The Coca-Cola Co.'s $4.1 billion purchase last year for Glaceau, an enhanced-water firm, was viewed by some industry experts as a hefty price for grabbing market share in an emerging segment.

But after posting a fourth straight year of triple-digit volume growth, Glaceau says it sees more opportunity ahead as its lineup, anchored by Vitaminwater, gets pushed further into the massive Coca-Cola distribution system.

Since being bought last May by Coca-Cola, Glaceau beverages are:

• Available in about 80 percent of chain convenience stores, up from 55 percent. That number is expected to rise in the next six weeks as many convenience stores reset shelf space based on new agreements.

• Offered in almost every chain supermarket, going from the low 90s to the high 90s in percentage terms.

• Carried in every U.S. Wal-Mart store, compared to less than half before. In April, Glaceau will get space in Wal-Mart's permanent beverage section. It shows up now primarily in end-of-aisle displays.

And if you have not noticed Glaceau's quirky advertisements yet, you will soon. Glaceau is doubling the money it spends this year on marketing.

It recently shot a new commercial featuring Cleveland Cavaliers superstar LeBron James that will air during the NBA playoffs.

"We're very pleased with how things are going," said Hal Kravitz, senior vice president of business development for the Glaceau division and a 24-year veteran of the Coca-Cola system.

"However, I can tell you from being in this business as long as I have and seeing what's happening out there...we have barely scratched the surface with what this system is capable of doing with this brand."

The next Gatorade?

In the face of a shifting U.S. market toward noncarbonated drinks, the Glaceau acquisition was viewed by analysts as a welcomed but expensive move. Stifel, Nicolaus & Co., a St. Louis-based financial services firm, estimates the $4.1 billion purchase price was 21 times Glaceau’s annual earnings before the deduction of interest, taxes and amortization.

"My initial reaction was positive on the strategic merits, but concerned they had paid too much," said Mark Swartzberg, a Stifel Nicolaus beverage industry analyst. "I think the rationale was that the brand was a lot smaller today than it would be in the future, and that Coke, in particular, could drive the brand to a level that it would not get on its own."

Glaceau is off to a strong start in the Coca-Cola system. In 2007, Glaceau's U.S. volume grew 133 percent and commanded 34.1 percent of the enhanced and flavored water segment, according to Beverage Digest, an industry publication that tracks sales data.

Stifel Nicolaus projects Coca-Cola's overall North America volume will grow 1.2 percent in 2008, primarily due to Coke Zero, Glaceau and better overall execution by Coca-Cola's largest bottler. Coca-Cola's North America volume was down 0.8 percent in 2007.

Glaceau brands also have potential abroad, Swartzberg added. Coca-Cola recently launched the brand in Australia.

Coca-Cola faces challenges as it expands aggressively in large grocery stores and super centers, Swartzberg said.

"It's the right thing to do, but you want to preserve the margin and premium image of the brand," he said.

The long-term measure of Coca-Cola's acquisition of Glaceau will be whether it holds onto this leadership position and premium image as this segment expands, Swartzberg said.

Pepsi's $14 billion deal in 2001 to buy Quaker, parent of Gatorade, has been viewed as a wise move because it gave Pepsi a dominant stake that it still holds in the sports drink segment.

"In a sense, the question at hand is: Is this another Gatorade?" Swartzberg asked.

More places and choices

Glaceau already has provided "a shot of adrenaline" to the Coca-Cola system, said Brian Wynne, business development manager and chief revenue officer for Atlanta-based Coca-Cola Enterprises, Coke's largest bottler. Glaceau's impact on sales volume is 10 times the next closest acquisition, he said.

"We are all enjoying and benefiting from the explosive growth that the Glaceau brand is today," Wynne said.

CCE sees no signs of growth letting up. The Coke bottler is making sure existing Glaceau outlets have more varieties of the brand, additional shelf space and more prominent displays.

CCE also is adding new outlets. The company, for example, is putting Glaceau vending machines on U.S. college campuses and placing counter-top coolers in Subway sandwich shops.

The goal is to use Glaceau to gain additional space and outlets without supplanting existing Coca-Cola products, Wynne said.

"The magic of this thing is really in the incremental beverage occasions it can provide for our customers," he said.

Preserving the culture

Glaceau officials said they have kept the momentum going for the brand by integrating Glaceau into the Coca-Cola system while preserving its entrepreneurial culture.

"They were very clear up front that they wanted Glaceau as a company to maintain independence and operate in a way that we operated in the past," said Rohan Oza, Glaceau's senior vice president of marketing. Oza worked at Coca-Cola before moving to Glaceau ahead of the Coca-Cola acquisition.

Glaceau launched a roadshow last September, talking directly to more than 75,000 representatives in the Coca-Cola bottling system to get them excited about the new brands.

It decided in December it wanted to run a Super Bowl advertisement, putting it under a tight time frame to produce a commercial in a costly spot of airtime. The ad featured Shaquille O'Neal as a jockey.

Wary of messing up Glaceau's winning formula, Coca-Cola has supported decisions while keeping their distance, Glaceau officials said. "I can tell you they've left decision-making in our hands 100 percent," said Kravitz, the senior vice president of business development.

Fighting off Pepsi

PepsiCo Inc., though, is not leaving Glaceau alone.

Pepsi has launched ads that point out that its Propel Fitwater has fewer calories than Glaceau's Vitaminwater — 25 calories for Propel compared with 125 calories for Vitaminwater per 20 ounce bottle. PepsiCo also has put more emphasis on SoBe Lifewater, another Glaceau competitor.

Glaceau officials say the attacks have not slowed down growth for its brands.

Oza, Glaceau's head of marketing, was quick to point out that Vitaminwater, unlike Propel, uses all-natural sweeteners.

"What's really happening is a lot of the competition is now reacting to the success of Vitaminwater by attempting to bash us," Oza said. "There's nothing out there that really is a good comparable to Vitaminwater."

Kravitz, though, added that Glaceau has not become complacent. "We don't take it lightly," he said. "Competition is good. It keeps everybody on their toes."