we had to adapt also flavor intensity for instance um so there were differences um good news is you know all the online marketing is the same i mean those are american platforms and there was cultural differences and i think the retail landscape has also its nuances so it's much more cutthroat it's more professional but what i felt is speaking to a lot of these partners retailers really want you to succeed you know that's the good old business sense that americans have um there's less politics you know who starts where there is of course but it's really about okay i have a cool new product i want it to succeed So of course everybody wants to do a good deal, but it's more entrepreneurial in a sense that, okay, what's the concept here?

27:14Where can we support? It feels more like a partnership. and so those were like some subtle differences that our team is managing extremely well and now after two years in the states you know we've built hundreds of thousands of customers we've opened a few stores we've done some some really fun activations just last week we had Novak Djokovic by the way is an investor in the business and he won his his 24th Grand Slam wearing our logo and we did a big activation of Times Square. So we let Novak Djokovic serve for sustainability. We built a tennis court on Times Square together with Nasdaq. And we're making literally a splash in the US.

27:59We're growing rapidly, but we're still nowhere near where we could be. So again, long story short, it's a scalable model. Everybody believes in the vision, right? We should be avoiding plastic bottles. We should all be drinking less sugar water. And we should be drinking more water. And with our dedication to quality, our brand, we're really catching the attention of a lot of Americans. And we're very, very proud about that. And as Europeans, we've become good at adapting to that. So we're not naive. We know that there's different areas. We know that they have to tweak things. You know, product is never perfect.