Cuckoo For Coconuts

Mark Rampolla doesn’t use swallows – European or African – to get his coconut water on to U.S. shelves. He uses Tetra Pak.

That packaging choice may leave Monty Python in need of another instrument to simulate the sound of hooves, but it also helps Rampolla further his mission to push the ethnic-aisle staple into America’s mainstream.

Coconut water, harvested from young coconuts before they’ve developed the meat most people associate with the fruit, has a long history in bodegas and on the fringes of the American grocery scene, where it has been treated as both a beverage and an ingredient. But that’s changing fast. And, as one of three top brands trying to lead the category into the mainstream, Rampolla’s doesn’t allow for any ambiguity. Zico leaves out the pulp included in traditional coconut waters and casts aside unfamiliar, non-standard cans in favor of aseptic Tetra Pak. That shift to aseptic packaging allows Zico to trade superheating for flash pasteurization and leaves more of the juice’s nutritional qualities intact. The final product – consisting of just one ingredient – packs five electrolytes and more potassium than a banana.

With those credentials, Zico has gained national distribution in the natural food channel. His competitors have done the same. All three have been grown territory as well as sales, but Rampolla’s financial backing from Industry titans positions him better for the coming transition.

Ultimately, he wants coconut water to be as common in Safeway as it is in Whole Foods. Rampolla waged his first DSD campaign in New York City, and, while it’s too early to say he’s conquered the five boroughs, he’s confident enough in his momentum to start a new campaign in Los Angeles.

The City of Angels, Rampolla said, figures large in Zico’s future. Beyond the market’s massive financial appeal, he plans to use the west coast location (and, possibly, annual meetings with surf lessons) to foster a fun internal environment and attract and retain the talent he needs to further the brand.

“At the end of the day, New Jersey just doesn’t quite have the caché that maybe a beach community in California does,” Rampolla said.

But Zico’s talent pool might be bolstered as much by its financial backers as its atmosphere. Rampolla’s company has drawn investments from notable names in the beverage industry, including owater’s Tom First and Honest Tea’s Seth Goldman, as well as its key NYC distributor, Big Geyser. Names like those, Rampolla said, have already helped attract sales talent with histories at brands like Coors Light, Nike and glaceau.

While he assembles his coconut militia, he’s also spidering his product into new DSD territory and building the bulwark for long-term growth. He’s secured his Brazilian coconut supply for the next three to five years, he said, and recently added DSD in San Francisco, Florida and Texas. He’s also working on new products. In the near future, he said, Zico will keep true to coconut water as its core ingredient, adding more usage occasions and flavors, but he has long term plans for products that could use coconut water mostly in the background.

NOT ALONE

Rampolla isn’t alone in his mission to mainstream coconut water. (See Sidebar) Vita Coco and O.N.E. (One Natural Experience), are currently pushing core products nearly identical to Zico’s into a growing number of mainstream channels. In other beverage segments, that dynamic might trigger lawsuits, but, in this case, it has led to a case of friendly competition. For now, at least.

“We all share a view that we’re bringing something healthy and natural to consumers,” Rampolla said. “This isn’t about killing each other; it’s about doing something that’s good.”

While friendly, the three aren’t exactly swapping leis. Each boasts that it offers a better product than its competitors, and they’ve aligned with different New York-based distributors. Zico is with Big Geyser, Vita Coco got Exclusive Beverage and O.N.E. signed with Manhattan Beer Distributors. Additionally, Vita Coco co-founder Mike Kirban said he’s worried that Zico’s promotions have allowed prices to dip too low and take some of the “premium” off what he thinks should be a premium category. Rampolla, in response, said his product has not been officially sold for less than $1.69, just 30 cents below its typical asking price.

Despite their differences, all three founders keep in regular contact and mutually aim to bolster to coconut water category in its entirety. The trio even got together at Natural Products Expo West to chat about the state of the category.

It probably helps that the three firms have positioned themselves with slightly different targets in mind. O.N.E. diversified into other tropical fruits – including cashew and coffee fruit – and founder Rodrigo Veloso expects his future sales to be balanced across his exotic offerings. Zico and Vita Coco have stayed tightly focused on coconut water, but have also taken divergent angles on finding their audience. Kirban said Vita Coco is cutting space for itself in ethnic aisles and also angling for mainstream appeal. Zico, on the other hand, is targeting athletes and billing its product as “Nature’s Sports Drink.”NATURAL GATORADE

To build that reputation, Rampolla employed a methodical approach in his home market of New York City. First, he targeted yoga studios – particularly “hot” yoga studios where yogis push their students through 90-minute workout sessions in rooms heated to 95 degrees or more. That combination of intense athleticism and “crunchy” tendencies gave Rampolla fertile ground from which to cultivate an initial customer base. Next, he moved on to endurance athletes – a less crunchy crowd than yoga practitioners, but still very careful about what they put in their bodies. They also present an interesting proposition. They hold fast to habits, making them difficult, but loyal, converts. Rampolla said he built inroads into that community by camping out at the finish lines and handing out free product.

“Every [race] we go to, more and more people say ‘oh thank God you’re here. I’ll take two,’” Rampolla said.

Eventually, the company had to upgrade its sampling gear from insulated backpacks to rolling coolers, and the evidence of Zico’s inroads showed up at retailers. Customers would come in and clear out full shelves, Rampolla said. Now, he’s satisfied with the foundation he’s built in the Big Apple.

“We still have a lot more to do in New York, but it’s up and running and going,” he said.

He plans to import the same strategy to Los Angeles – a tactic, noted Jerry Reda, vice president of sales at Big Geyser, that worked well for vitaminwater.

“Own New York and L.A. and all the other markets will follow,” he said.

Reda said he expects Zico to perform well on the West Coast, and expects continued strong growth in New York, where, after hearing offers from all three major brands, Big Geyser chose to distribute Zico.

“The real naturalists believe Zico is a purer product,” Reda said, adding that Zico’s coolly modern aesthetic also cuts more sharply away from coconut water’s ethnic roots. Reda said O.N.E. and Vita Coco’s packaging gives them an appearance similar to ethnic-aisle regular Coco Lopez. Both brands prominently feature a young coconut with a straw jutting out of it. Zico, on the other hand, focuses on beach, water, shoreline and the brand name, including only a diminutive young coconut as the dot on the “I” in Zico.

While Reda expects Zico to be the eventual winner – and has invested to that end – he said he expects coconut water as a whole to gain mainstream status.

David Lotti, national shelf-stable beverage category manager for Tree of Life, agrees. His company carries all three lines, he said, and “Every one of the three lines is growing.”

Tree of Life has carried Vita Coco for a while, but Lotti said the category really began to take off when the other two national brands cropped up and followed Vita Coco’s path into the natural food stores Tree of Life serves. Right now, he said, tetra coconut water is treated as a sub-segment of coconut waters, which is treated as a sub-segment of juices, but he thinks it could become a segment of its own. That’s a change.

“The new kid on the block in the category is Zico,” Lotti said. “But for us, right now, we’re watching to see which one, if any, will become the dominant player.”

Rampolla would like to break that dead heat. He wants Zico to rise as the top player. As he continues to assemble his team, Rampolla expects the company’s growth to accelerate. He laid his New York foundation in five years, and expects to complete the same work in L.A. in three. Future markets, he said, could take two years or less.

“The end game for me is that coconut water is a global, multi-billion dollar category where consumers have embraced and adopted the product as a natural alternative to sports drinks,” he said. “And that Zico’s the leading brand in that category.” • A rising tide of coconut water appears to have lifted the fortunes of the three top companies trying to take the juice into the mainstream. How long can everyone keep playing nice? The way VitaCoco co-founder Michael Kirban sees it, his company can peacefully coexist with O.N.E. and Zico, as long as all three companies compete on their differences instead of on price point. A price war, he said, could ruin the category, and why do that when there’s plenty of room for all three brands to grow?

But there are problems with Kirban’s utopian vision.

As O.N.E., Zico and Vita Coco creep closer to the mainstream and leave their niche entry points behind, they will have a harder time pointing to differences. Sure, each company has taken a slightly different spin on its flavored variants, but they’re still selling the same core product. Ultimately, it’s hard to talk up a product without talking down one that’s nearly identical to it – just think of RC Cola’s Coke/Pepsi comparison ads. Or the Pepsi Challenge, for that matter.

Of course, the day when the brands start butting heads over supermarket shelf space is probably far off. Kirban said Haralambos Beverage in L.A. carries both Zico and Vita Coco –apparently not causing problems for either brand, and leaving the vaunted distributor with 18 coconut water SKUs when all brand, flavor and size variants are accounted for. Zico Founder and CEO Mark Rampolla, who said he’s actively avoided contracts from Target and Costco, has pegged the threshold for “mainstream” at $100 million in annual sales, a number none of the companies seems to have achieved just yet.

While the first cooler battles may be far away, the price war may have already started.

O.N.E. founder Rodrigo Veloso said his company now sources some of its coconuts from plantations in Asia. The water, which he said comes from the same species of coconut palm he harvests in Brazil, will appear first in his new “with a Splash” flavor extension due to hit shelves in June. The new line will retail at a lower price, but Veloso couched the shift in the language of “conscious capitalism” and long-term planning. If coconut water is going to become the multi-billion dollar world-wide market he and his contemporaries expect it to, Brazil clearly won’t be able to supply enough coconuts to meet the surging demand, he said. And the new coconut plantation would let Veloso inject money into a developing economy. Additionally, Veloso said, as coconut water is such a healthy beverage, he has a responsibility to market it for an affordable price, if possible.

Kirban said he’s not worried about O.N.E.’s diversified sourcing. While the “splash” products will be less expensive, at 8.5 oz. instead of the standard 11 oz., they will also be smaller. Packaging, Kirban said, not the water itself, presents the biggest cost in putting the product on shelves.