Vita Coco is the coconut water craze that everyone is talking about, but we want to uncover whether it’s worth investing in right now.
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Last week, I covered the continued success of Lovesac, despite its ridiculous name and premise. In the same vein is Vita Coco, a self-described “leading, plant-based functional hydration company”. This is IPO documentation-speak for coconut water.
Vita Coco’s story started in 2003 when friends Michael Kirban and Ira Liran struck up a conversation with two Brazilian women in a Manhattan bar. When asked what they missed most about Brazil, the two didn’t hesitate: “agua de coco.”
Liran would go on to marry one of these women, sell everything he had, and move to Brazil. While he was there, he realized the prevalence of coconut water, which was as popular as bottled water. Maybe this could be the next great beverage trend in the United States?
So, Liran and Kirban established Vita Coco, partnering with a few Brazilian farms and a small distributor in Brooklyn. In these early days, Kirban would rollerskate from store to store delivering orders and hosting samplings all over New York City. The beverage found early adopters in Latino and Southeast Asian grocery stores before expanding into health food shops, gyms, yoga studios, and the city’s infamous bodegas.
However, it wasn’t long before the success of the start-up caught the attention of sector behemoths. Coca-Cola and PepsiCo were eager to find a foothold in the increasingly trendy coconut water market and did so via acquisition. In 2009, Pepsi took over Amacoco Nordeste Ltda., Brazil’s largest coconut water producer, while Coke poached Zico, another Brooklyn-based start-up.
Liran and Kirban faced pressure to sell. Surely getting acquired by Coca-Cola is the dream for any small beverage company?
In the eyes of Liran and Kirban, it wasn’t. They had seen the corporation take really innovative brands and drive them into the ground due to a lack of attention and development. Kirban told FoodNavigator: “Look at Odwalla, it got into the Coke system and hasn’t really done anything since… to end up too early inside of a big company kills the entrepreneurial dream”.
The pair were also wary of Vita Coco being branded as just another drink in the beverage aisle. For years, Liran and Kirban had placed Vita Coco at the corner of health food and hydration, in many grocery stores it was kept with the produce and marketed as a fitness drink. This was reinforced by the product’s quality, as Vita Coco was the only major brand committed to fresh coconut water. By 2011, all its competitors had switched to concentrate.
Together, these factors meant Vita Coco was right to go it alone. Rather than being outpaced by Pepsi and Coke’s manufacturing facilities, Vita Coco ran laps around them thanks to its brand loyalty and robust, international supply chain.
See, coconut water is not like a typical beverage that can be reproduced anywhere in the world. It requires farmland and local packaging facilities within the tropical belt so production is very difficult to scale. This is because coconut water needs to be transferred from the coconut into an aseptic package within hours of the coconut being cut from the tree. Coconut farming is highly fragmented and scattered across the globe in places like Brazil, the Philippines, Sri Lanka, Indonesia, Malaysia, and Thailand.
For this reason, Vita Coco established a dense network of local farmers and manufacturers in coconut farming communities around the world. In many of these places, coconut water was considered an unneeded byproduct, meaning competition was non-existent. Vita Coco gives farmers technical resources to collect and process the coconuts in exchange for long-term contracts.
Interestingly, this system also ensures that Vita Coco is geographically diversified and asset lite. It does not own the farms or processing facilities, allowing it greater flexibility to move production from one place to another in the event of political, weather, or macro-economic events…