It’s been about a year since Vita Coco CEO Mike Kirban announced his company’s intention to take on the world.
On stage at BevNET Live Summer 2018 in New York, Kirban cut a composed figure. Despite having to spend time and energy swatting down rumors of the company’s imminent sale and defending its reputation in the wake of the “Squidgate” controversy, he took it all in stride. Though most in the audience were unaware, Kirban already had big plans in motion.
Nearly 12 months later, Kirban’s grand strategy has started to come into view, though maybe not the way many expected. Last summer, All Market acquired natural energy drink brand Runa, in which Kirban has been a longtime investor. But a string of further acquisitions hasn’t followed, as Vita Coco has instead turned towards fueling its internal innovation pipeline with new products that can bring the brand into new categories and retail channels. In addition to fueling the company’s own ambitions, these innovations have put the company in pole position to drive growth in Keurig Dr Pepper’s (KDP) allied brands portfolio – and throughout KDP itself – after a year of change.
Coconut Water Market Check-In
While coconut water remains a $400 million category, an examination of sales data provided by market research group SPINS shows two divergent paths for refrigerated and shelf-stable varieties. Even as the former saw sales increase 4.8% in the past year, a nearly 10% drop in sales of the latter has strained overall growth. Total U.S. sales fell 8.4% in the past 12 months, encompassing both pure coconut water and blends.
In the broader market context, shelf-stable coconut water is still the larger segment, with dollar volume of $355.1 million as compared to $45.2 million for refrigerated products.
Perhaps more concerning is the fact that innovations within the category are struggling to make a positive impact. Both refrigerated and shelf-stable coconut water blends, while small segments, have experienced sales declines across the board; After generating over $52 million in sales in the year prior, refrigerated coconut water juice blends fell 20.6% last year (approximately $41 million). Other fusions have also fared poorly – shelf-stable and refrigerated blends with coffee were down 28.9% and 88.9 percent, respectively.
Retail positioning is also changing for the category. Having established a presence initially through the natural channel, coconut water (refrigerated and shelf-stable) is down 10.7% in those retailers over the past year. Meanwhile, growth is up 8.9% in the convenience channel, which now represents over $19 million of category sales. Refrigerated coconut waters have gained ground across retail channels, with 6.2% growth in MULO the biggest driver.
Vita Coco itself saw total multi-outlet (including convenience stores) sales of its aseptic products decline 8.1% over a 52-week period ended on March 24, according to data from IRI. The company posted approximately $185.4 million in sales during the period. Though sales fell, Vita Coco still outpaced rivals such as Zico (down 20%) and O.N.E. (down 33%) in the aseptic coconut water segment.
In the refrigerated segment, Vita Coco offshoot Coco Community enjoyed 988% growth and posted approximately $7.2 million in sales during the 52-week period. Harmless Harvest remains the largest player within that segment, holding around 34% dollar share of the market and growing its sales 20.7% during the period to over $19 million. Sales of refrigerated coconut waters from Zico grew 43.4% to approximately $3.6 million.
Having spent over a decade introducing retailers and consumers to coconut water, Vita Coco’s stake in the future of the category is greater than perhaps any time in its history. As its traditional competitors have seen falling volumes, the company sees opportunities to both consolidate in existing segments and expand into new ones. Over the last 12 months, Vita Coco has calibrated its innovation pipeline to produce items specifically aimed at high growth retail channels like convenience. At the same time, market trends, such as sugar reduction and functional ingredients, are also shaping the future of its portfolio.
“Through 2016, we were really slow to innovate using this amazing raw material we have,” he said, noting that the company cracks 2.5 million coconuts per day. “So in 2018, we started to really turn (it) on.”
Building With KDP
As it looks to the future, Vita Coco can work with the security of knowing one of the world’s biggest beverage companies has its back.
The impact of last year’s merger of Keurig Green Mountain and Dr Pepper Snapple is still reverberating through the beverage industry, but particularly within the latter company’s allied brands portfolio. The group – a wide variety of independent brands across beverage categories that are distributed through KDP’s nationwide DSD system – has seen several high profile departures (Fiji, BodyArmor), as well as additions like Forto .
The shakeup has also altered Vita Coco’s role within the KDP ecosystem. Once an upstart, the brand now represents one of the more consistent long-term performers in the company’s stable. In some ways, it’s business as usual; Kirban said the company has been relatively unaffected by its transition from DPS to the newly formed KDP, and praised CEO Bob Gamgort as a “real professional.”
Yet in other ways, Vita Coco’s uptick in output has turned it into a more prominent piece in KDP’s overall innovation machine. In the last two years, Kirban said, the company launched “maybe one or two” new pallet positions through KDP’s distribution network; this year, that number is set to rise to 18. That has brought the two parties closer.
“We meet on a regular basis, which we weren’t doing before,” Kirban said. “We talk about innovation and we show them the things we are working on. We talk about where there is opportunity in their system and network and areas that they want to go deeper in.”
KDP’s distribution expertise will be an important component in Vita Coco’s push to expand its c-store presence. The introduction of a 16.9 oz. PET bottle format has helped; after launching as a 7-Eleven exclusive in April 2018, the line is rolling out to convenience retailers across the country this month. Kirban called it a “game changer,” noting that the brand’s 7-Eleven business was down 12-15% in the 12 months prior to the launch. Sales are up 40% since the bottle hit shelves, despite the fact that Tetra Pak units also continued to be sold in more stores alongside them.
Runa has also benefited from Vita Coco’s relationship with KDP. In April, the beverage giant picked up the energy drink for national distribution, providing a bridge from the product’s traditional home in natural retailers to c-stores, mass and conventional retailers.
In turn, other innovations have been directed towards other channels. Vita Coco’s sparkling coconut water line, sold in 12 oz. aluminum cans in four flavors, launched as an exclusive Kroger item last April. The line is now available at stores in New York and Los Angeles. Vita Coco also launched a new version of its flagship coconut water made with pressed coconut in March.
Kirban noted that distribution agreements with KDP aren’t necessarily baked into any potential acquisitions All Market might make, but the “regular dialogue” between the two parties increases the chances of finding common ground. Yet he also noted that KDP handles only approximately 35% of Vita Coco’s total domestic distribution, which gives the brand a range of route-to-market tactics to employ as appropriate for its various releases.
“We went through Kroger direct last year (for sparkling) and went DSD for two markets through KDP,” Kirban said. “With PET, we went through McClane Company last year into 7-Eleven. It worked, so this year we feel like we can double-down on PET for c-stores and we are doing that in partnership with KDP.”
Playing in CBD
At Natural Products Expo West 2019 in March, Vita Coco shared an early look at a new innovation in one of the hottest segments of the market: CBD-infused drinks. The launch, set for this summer, represents one of the first entries by any of the major beverage companies into the nascent space, further underscoring the brand’s importance to KDP’s broader ambitions.
For Kirban, moving into CBD simply makes sense.
“I think it’s a great place for the brand to play,” Kirban said. “It plays well with our brand heritage and the emotional draw and everything else.”
The product, available in 12 oz. cans and in a single Cloved Orange flavor, contains 20 mg of full spectrum hemp extract. The line will begin testing in select regions this summer, similar to how Vita Coco has piloted prior launches. Kirban said he believes that by next year, large retailers will be “willing and able” to start adding CBD products in their sets – that is, if anyone is willing to move first.
“I think it’s close,” he said of widespread retail adoption for CBD products. “We are talking with retailers about doing some market-specific testing on CBD and I think giving them the ability to get their feet wet with it and see the reaction from consumers will help break the barrier of brands getting into larger national retailers. I think that’s something that we as a larger brand are willing to take on. Our ability to do things outside of the norm from a distribution standpoint enables us to be that guinea pig (in the market).”
To help retailers make that transition, Kirban said Vita Coco is discussing market specific tests for its CBD products to help them understand consumer responses. Despite the momentum behind CBD-infused beverages – sales are expected to reach $260 million by 2022, according to Cannacord – the nascent marketplace, retail apprehension and the FDA’s shifting position on regulating such products means Vita Coco’s gambit is still a risk, but one that Kirban acknowledged as worthwhile.
“I think that (entering CBD) is something that we as a larger brand are willing to take this chance on,” he said. “With our ability to do things outside of the norm from a distribution standpoint, it enables us to be that guinea pig. It will be beneficial for our business but also for anyone else who wants to play in that space moving forward.”
Yet that doesn’t mean Vita Coco is deliberately taking risks: Kirban said, after a discussion with his in-house counsel, that the product will be marketed as “hemp-infused” rather than explicitly calling out CBD.