Coke investment in Zico marks change in coconut water

In a further sign that coconut water is maturing as a beverage category, ZICO LLC announced Tuesday that it received a minority investment from the Coca-Cola Co.’s Venturing and Emerging Brands Unit as part of a $15 million round of financing that also included brand-builders Suite 850 and other individual investors.

Despite an investment for the beverage giant the arrangement won’t alter ZICO’s immediate plans, according to Mark Rampolla, the company’s founder and CEO. He said the company will stick to its DSD network – which includes Polar, Big Geyser and Haralambos – and continue to target coastal markets through “influencers” while steering clear of traditional advertising.

“I’ve been very, very impressed with Coca-Cola… in how willing they’ve been to work with us and listen to us and sort of allow us to have our say in how we’re going to build this brand,” Rampolla said.

In the long term, he said, the company could consider distribution through Coke bottlers, but the brand isn’t yet ready for that kind of move.

Coke’s investment follows PepsiCo’s announcement last month that it had agreed to acquire Amacoco, Brazil’s largest coconut water brand. Amacoco is a supplier to ZICO competitor One Natural Experience (O.N.E.), as well as ZICO itself.

That buyout will leave ZICO using cash from Coca-Cola to buy supply from a company owned by PepsiCo. Rampolla called the situation “interesting,” but said shouldn’t create a long-term strain on the brand. ZICO, he said, has a contract with Amacoco that is secure enough that Coca-Cola felt comfortable investing, and ZICO already had plans to diversify its sourcing.

Just as they did immediately following the PepsiCo announcement, Rampolla’s competitors hailed Coke’s financial entry into coconut water as good for the category. O.N.E. co-founder Rodrigo Veloso welcomed Coca-Cola as a competitor, and Vita Coco co-founder Mike Kirban said he hoped Rampolla would invest his Coke funds in marketing, which would to grow the category and indirectly help all three companies.

Kirban, though, said the timing of the investment may hamper ZICO. He said he doesn’t see the product, at its current stage of development, fitting into Coca-Cola’s distribution system. He also said he wondered if the specter of that eventual move may frighten away distributors who have already been burned by the Coca-Cola buyouts of Honest Tea and glaceau, both of which gradually cut over to the Coke system.

The investment could also lead to a backlash against ZICO in the natural foods segment as Coke opens more mainstream doors for the brand, according to Tim Sperry, a former director of grocery for Whole Foods Market and current president and owner of The Tim Sperry Group.

“When these brands start to become ubiquitous, some of the smaller players – even sometimes Whole Foods – will say ‘we’ll go with these other guys,'” Sperry said.

Sperry added that he saw Coke’s investment in ZICO as another sign that not only the coconut water business, but also the natural foods industry as a whole is “growing up” as mainstream corporations buy up formerly natural-only brands like Izze (now owned by PepsiCo), Kashi and Bear Naked granola – both now subsidiaries of Kellogg’s.