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Much Ado About Coconut Water?

February 3rd, 2017

The emergence of coconut water

As interest in keeping healthy expands globally, product emphasis has shifted from those that tout “low calories” or “no added sugar” to those that represent a healthier lifestyle.  Social media has assisted this, with Instagram and Facebook, for example, supplying inspirational quotes and short videos focusing on the mantra of overall wellbeing. In this environment, coconut water has benefited. As a product with more potassium than a banana, no added sugar, no fat or cholesterol, as well as no preservatives, it is seeing strong growth across several markets, with for example, the Middle East and Africa seeing a growth of 17% over the last year. The strong performance is expected to continue over the forecast period.

Why didn’t people think of packaged coconut water before? This is surprising as coconut water is widely available on the streets of Brazil, Indonesia, Thailand, Sri Lanka and India. One reason that this opportunity had been previously overlooked was because fresh coconut water decomposes as soon as the coconut is cut and the water is often thrown away if not immediately consumed. Moreover, other parts of the coconut were deemed to be more valuable; the kernal being used to produce virgin and copra oil and the bran used for animal food and the husk for floor mats, brushes and mattresses. However, processing and packaging techniques have now developed further, allowing for an extended shelf life for coconut water.  What has followed is the entry of pioneer brands and a marketing blitz to position coconut water as a healthy alternative within the juice and sport drink categories.

The Middle East perspective

In the Middle East, the entry of coconut water is fairly recent, though it shows huge market potential for companies. Real momentum within the category gained traction when it exploded on social media as the “go to” drink of top celebrities. Gwyneth Paltrow was one of the first mainstream celebrities to fully embrace the benefits of coconut water and she was followed by others. Due to its functional benefits and hydration capability, coconut water might also be seen as the ideal drink during the holy month of Ramadan, alongside Vimto, to be consumed during Iftar in order to avoid dehydration and providing a source of electrolytes.

So how can companies benefit from this trend? Manufacturers wishing to enter the UAE and surrounding countries might showcase their offerings in regionally renowned events, such as Gulf Food or the Qatar International Food Festival. Major companies often list their products in order to engage with the horeca channel and known local distributors within the Middle East.  Vita Coco, for example entered the UAE in 2014 through a local distributor called New Age Beverages (Hossani Group), which was able to offer extensive local knowledge. Most brands coming from the Philippines and Thailand have found local distributors in the region to help in smoothing their market entry. Moreover, different consumption tastes and budgets are directing product offerings, such as “not from concentrate” and “from concentrate (100% coconut water)” or products that contain 25% coconut water along with nata de coco (jelly), sugar and coconut flavoring.

At the supermarket aisle level, it can be seen that a number of brands have descended on the Middle Eastern markets. Already there are differences in pricing, with premium brands of coconut water alongside those at the lower end of the market, but lacking a mid-priced offering.

While initially coconut water was typically restricted to Tetra Pak cartons, there has been an evolution of packaging with some interesting formats, particularly in the premium range, for example Genuine Coconut, which can be consumed directly from the shell-like packaging. The product features a ring pull system on the top and can be consumed with a straw. This is similar to Pearl Royal Coconut, which has an outer coconut shaped packaging with a shrink wrap. Contained within it is a recyclable can that contains 310ml of coconut water.

Mapping the future of coconut water

Depending on who you ask, there are a few categories that coconut water can neatly fit into because of its dual proposition of hydration and nutrition.  The pundits have lent their verdicts on the versatility of coconut water as it can form a base ingredient in other soft drinks, bringing in new consumers and boosting consumption occasions. Coconut water can now be found as a base ingredient in formulations encompassing RTD coffee, RTD tea, sports drinks, still drinks, as well as flavored milk in some countries. It is expected that more established players will be offering products that have coconut water as part of its formulation, as it lowers the calorific content of the offering and adds value to the product.

As with any emerging category, the current fragmentation seen will move along the consolidation lifecycle.  The speed of consolidation is debatable; however, global brands such as Vita Coco are moving rapidly to build scale and create a global footprint. Most coconut water players will continue to approach this market with pre-established distributors and this is unlikely to change in the near future. On their end, distributors will bet on those brands they think have promise, while the smaller players will have a limited spectrum of independent distributors.

Middle East and Africa

As it stands coconut water is already transitioning from a niche beverage to something that is consumed over lunch breaks by office workers, much like vitamin water. The market in the Middle East and Africa has much potential, though will likely see attrition in growth rates in both volume and value during the forecast period, as sourcing and price points are a few hurdles within the industry that need to be addressed. Nevertheless, coconut water still offers some promising opportunities.

James George

James is a Senior Research Analyst with Euromonitor International. James specializes in beverages for the Middle East and has handled other FMCG industries such as personal accessories, dairy, tobacco and pet care. One of his primary objectives is to actively engage with major industry players through trade press and speaking events alongside creating datasets, and authoring the annual report for the UAE. James is also responsible for assisting analysts working in Iran, Egypt and Saudi Arabia. James graduated with a MSc. in Management and Marketing from the Nottingham Business School, UK and holds an Engineering degree in computer science.

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