Coconut Water Makes a Splash in Canada, Yet Challenges Lurk
Coconut water is a relatively new phenomenon in Canada, and the past two years have seen the expansion of the category once largely relegated to ethnic food stores.
However, the category’s further growth is predicated on the ability of the marketers of coconut water to overcome a number of challenges, such as taste, pricing (especially given the current state of the economy and consumer confidence) as well as skeptical attitude of many consumers and nutrition experts with regards to benefits of coconut water, attitudes expressed on the pages of magazines, news networks and, most recently through class action law suits. While efforts are being made to address the issue of taste and price, winning the debate over nutritional benefits of coconut water is likely to be the most difficult task marketers of the products will have to deal with.
Brands proliferate amidst multiple challenges
Canadian store shelves currently feature a multitude of coconut water brands, such as O.N.E, Beyond, Zico, Grace, Blue Monkey, Cocos-Pure and others. Canadian foodservice is also seeing more locations featuring coconut water. In spring of 2012, Starbucks announced the launch of O.N.E. brand at its cafes across Ontario and British Columbia. Coconut water is increasingly featured in mixes at gyms, yoga studios, outdoor events and festivals in the country. Nonetheless, despite all the buzz generated by the new trend, sales of coconut water in Canada remain small in actual value and volume, at less than estimated C$2 million in retail in 2012, with growth in lower single digits in volume terms. While a promising category, growth has been hampered by a number of key issues:
Taste: Taste remains an issue for many consumers. While product development includes flavoured varieties to improve taste, in a way such products undermine the key marketing ploy – 100% natural and pure – and add to sugar, sodium and calories content. For instance, the label of O.N.E 100% coconut water claims that 330 ml serving of the product contains 0% calories, 11 g sugar, 65 mg of sodium and 610 mg of potassium. On the other hand, Canadian-based Sun-Rype line of flavoured coconut water (mango flavour) shows the following content for 250 ml serving size: 70 calories, 17 g of sugar, 75 mg of sodium and 300 mg of potassium. As Canadians are becoming savvy at reading product labels and compare nutritional content, aided by consumer blogs and social media to exchange information and opinions, flavoured coconut water does not fare well in comparison with 100% pure products. At the same time, many consumers have been trying 100% coconut water as an additive to their smoothies and juices, thereby sticking to the original 100% products while overcoming the taste issue. Marketing 100% coconut water as an addition to home-made smoothies could be one way of expanding customer base for the category in retail. Also, marketing support for ready- made flavoured products might do better comparing the products to soft drinks, such as juice drinks and carbonates, to showcase a better nutritional content and encourage purchases.
Price: The high price of coconut water is also an inhibiting factor to growing customer base, especially in view of slow acceptance and uncertainty over taste and benefits. Coconut water is significantly more expensive than sports drinks, the category coconut water is often compared to, and even more so when compared to bottled water when positioned as a source of hydration. Thus, for instance O.N.E. brand of coconut water retails on average of C$5.99 for 1 ltr while Gatorade retails for an average of C$1.99 for 710 ml (or C$2.8 per litre). Smaller and more portable coconut water sizes are even more expensive (C$2.99 for 330 ml for O.N.E).
Challenges to claims from media and consumer lobby groups: As coconut water has been getting more into spotlight in Canada, it drew attention of consumer groups, media and nutrition experts many of whom are weighing benefits of coconut water versus claims and pricing. Recent media report on CBC (Canadian Broadcasting Corporation) featured an article Coconut Water for Athletes Has Few Solid Benefits (July 11, 2012), where Dr. Todd Cooperman of consumerlab.com discussed benefits (or mostly the lack of thereof) in many coconut water products. While often shrugged off by industry participants as not having significant impact on sales, legal suits that challenge claims made by coconut water brands can undermine consumer confidence in product benefits. For instance, in 2012 the Canadian based Consumer Law Group launched a class action suit against Vita Coco brand, alleging deceptive marketing with regards to product ingredients and amount of nutrients found in the product. The law suit in Canada was referred to by Vita Coco representatives as a copycat, in view of an earlier law suit filed in the US. Nonetheless, the US law suit led to a settlement as well as a promise to change product labels and marketing as well as to improve quality control of the product.
A potential shot in the arm for juice?
All in all, coconut water has some potential for further growth in Canada as the benefits claimed by coconut water are aligned with the health and wellness movement in the country. Additionally, growth of coconut water could help bring more life to the mature and largely stagnating juice category in Canada, provided coconut water sales can reach wider audience. However, so far the overall growth in sales of coconut water in the next five years is only expected to see single-digit rise in volume terms. The challenges outlined above will remain on the agenda, and careful product development, pricing and marketing strategies are needed to support growth. While a taste of pure coconut water will likely remain an issue, marketing the products as a part of a healthy juice or smoothie mix can help to expand consumption occasions. Also, flavoured products, if positioned as a healthier alternative to soft drinks (rather than sports drinks or water), might have a better chance at growth among ordinary consumers.
Likewise, higher prices will certainly present a challenge in the conditions of slow economic recovery. Following in the steps of lingering concerns over economic and financial recovery as well as we housing market in Canada, against the background of high level of household debt, discount retailers like Wal-Mart Canada are beginning to see the increasing number of higher income earners coming to shop and save. However, these consumers are still looking for higher quality products, resulting in the move by the retailer to stock more on better quality and higher end merchandise. Careful pricing, potentially through multipacks for portable formats and large packaging sizes for better value, as well as retail distribution strategies that see stronger presence at discount retailers can help to drive trial purchases and volume growth. Last but not least, learning from marketing mistakes (emphasized by law suits and criticism of nutritional experts) and adjusting campaigns and labels to better reflect product nutritional content and avoid bombastic and unsubstantiated claims can also help improve product credibility and support growth.