Competition Muddies Coconut Waters

and Matt Casey

The husks – and the gloves — are coming off.

Suddenly the subject of high-stakes competition for investment dollars, distribution routes, and supply chain access, the battle to become the dominant brand of coconut water has turned feisty.

That’s a bold departure for a category that’s largely been characterized by feel-good discussions of mutual respect and friendly relations between its main competitors. But infusions of big corporate cash have been known do that, and it apparently has — at least, if last week’s Natural Products Expo East is any indicator.

When discussing the business in the past, Vita Coco founder and CEO Michael Kirban previously reported that he and the founders of O.N.E. and ZICO met during trade shows to discuss the category’s future.

However, as of 4 p.m. on the second day of Expo East, ZICO founder and CEO Mark Rampolla said he hadn’t met with his competitors during the show.

Rampolla also said he hadn’t spoken to O.N.E. founder Rodrigo Veloso following the firm’s just-announced investment from Pepsi Bottling Group, he said, and described his relationship with his competitors as “hardly” friendly.

“I don’t think we ever had a ‘friendly’ relationship,” Rampolla said. “We’ve been bitter competitors.”

The companies have shared a mutual respect based on sharing the same vision, he said, “but I would say [the competition is] getting more intense.”

That intensity comes as both PepsiCo and the Coca-Cola Co. have chosen sides in the fight. While O.N.E. now boasts an investment from, and distribution agreement with Pepsi Bottling Group (soon to be a subsidiary of PepsiCo), ZICO received an investment from Coke’s Venturing and Emerging Brands unit.

But the big battle might not even be over the cash, but the supply of coconuts themselves. PepsiCo recently purchased Amococo, the largest maker of Brazilian coconut water and the supplier for both O.N.E. and ZICO. With O.N.E. embarking on a relationship with PBG – and PBG’s impending absorption by PepsiCo – that seems to indicate an easy strategic move to put pressure on the competition (and, by extension, PepsiCo nemesis Coke) would be to have Amococo cut off ZICO’s supply of raw coconut water at the end of its contract.

Whether or not such a move is on the table will only be revealed after the ink dries on the PepsiCo/PBG merger, according to a PBG source. Nevertheless, O.N.E. President Emilie Fritz Veloso made the state of relations clear when BevNET broached the possibility.

“Yes, we cannot lie,” she said, when asked if she’d be in favor of Amococo ending its supplier relationship with ZICO.

Meanwhile, Vita Coco’s independent status has kept it insulated from a lot of the rancor, according to Kirban, who made it clear that he feels secure with early-stage investments from Verlinvest that have allowed the company to build its own coconut water processing plant. With his own vertical supply chain in place, he said, he was happy to not have to deal with the pressures of alignment with a larger beverage company, especially while operating in a smallish category that still needs to convert many consumers to match what both Rampolla and Rodrigo Veloso has termed “billion-dollar” potential.

“How many brands have been built in the Coke and Pepsi system? Not too many of them,” Kirban said.

By staying independent, “in the long run it puts us in a very good position,” Kirban added. “We’re still the category leader with roughly 60 percent of the category…. all this chatter around, it just helps raise the awareness for all of us. So it’s great.”

Back at the O.N.E. booth, however, skepticism prevailed. The same PBG source said that routes to market through the Red and Blue systems are the ones that can help spread a product around the fastest, adding, “I don’t think Vita Coco is going to be able to stay independent for long.”