Tate & Lyle
Carst And Walker

The beverage wars move to coconuts


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 US coconut-water brand, says its revenue more than doubled in 2011 to nearly $100 million, most of that in the US, seven years after co-founder Michael Kirban began deliveries to New York bodegas on inline skates.

The closely held brand has been bolstered by a 2010 distribution pact with Dr Pepper Snapple Group 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.

As a sign of faith that coconut water is more than a fad, Coca-Cola plans to exercise its option to acquire a majority stake in Zico, the No. 2 coconut-water brand in the US by sales, in the coming weeks after purchasing a minority holding in the start-up for less than $15 million in 2009. Coke won’t disclose the price, but the option was triggered after Zico hit revenue targets.

Zico’s sales grew fivefold last year, said Deryck van Rensburg, head of Coke’s new ventures unit. “We don’t know for sure if this will be the next blockbuster, but so far so good,” he said.

Mark Rampolla, Zico’s 42-year-old founder, says the fast-growing brand narrowed the gap last year with Vita Coco, which controls between a third and half of the US market, according to industry estimates. He expects a further lift from Coke, which is helping more than double Zico’s distribution this year.

PepsiCo, 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. A Vita Coco billboard campaign last year featured R&B singer Rihanna urging consumers, “Hydrate naturally from a tree, not a lab,” in a poke at sports drinks such as PepsiCo’s Gatorade and Coke’s Powerade.

Long popular in Brazil, coconut water doesn’t 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.

With US soda volumes shrinking for more than half a decade, Coke and PepsiCo are increasingly eager to take stakes in new categories and emerging brands before they become too large and expensive. In 2007, Coke paid $4.1 billion to acquire Glaceau, maker of Vitaminwater, after enhanced-water sales skyrocketed.

The science around coconut water is somewhat murky. A Malaysian academic 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 US-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.

Vita Coco said this week it agreed to pay $10 million to settle a consumer lawsuit sparked by the ConsumerLab report, which wasn’t party to the suit. Vita Coco, which didn’t admit wrongdoing, said nutritional levels can vary in an all-natural product but that it is tweaking its labeling. PepsiCo, which has an option to buy 100% of O.N.E., is involved in a similar suit over labeling but declined to comment on the ConsumerLab report…..

Wall Street Journal: Read full article

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