ZICO Coconut Water yesterday notified two of the largest independent distributors in the country that it is terminating their relationship in favor of the Coca-Cola network.
The move means that Coke trucks will be responsible for distributing the fast-growing coconut water brand in Southern California, replacing the Haralambos Beverage Co. in Los Angeles. The Coke-owned Odwalla distribution network will be in charge of delivering the product in the Boston area, replacing giant independent Polar Beverages.
“Both Haralambos and Polar have played an important role in building the ZICO brand to what it is today, and for that I will be eternally grateful to Tony [Haralambos, president of Haralambos Beverage CO.], Ralph [Crowley, CEO of Polar Beverages] and their organizations,” Rampolla said. “I believe the coconut water category and the ZICO brand, especially with the success of our bottle line, are ready to go mainstream in both markets.”
“I think it shows what a nice job the independent system has done to develop the brand to the point where Coke sees that it has some potential,” said Gerry Martin, Polar’s vice president of marketing. “We don’t have to like it but it’s part of the equation.”
It’s an interesting decision on the part of ZICO CEO Mark Rampolla because both Coke and archrival PepsiCo have reputations for fumbling entrepreneurial brands once they enter their high-volume networks. Rampolla said he understood the risk, but that his company had actually been quietly experimenting with both Coke and Odwalla in smaller accounts and had been pleased with the results.
ZICO has been serviced by Odwalla in important metropolitan areas like Seattle and Portland, since the early summer, following an energetic launch in Northern California. Meanwhile, after judging successful a switch to the big “Red System” Coke trucks in South Florida in September and October, Rampolla decided to put the ZICO account in Coke’s hands.
“We felt like it was time,” Rampolla said. “I also think Coke has gotten better at handling [entrepreneurial brands],” he said. They’ve learned from Glaceau, Fuze, Honest Tea and others. We’ve been pleased with what’s happened in South Florida and we wanted to replicate it in other markets.”
Both South Florida and Southern California are highly dependent on chain store accounts – a channel in which Coke is a strong player. Nevertheless, Haralambos and Martin both pointed out, smaller brands can get hurt in those smaller “up-and-down-the-street” accounts where they often build business and brand awareness when they make a move to a larger network.
“The question is, can Coke do the job?” said Tony Haralambos, the president of Haralambos Beverage Co. “Are they overwhelmed, adding to their infrastructure to accommodate these little brands coming in? How much interest could they have in such a little brand?”
Coke has been focusing on little brands of late. Partially owned by Coke through an investment from that company’s Venturing and Emerging Brands (VEB) group, ZICO is moving into Coke distribution system even more quickly – and at a smaller size – than its Venturing and Emerging Brands stable-mate Honest Tea.
That company’s so-called “cut-over” into the mainstream Coke network has not been without its bumps, as it remains hard for small brands to get attention in the Coke system amidst so many 12-packs of Sprite cans and 2 liter bottles of Diet Coke. But the company has committed to other growing brands in recent years, and Rampolla said he believes the experience with those brands will make the transition easier for ZICO.
“Our phenomenal growth rate this past year has made it clear that the ZICO brand and the whole category are hot,” Rampolla said. “There may be a window of opportunity for us to get out there and maintain and accelerate the advantage we have with the bottle and this change will help us get there faster.”
Martin was sanguine about ZICO’s departure, indicating that the loss of an entrepreneurial brand, even one with the potential of ZICO, has become part of the game for independent players. It was only a matter of time, he indicated, particularly after what he termed a successful switch by ZICO into PET bottles for a more mainstream look in a category that had been identified solely with Tetra-Pak boxes until last spring. While Haralambos indicated he believed the effects of the PET switch were too early to determine, he said he also carries ZICO competitor Vita Coco, which remains in Tetra-Pak.
It’s not a complete loss for Haralambos and Polar – executives from both companies own shares of ZICO. Martin pointed out that it has become a contractual priority for many independent distributors to have access to shares in the brands they carry because of the potential for loss to larger networks.
“I’m a shareholder too, so I wish them well,” said Tony Haralambos, the CEO of Haralambos Beverage Co. “It’s in my best interest to have them do well. It’ll help the category as well.”