Coconut water – a world of opportunity

The writing is on the shell – coconut water’s rise to being the next big thing in soft drinks is inevitable, and there are just so many ways to go!

Brazil by far the largest market

Coconut water is technically a fruit juice, extracted from unripe (green) coconuts. It is a popular refreshing beverage widely consumed in tropical countries, commonly sold fresh by street vendors still in its green shell, and drunk through a straw.

Euromonitor International’s soft drinks data shows that Brazil is currently the world’s largest market for packaged coconut water. Coconut water accounted for 67% of 100% juice retail volume sales in 2010, compared to 47% in 2005 and 21% in 2003. This rapid share gain came primarily at the expense of orange juice.

Kero-coco is the country’s leading brand, claiming a whopping 43% of off-trade volume sales in 100% juice in 2010. The brand is also widely available across the consumer foodservice channel, for example at McDonald’s and Pizza Hut. PepsiCo had the good sense to acquire national brand owner Amacoco Água de Côco da Amazônia Ltda in August 2009. By doing so, PepsiCo not only demonstrated its eagerness to tap into geography-specific high growth areas, but also affirmed its global commitment to expanding its health and wellness portfolio.

Coconut water’s success in Brazil indicates that major opportunities exist in other tropical countries where the drink is part of local beverage consumption culture, such as Indonesia, India, Malaysia and Ecuador, to name but a few. At present, virtually all coconut water in such markets is still consumed fresh rather than packaged. However, as these countries’ packaged food and beverage markets continue to develop in terms of sophistication, consumers will eventually be compelled by the advantages of purchasing their favourite liquid refreshment in an easily portable, convenient and hygienic format to suit consumption occasions in more formal environments, eg at the office or at school.

Big guns fire up US market

Coconut water’s other big challenge, namely that of expanding beyond its native consumption zone in the tropics, is under way. Predictably, top global beverage giants PepsiCo and Coca-Cola are both investing in dragging the category out of its boutique status, starting in the companies’ US homeland. In 2009, PepsiCo entered a distribution agreement with Los Angeles-based One Natural Experience, upping its involvement further in December 2010 by becoming a majority stakeholder.

This will allow the company, which came into being in 2005, to move its ONE branded coconut water-based beverages beyond the confines of warehouse distribution into direct store delivery (DSD) distribution in 2011. In addition, PepsiCo launched 100% Coconut Water through its premium Naked Juice brand in 2010, and partnered GNC (General Nutrition Centres) in November that year in order to develop functional coconut water beverages under a new brand called Phenom, expected to be launched in the second quarter of 2011.

PepsiCo’s competitors have not been sitting around twiddling their thumbs either. Coca-Cola acquired a stake in a coconut water company in 2009, Californian-based ZICO Beverages LLC, and Dr Pepper Snapple Group Inc, the US’ third-largest soft drinks player accounting for 8% of the market by volume in 2010, has an agreement with All Market Inc. The latter is credited with starting the coconut water trend in the US in 2005 with its Vita Coco brand, available in Whole Foods Market and Kroger supermarkets.

Apart from the fact that both Coca-Cola and PepsiCo are based there, it makes perfect sense for the US to be chosen as a beachhead for the entry of coconut water into the highly developed markets outside the beverage’s natural habitat. For one, the US consumer base comprises millions of ethnic Latin Americans who grew up with coconut water before emigrating to the US, and their descendants are often familiar with the beverage through family visits to countries where coconut water is ubiquitous.

In Europe, coconut water has also started making noteworthy inroads. German company Green Coco Europe GmbH’s Dr Antonio Martins Coco Juice, endorsed by a Brazilian physician, has become one of the biggest coconut water brands in the European market since its debut in 2004. Scanning for activity from large players, the mighty Nestlé launched Nesfluid in September 2010 in France, comprising six functional products – Nesfluid Renforce, Vitalise, Rayonne, Equilibre, Body and Protect – containing 50% coconut water and whey. It remains to be seen whether Nestlé will introduce this product to other European markets.

Coconut water – all things to all people

It is evident from the previous examples that coconut water’s most appealing characteristic is its versatility. Without a doubt, its strongest health and wellness positioning platform is naturally healthy. This category exerts universal consumer appeal on the premise that unadulterated, natural, virtually unprocessed, “pure” products are healthiest for the human body. This is underlined by Euromonitor International’s health and wellness data, which shows that the naturally healthy category is the most sizeable in terms of value, accounting for almost 40% of total global health and wellness sales. With global sales amounting to US$223 billion in 2009, naturally healthy was far ahead of the other four main categories, ie fortified/functional, better for you, organic and food intolerance.

Naturally healthy beverages accounted for 63% of the naturally healthy category, and there are plenty of naturally healthy soft drinks examples with astounding success records, such as cranberry and pomegranate juice. Euromonitor International data shows that global value sales of naturally healthy superfruit juice rose by 62% over the 2004-2009 review period, while those of naturally healthy soy beverages shot up by 82%, calculated on fixed 2009 US$ exchange rates.

Naturally healthy RTD green tea also delivered a proud performance globally, with a value sales increase of 54%, but it did particularly well in geographies in which the concept of a green tea-based soft drink was still fairly alien to mainstream consumers a decade ago. In Western Europe, for instance, sales rose by 66% over the review period, in North America by 76%, in Australasia by 375% and in Eastern Europe by an incredible 770%, although this stellar growth came from a very modest base. Statistics such as these show that there is great demand for innovative beverages, and coconut water may well turn out to be the next RTD green tea.

As already mentioned, coconut water is a fruit juice with many USPs, and a major one is its low calorie content when compared to other 100% juice products – it has slightly less than half the calories of apple or orange juice. This makes it a very attractive prospect for weight management-positioned juices. Currently, these types of products still suffer from an image problem as they usually contain artificial sweeteners. Even products like PepsiCo’s Trop50, which attempts to retain its natural air by employing a stevia-based sweetener, is not quite the ticket. Coconut water, either on its own or mixed with other types of juice, on the other hand, would be a 100% natural alternative.

In the same vein, coconut water is also an excellent “mixer” for smoothies. It can be used like water to dilute thickness without sacrificing the product’s 100% fruit juice status, while at the same time bringing the amount of calories down. PepsiCo has used this strategy in its Tropical Smoothie and Peach Guava Smoothie in the Naked Juice line, launched in the US in 2010.

Key to the natural sports drinks revolution

Another category, and one which is often touted as coconut water’s spiritual home, is sports drinks. This category is sadly lacking in offerings positioned as natural at present. Sports drinks are viewed by many as chemical concoctions, not helped by the fact that they come in a range of lurid colours – the very antithesis of natural.

Coconut water, in contrast, is packed full of electrolytes such as potassium, magnesium, calcium and phosphorus, affording it a naturally isotonic composition. Hence, it has the potential to pull in a whole new audience, such as health-conscious women who have previously shied away from conventional sports drinks. Examples of sports drink- positioned coconut water products include the aforementioned ZICO, marketed with the tagline “Nature’s Sports Drink”, ONE Activ and Jinga Sport (Transworld Beverages Inc).

It is also worth noting that coconut water’s unique nature allows coconut water-based drinks to tap into the flavoured bottled water and functional bottled water categories, which have experienced highly dynamic volume growth. Off-trade volume sales of functional bottled water, for instance, rocketed by 143% in Western Europe and quintupled in North America over the 2005-2010 review period.

Coconut water is also ideal as a healthy drink targeted at children. It is naturally sweet but contains much less intrinsic sugar than fruit juice. One cup (240ml) has just over 6g, compared to 100% orange juice which contains a rather scary 20g of sugar. A few such products are already on the market, for example ONE Kids, which comes in four flavours – Apple, Fruit Punch, Raspberry Lemonade and, of course, Orange. Plain coconut water may be just a tad too challenging for an unaccustomed young palate.

Challenges ahead

Despite the previously made optimistic postulation that coconut water could turn out to be the next RTD green tea or even, for that matter, the next Gatorade, there are of course other hurdles still to be overcome besides that of widespread consumer unfamiliarity. The key stumbling blocks are sourcing and price point. For instance, coconut water sells for roughly double the price of mass-market sports drinks.

Unlike green tea or other formulated beverages which are comparatively uncomplicated to source and cheap to produce, the procurement of coconut water is still fraught with issues of availability, quality and perishability. These problems will have to be addressed in order to bring coconut water beverages close to the price points of existing products in the categories in which they hope to compete.