After more than a decade spent establishing the category in the U.S. in the shadow of Coca-Cola, PepsiCo and others, in 2022 Vita Coco stands alone as the definitive coconut water leader. With 51% of the market, Vita Coco, now operating as a public company, has supported itself through growing revenue, positive cash flow, a robust private label operation and around 11,000 new points-of-sale so far this year.
In other words, this is where it gets complicated.
“There’s a long tail of small brands that we’ve always had in this category,” said Vita Coco co-founder and chairman Mike Kirban during an interview earlier this week. “Over the last year and a half, they’ve gone away, and I don’t see them coming back. The scale wasn’t there, they couldn’t get the margin right. We’ve taken that shelf space and I believe that we’ll keep it.”
At least on the shelf, there appears to be blue skies ahead for the New York-based company. Having seen chief rivals Zico and O.N.E. fall aside, Vita Coco is pushing ahead with its ever-changing portfolio of coconut water beverages, which now includes the original line, Pressed, Coconut Milk and a recently launched coconut juice in 16 oz. cans. Having dipped its toes into various formats and categories over the years, Kirban said the company has affirmed its strength is in “shelf-stable, center store distribution,” and that’s where it plans to keep growing.
“We’ve tried refrigerated with Coco Community and all of these other things that just didn’t work for us, because they’re not really in our wheelhouse,” he said. “So I think it’s about staying close to the coconut and staying close to what we’re really good at, from an execution and innovation standpoint.”
At present, it seems to be working: the Vita Coco brand reported 23% growth in North America (+21% globally) in its Q2 2022 earnings report released earlier this month.
Yet over the past quarter, Vita Coco’s management team has sought to manage the business “a bit tighter,” Kirban said, in an effort to improve margins. The pressures have mainly come from soaring costs of ocean freight, rather than increases in raw materials or labor. All Vita Coco products are imported as finished goods from overseas so, short of finding a way to grow coconuts in Manhattan, the company has little choice but to ride things out. That means purposely slowing its contracts for shipping containers in anticipation that prices will be coming down in the near future; on its most recent earnings call, CEO Martin Roper noted Vita Coco has around 30% of its needs for 2023.
The brand has also looked to take prices higher, with some action taken in Q2 and more to follow in Q4. Increases in other competing hydration categories have allowed Vita Coco to raise its price while still coming in below the average.
“When you think about the overall beverage category, I think we have room to go on price,” Kirban said. “We’re not going to price ourselves out. I think when you think about our consumer also, the product is quite habitual. So a lot of our consumers are making their smoothies every day with things like this. And at the end of the day, if the price of a one liter goes from $3.50 to $3.99, are they going to start putting something else in there in their smoothie? We don’t think so.”
For now, Vita Coco’s sales are helping to support the more measured growth of the company’s other brands, including Runa, Ever&Ever and PWR LIFT. The latter, a protein-infused hydration drink introduced in 2021, was soft launched in a handful of test markets this year, with “great results,” according to Kirban, and will be expanded in 2023. Finding the right growth model for natural energy drink Runa, meanwhile, has been more challenging. Multiple reformulations and resizings now put the brand in a 16 oz. can aimed at convenience stores in a small set of markets. With the core business humming along, Runa will continue its slow incubation and will expand “when we think it’s ready,” as there’s little pressure to push products through before they’re completely ready.
“[The core business] gives us the ability to not have to rush any of these brands too fast,” Kirban said. “And it gives us the ability to look for the right M&A opportunities, as opposed to rushing into something that might not be perfect for us.”
The idea, Kirban said, is to build Vita Coco’s platform via a combination of incubated in-house brands and select M&A or investment opportunities. At a time in which Coca-Cola and PepsiCo have scaled back their small-scale and mid-tier venture activity, Kirban sees space for Vita Coco to connect with brands at around $20 million to $40 million in revenue.
“The money is just not flowing like it was a couple of years ago, it feels, and so I think it gives us an opportunity to help some of these brands reach their full potential through either M&A or or some sort of strategic partnership.”
Speaking of strategic partners, spirits giant Diageo is set to help Vita Coco make the leap into the RTD cocktail market with next year’s launch of Vita Coco Spiked, made with Captain Morgan rum. It’s a space the company has long sought to play in – Kirban recalled a version sold to nightclubs through a beer distributor around a decade ago. But with the backing of a major conglomerate, it now feels like a feasible way to raise coconut water’s profile as a cocktail mixer.
It’s unclear whether that means the brand’s work with Diageo will extend to its other spirit brands, but in creating one more use occasion for coconut water, Vita Coco’s bigger goal has been accomplished regardless.
“That’s what we’d like to see all the time,” said Kirban. “I want to see people going to the grocery store, buying a liter of Vita Coco and using half of it for their smoothie and the other half for their spirit in the evening. I think that’s a real opportunity for us.”