Refreshing! A Clearly Canadian comeback

How a Florida crematorium tycoon plans to put the fizz back in '90s-brand burnout Clearly Canadian.

It's somewhat fitting that the largest stakeholder in Clearly Canadian Beverage Corp. (OTCBB: CCBEF) is involved in the cremation industry: the spectre of death has haunted the Vancouver-based flavoured-water company for years. Once hailed as a success story, its distribution is down significantly, its stock was delisted on the TSX, in 2005, and it's been plagued with declining sales and mounting debt since the mid '90s. None of that stopped former Vancouverite Bobby Genovese from buying 60% of Clearly Canadian last year through his merchant bank, BG Capital Group, for US$3 million. Genovese, 44, has gotten rich partially through buying undervalued companies and turning them around, perhaps most successfully with the Neptune Society, a Florida-based cremation company with locations in 11 states. Genovese calls it the “McDonald's of cremation.”

He's certain there will be no funeral for Clearly Canadian, however. Genovese installed a new management team a few months after his purchase, among them former Neptune chairman Brent Lokash, now Clearly Canadian's president. Lokash has implemented an ambitious strategy involving new products, a celebrity-filled marketing blitz, and the company's very own reality-TV show to return the troubled drink maker to profitability. This year is Clearly Canadian's “renaissance,” says Lokash. Genovese, too, is unable to temper his optimism. “Who could be bigger than Clearly Canadian?” he asks.

Well, everyone. The company is attempting a comeback in an intensely competitive and overcrowded market. There's more beverage variety now than ever before: iced teas, energy drinks, flavoured and vitamin-enhanced water–all of which make up the “new age” or alternative beverage market, something Clearly Canadian pioneered when founder Douglas Mason developed his own flavoured water, in 1988.

What started with $2.5 million in sales after its first year exploded to nearly $200 million in 1992. There were few products like Clearly Canadian, and as consumers chugged it down, the company's share price quintupled to $20 in just over a year. (It currently trades at around US$3.15.) Copycats didn't take long to emerge, however, and soft-drink giants Coca-Cola and Pepsi crushed Clearly Canadian when they ploughed into the market. Worse, says Mason, was the advent of house brands, which sold for far less than Clearly Canadian. “All of a sudden, you saw every drugstore and supermarket chain with their own clear fruit-flavoured beverages,” he says. By 2002, sales had dropped to $20 million.

Mason tried introducing new products, but consumers weren't buying. They had trouble accepting a clear iced tea. And the novelty of Orbitz, a clear drink with floating gelatinous balls, soon wore off. Clearly Canadian also launched a joint venture with Reebok to produce Reebok Fitness Water, in 2001. When the contract between the two companies came up for renewal after three years, Reebok wasn't interested. “We were devastated. It was a huge amount of sales taken away from us,” Mason says. “We'd built the brand awareness over three years based on Reebok. You can't then change the name to Clearly Canadian and expect the same level of consumer acceptance.” With no capital to launch new products, Mason focused on the company's core flavoured water, redesigning the packaging and reformulating the drink with half the carbohydrates, neither of which improved sales.

At the same time, Mason was hunting aggressively for investors. Few would touch the company until Genovese entered the picture. Understandably, he had some concerns. “There wasn't a lot you could do to change the management,” Genovese says. “That was a big condition for us when we got involved.” Genovese proposed to allow management to set their own sales targets, and if they failed to reach them, they were out. Four months later, sales were off-target by 50%. Mason became chairman and Lokash replaced him as president, and COO Tom Kolti and senior vice-president of sales and marketing Kevin Doran left the company.

It was obvious to Lokash that Clearly Canadian was stuck in a vicious circle: it needed marketing dollars to promote and sell its products, but its products needed to sell first to get marketing dollars. Lokash went on a round of equity financings to get back on solid financial ground. “Old management had been here a long time and it's a natural progression where investors lose confidence,” he says. “Bring in the right people and they regain confidence.” Lokash cut costs, including moving headquarters to cheaper digs and operating with a smaller executive team. By June, Lokash had paid back US$8 million in loans and raised an additional US$5 million for marketing and product development. That's a start, but it barely scratches the surface of the company's accumulated deficit, which stood at US$69 million in March.

The US$20-billion North American alternative beverage market in which Clearly Canadian operates is growing faster than any other sector. Carbonated drinks dropped in volume last year for the first time ever with a decline of 0.2%, and analysts expect a further drop of 0.6% this year. But while alternative beverages are a healthy market, creating a hit is harder than ever. The industry is littered with failed concepts, and standing out is no easy task.

One of the first steps Lokash took was to revert to the classic, clear-bottle design. Mason's repackaging in 2000, an opaque psychedelic shrink-wrap, contradicted the “clear” image the brand had developed and left consumers confused about whether or not it was the same drink. Lokash also felt converting to a half-carb diet beverage was a mistake; the drink was half sweetened with sugar and half with Splenda, which ultimately satisfied no one. “People either didn't want any carbs, or they didn't like the taste of diet,” Lokash says. Indulgence had always been part of Clearly Canadian's appeal, so reinvention as a diet drink didn't make sense. That's why Lokash reintroduced the drink with all the sugar and launched a zero-calorie version as well.

One further mistake Lokash isn't keen to replicate is the deal with Reebok. “Everything we bring back now, we'll be focusing on our brand name,” he says. All of the new products the company will launch this fall will be under the Clearly Canadian name. And celebrity endorsements will give that name added heft. NBA star Steve Nash has signed a three-year contract (his face will appear on labels) and Genovese hints at a campaign involving other Canadians such as Pamela Anderson or Jim Carrey.

But Clearly Canadian could score its biggest coup with a proposed reality-TV series, which follows the efforts of company execs as they attempt to put fizz back into the brand. New York producer Nick Davis spent two weeks filming management in May and says he was given complete access. Davis put together a demo reel and has since been shopping it around to various U.S. networks. He won't say how close to a deal he is, but Genovese promises an announcement soon.

The prospective show would resemble CBC's Venture, but with more sex appeal. “Clearly Canadian is the soul of the show,” he says, “but Genovese is the sizzle.” When scenes of Clearly Canadian execs debating a new bottle design grow tiresome, for example, the show will cut to multimillionaire Genovese checking out private jets for his company. Or playing polo with the Vancouver-based international team he founded. Or racing down the waterslide at his mammoth Muskoka cottage.

Obviously, the show is risky, especially if the company comes off as dysfunctional. But the opportunity to advertise the brand outweighs this drawback. “Putting this new campaign in front of tens of millions of people would just give us such a head-start over any beverage launched next year,” Genovese says.

Whether any of these initiatives will result in profit won't be known for at least another year. Lisa Springer, an analyst with Beacon Equity Research, recently wrote an effusive research note estimating the company's revenue will grow 40% annually beyond 2006. But there are risks. Said Springer: “There can be no assurance that Clearly Canadian can generate top- and bottom-line growth.”

As for company founder Mason, he resigned as chairman last March. “After 20 years of beating my head against a wall,” he says, “it was time.”