Sustained Surge

When the first wave hit, few gave it much thought or attention.

A decade ago, coconut water was seen as an ethnic beverage, relegated to dusty shelves at Hispanic and Asian grocers, and something that would never gain mainstream appeal in the U.S. Distributors gave little more than a passing glance at brands like Vita Coco and ZICO – both of which have since played a major role in the development of the category – believing that it would take an incredible effort to convince American consumers to purchase their products.

Yet the wave turned out to be one of many, each getting larger and more powerful as the years progressed, each washing over the beverage industry and leaving behind an altered landscape. Last June, global research provider Mintel reported that new product introductions of coconut water products grew by 540 percent from 2008 to 2012.

According to SPINS, a provider of syndicated market research, coconut water reached $308 million in total U.S. multi-outlet and convenience store sales over the 52 week period ending on Feb. 23. At a three year compound annual growth of 31 percent, the category is outpacing a number of established and new beverage categories, including enhanced waters and RTD coffee.

With literally dozens of brands in a still nascent category, getting a clear snapshot of the overall coconut water segment is a rather difficult task. Instead, we decided to look at three brands in various stages of development – Vita Coco, Zola and Minoku (which is marketed by Double Cola) – and how they approach sustained demand for coconut water in terms of sales and distribution strategy, innovation and marketing.

THE PLATFORM

Vita Coco is by far the top-selling coconut water on the market, and while SPINS reported that the overall sales growth of the category slowed to 18.5 percent in natural, specialty and multi-outlet channels in the 52 weeks ending on Feb. 23 (in the year prior, growth in those channels was at 53.9 percent), sales of Vita Coco products are nevertheless booming. 

The sales data on coconut water doesn’t match the scan data, which is already impressive, according to Vita Coco executives. While IRI’s data for Supermarkets, Drugstores, Mass Market Retailers, Gas and C-Stores pegged sales at $135 million for the 12 months ending on March 23, brand spokesman Arthur Gallego put the figure much higher. He added that he expected growth rate for 2014 to be in the “healthy double digits.” IRI data showed sales up more than 33 percent from the previous year.

Vita Coco’s army of staffers includes more than 115 field sales professionals, all of whom are focused on working with distributors on chain execution and creating multiple points of interruption within stores, and the company continues to pump resources, including in-store cold equipment and custom displays, into the mass channel, awareness and sales of Vita Coco are likely remain on an upward trajectory. The brand was recently named as one of 17 to take part in Target’s new “Made to Matter – Handpicked by Target” program, which focuses on increasing its shoppers’ access to natural and organic products.

But the large-format growth has left the convenience store part of the mix behind where it should be, admit Vita Coco executives. To ramp up sales in the channel, the brand is rolling out a lemonade flavor, which the company believes has the potential to expand the product more extensively into the afternoon as a consumption time. With lemonade as a kind of introductory flavor, Vita Coco will aim to attract new consumers in the parts of the U.S. where the brand and category is undeveloped in comparison to the East and West coasts.

The company looked at other chances to penetrate that afternoon Wawa Market run type of space, including tea, before settling on lemonade. As with its kids beverage platform, which was also in development for longer than a year, the company has taken a cautious approach that defines how the company looks at innovation and the potential risks associated with new product launches.

That said, Vita Coco is evolving, and with the addition of new food and snack products – which are currently in planning – the company sees potential in becoming a platform for coconut- based consumer goods. The company relies on the strength of the Vita Coco brand name and a desire to take advantage of operational efficiencies in sourcing, production and transport of other coconut products along with its coconut water, which it produces in Brazil, Southeast Asia and Mexico.

THE READY-FOR-PRIME TIME PLAYER

It wasn’t just Vita Coco that thought a lemonade and coconut water blend would be an attractive product. Zola’s simultaneous introduction of a new lemonade variety for its own two-year old line of coconut waters, CEO Chris Cuvelier said, was an incremental foray for what has turned into an important growth engine for the company.

Zola got its start marketing acai beverages but expanded into coconut water in early 2012 as part of its “Fruits of the World” platform. Zola has since rapidly gained placement in of its 17.5 oz. cans and 1 L Tetra Paks in thousands of retailers across the U.S., including Safeway, SaveMart, Dominick’s, ShopRite, Stop N Shop, Vons and Whole Foods.

The company has grown to an estimated $20 million in annual sales, leaning on a hybrid distribution model comprised of UNFI in the natural channel and direct warehouse delivery. And while Zola works with New Age Beverage for distribution in Colorado, it has grown despite the lack of a major DSD network, Cuvelier said.

Instead, Zola works with merchandising teams in each of its markets to help support the brand on the shelf. And whereas Vita Coco has adopted a “pedal to the metal” sales strategy over the past two years, Zola, takes a “focused and narrow” approach.

“For us, it’s about going and getting the accounts, getting the revenue coming in, dropping in merchandisers behind that to support the revenue, and build out that presence,” Cuvelier said. “What we’re finding is that if our product has good displays and added visibility, then it sells really well.”

Cuvelier credits the measured and deliberate approach as key to staying in the ring with the top coconut water brands, which benefit from far greater financial resources and powerful distribution networks (Vita Coco is partnered with Dr Pepper Snapple Group; ZICO is owned by the Coca-Cola Co.; O.N.E. and Naked are PepsiCo brands). He also pointed to his personal involvement in sales as being critical to the success of Zola’s coconut water.

“I’ve been doing a lot of the sales calls, so has Matt [Collins], our COO, just to get in there and show these retail partners we’re serious, we want to grow the business,” Cuvelier said.

Within in the past six months, sales of Zola’s coconut water have surpassed those of its acai products, and now represent 60 percent of sales for the company. However, Cuvelier noted that acai remains of significant importance to Zola. Along with steady and sustained sales, Zola acai drinks represent a complementary product line, one that reflects the company’s commitment to high quality taste and healthy lifestyle beverages, he said.

“We’re selling more dollars to our retailers because we’re playing in two categories, and it becomes relevant to the buyers,” Cuvelier said. “It’s not like it’s a lot of incremental work just to focus on the acai [drinks], it’s just part of our product offering that we’re offering to retailers. So, it’s very complementary in that sense.”

And though acai products are certainly represented less in traditional grocery than in natural retailers, the brand name that Zola built with acai has laid the foundation for its coconut water to achieve quicker recognition and awareness. Despite just two years on the market, Cuvelier believes that Zola is positioned to leapfrog Naked in conventional grocery sales and crack the top four coconut water brands in the channel by the end of the year.

Along with continued focus on the grocery channel, Zola will aim to expand upon its pull with healthy, active women aged 25-35, a demographic that Cuvelier said represents its largest base of consumers. With marketing efforts tuned to represent Zola as an aspirational brand, the company has honed in LOHAS-friendly, tropical-themed marketing strategy, particularly via social media. Zola has introduced a number of promotional initiatives such as its #ZolaZen Instagram contest and the introduction of the tagline, “It Makes Your Body Smile.” Doubling down on outreach via Facebook and Twitter, Zola is set to launch a major social marketing campaign this summer that will be targeted to reach its cluster markets, Cuvelier said.

THE 90 YEAR-OLD YOUNG TURK

While Zola’s vault into the coconut water category was bolstered by its credentials and reach with acai, longstanding CSD maker Double Cola surprised much of the industry last year when it rolled out Minoku, a not-from-concentrate coconut water, a move that is intended to address and take advantage of consumer demand for better-for-you drinks, something that had been lacking in its existing portfolio of CSD products.

Along with a new line of functional iced teas (as well a brand of value-priced energy drinks), the Chattanooga, Tenn.-based company, which was founded in 1922, waded into the coconut water category last spring. Double Cola vice president Gina McCommon says that the company has so far weathered the overall decline in consumption of CSDs and remains focused on robust sales of its core products (which are doing “quite well,” she noted). But Minoku, which had been in development since early 2012, is intended to attract a new set of consumers, many of whom are just now beginning to try coconut water for the first time.

“We wanted to develop a coconut water that did suit the American palate, that we ourselves actually wanted to drink,” McCommon said. “And for us, and for all the focus groups that we conducted, the sweeter the taste profile, the more people liked it.”

As such, Double Cola set out to develop a brand that leaned toward the sweeter end of the scale for coconut water and landed on liquid from Thailand, where Minoku is produced and packaged in 17.5 oz. ribbed cans. Yet by the time the product hit the market, the coconut water category had seen the launch of several similarly-positioned brands, including Zola and C20, not to mention dozens of other start-ups. Nevertheless, McCommon sees opportunity for sustained development of the segment.

“When we started, the category wasn’t as saturated as it is now; it was quite different than what we’re seeing today,” McCommon said. “Even though the market is saturated, we still think there’s room for growth in the category.”

McCommon hopes that the package design for Minoku, which features sunset-like imagery and a rainbow of tropical colors, offers a critical, striking point of differentiation from competing brands, particularly on a store shelf.

“Everything that we saw, pretty much, was going all-natural,” McCommon said. “So all the colors were very light and used a lot of blues and greens and white. And so we wanted to have more of an impact and go for something really bright that would make people feel good and feel like Minoku was a 5-10 minute escape from the everyday work week and everyday life.”

But what the company is truly relying on is the same impulse that has inspired so many brands to join this category, and has caused bigger companies to try to reach out to consumers through lemonade.

“What we’ve experienced [is that] there isn’t a whole lot of brand loyalty at this point with coconut water,” she said. “It’s quite different from what we see in the carbonated soft drinks market. That’s been very helpful for us. We do have any opening where we can get people to try the product. I think moreso than all of the brands that are out there, the bigger challenge for us has been getting people to try coconut water in general [as opposed to] trying our brand over another brand.”

McCommon described the launch of Minoku as being “fairly successful” so far, noting that since the beginning of this year, the company is beginning to move significant volume of the product, with the bulk of its sales coming in California, far from the company’s base of distribution in the Southeast. Certainly, it’s still early for Minoku, but, for Double Cola, the end goal is less about the coconut water standing on its own. Rather, the company is aiming to evolve beyond its CSD offerings to become a platform for a broad array of beverages.

“We are small enough that we have room to grow our brand,” McCommon said. “It wasn’t that we were thinking, ‘Oh no, we’re starting to lose volume because of health trends.’ It was more along the lines that we want to become a full-service beverage company offering a wide range of products to consumers, retailers and distributors.”

If coconut water is a requirement for full-service, then expect those waves to keep on coming.