Beverage giants square off over "next big thing": coconut water
PURCHASE, N.Y. & ATLANTA -- Flat soda sales have the beverage industry looking for the "next big thing," according to a Wall Street Journal report, and it has found coconut. Touted as a natural sports drink that helps tired bodies rehydrate, coconut water is hitting a growing number of U.S. store shelves, whether in cartons, cans or bottles, said the report.
U.S. retail sales rose to as much as $400 million last year, according to industry estimates cited by the newspaper. That is a tiny fraction of the country's $100-billion-plus market for nonalcoholic beverages, but the new category has roughly doubled its revenue each year since 2005--helped by celebrity musicians, models and athletes who have endorsed the drink, even as it draws lawsuits over health claims.
Vita Coco, the No. 1-selling U.S. coconut-water brand, said its revenue more than doubled in 2011 to nearly $100 million, most of that in the United States, seven years after co-founder Michael Kirban began deliveries to New York bodegas on inline skates.
The brand has been bolstered by a 2010 distribution pact with Plano, Texas-based Dr Pepper Snapple Group Inc. and expects to be in about 55,000 stores nationwide by April, more than double its reach in December, by expanding into chains including Walgreens, CVS and 7-Eleven, the Journal said.
As a sign of faith that coconut water is more than a fad, Atlanta-based Coca-Cola Co. plans to exercise its option to acquire a majority stake in Zico, the No. 2 U.S. coconut-water brand by sales, in the coming weeks after purchasing a minority holding in the startup for less than $15 million in 2009 for an undisclosed price, triggered after Zico hit revenue targets.
Zico's sales grew fivefold last year, Deryck van Rensburg, head of Coca-Cola's new ventures unit, told the paper. "We don't know for sure if this will be the next blockbuster, but so far so good."
Mark Rampolla, Zico's founder, said the fast-growing brand narrowed the gap last year with Vita Coco, which controls between a third and half of the U.S. market, according to industry estimates. He said he expects a further lift from Coca-Cola, which is helping more than double Zico's distribution this year.
Purchase, N.Y.-based PepsiCo Inc., meanwhile, is rolling out nationwide distribution of the No. 3 brand, O.N.E., on its trucks this year after taking a majority stake in 2010 for an undisclosed sum. PepsiCo's Naked line of juices holds the No. 4 spot for coconut-water sales.
Coconut water, the clear, slightly sweet liquid inside coconuts, is pitched as a natural rehydration tool rich in electrolytes, particularly potassium, which prevents cramping. It does not have fat, unlike coconut milk, which is derived from the flesh of older coconuts. With often fewer than 50 calories for an eight-ounce serving, coconut water also has a lower calorie count than most fruit drinks.
The science around coconut water is somewhat murky, said the Journal. A Malaysian study published in 2002 found fresh coconut water to be an effective rehydration tool, with "less nausea, fullness and no stomach upset'' when compared with carbohydrate-electrolyte beverages or plain old water. But U.S.-based ConsumerLab.com reported last year that some samples it tested of Vita Coco and O.N.E. had significantly less sodium, an important electrolyte lost through sweat, than advertised on the labels or found in Gatorade.
Several of the brands have been involved in lawsuits, primarily over sodium content and labeling, said the report.