On Nov. 22, the Coca-Cola Co., Atlanta, acquired Zico Beverages, L.L.C., El Segundo, Calif. Founded in 2004, Zico was one of three original coconut water brands, along with O.N.E. and Vita Coco.
Shortly after PepsiCo, Inc. invested in O.N.E. in 2009, Coca-Cola acquired a 20% minority stake in Zico. In 2012, Coca-Cola bought a majority stake in the brand, and earlier this year began distributing its beverages in the United States and Canada.
“When we made our investment in Zico, we did so because we saw it as a burgeoning premium brand with the potential to be a significant leader in a high growth category,” said Deryck van Rensburg, president and general manager of venturing and emerging brands for Coca-Cola North America. “Over the past four years we have watched the coconut water category see an impressive spike in revenue and household penetration and Zico solidify its position as one of the leading brands in this category.
“With our acquisition, we plan to innovate in all aspects of the consumer experience and increase both velocity and distribution to position Zico for even more growth. This announcement is the sign of a continued beginning for the brand, with more resources, support and cachet to come.”
Coca-Cola said the coconut water category has seen impressive sales growth since its inception, nearly doubling its revenue every year since 2004. The U.S. coconut water market had more than $153 million in sales during the 52 weeks ended July 6, according to data from The Nielson Co., up 42% from the same period a year ago.
But the coconut water category faces challenges, most notably from the consistency of the raw material, the development of a fragmented supply chain to deliver the raw material to manufacturers, and fluctuations in raw material costs.
“Cost has been a serious issue in the coconut water market,” said Jacob Thundil, the founder of Cocofina Ltd., Middlesex, the United Kingdom. “The global coconut water market is worth $400 million. It has gone from nothing to that in five years, and the cost of raw materials has more than doubled.”
Mr. Thundil spoke during a session about global beverage trends at the Food Ingredients Europe trade show on Nov. 20 in Frankfurt, Germany. Cocofina was founded in 2005 and has grown into one of the leading coconut water marketers in the United Kingdom. The company positions its products as premium and distributes them primarily through what Mr. Thundil described as premium supermarkets and health food stores.
“Coconut water is low calorie, naturally isotonic, has a neutral pH, is high in potassium, low in sodium and is an ideal sports drink,” he said. “Consumers view it as a healthy product and drink it to improve weight loss, improve physical appearance and for rehydration.”
The challenges companies like Cocofina face are in the supply chain, Mr. Thundil said.
“Product consistency is a big issue, because each coconut is different,” he said. “All coconuts do not taste the same. They are similar to wine — Those grown closer to the coast have a salty taste while those grown inland will be bland.
“Reliability is a big issue in the supply chain. In Asia, the plantations are very fragmented and the supply chain contains a lot of unreliable links.”
Brazil is a major source of coconuts, but Mr. Thundil said cost is a factor in that market given the position of Brazil’s real to other currencies.
“Then you have the challenge of shelf life if you are producing a 100% coconut water product,” he said. “If you are in a country with a hot climate, imagine how much time it would take to break 100,000 nuts, collect the water and get the product to market.”
Yet despite the challenges, companies are pressing forward to further develop the market.
“We always believed coconut water would eventually become a major beverage category and Zico a household name, even when we were running the company from my garage and selling out of a rented truck,” said Mark Rampolla, founder and chief executive officer of Zico. “Over the past four years, it has been exciting to see Zico excel as our partnership with The Coca-Cola Co. matured. Now, with full access to the resources of the Coca-Cola system, we have the opportunity to bring Zico and the healthy, replenishing benefits of coconut water even further into the mainstream and realize our original goals.”