Vita Coco vs. Zico: The Beverage Wars Move to Coconuts
Soda sales are flat and the beverage industry is looking for its next big thing. Increasingly, it is turning to the 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. U.S. retail sales rose to as much as $400 million last year, according to industry estimates. 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, says its revenue more than doubled in 2011 to nearly $100 million, most of that in the U.S., 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 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.
As a sign of faith that coconut water is more than a fad, Coca-Cola Co. plans to exercise its option to acquire a majority stake in Zico, the No. 2 coconut-water brand in the U.S. 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 U.S. market, according to industry estimates. He expects a further lift from Coke, which is helping more than double Zico’s distribution this year.