Beverage Giants Diving Into Coconut Water

NEW YORK -- Consumers, as well as the beverage companies, appear to being going nuts for coconut water. In one indication of its popularity, some industry estimates say retail sales of the beverage rose as much as $400 million in the past year.

While that number may represent only a small fraction of the $100-billion-plus market for packaged beverages (alcoholic beverages excluded), the new category has roughly doubled its revenue every year since 2005, according to the Wall Street Journal.

Vita Coco entered the scene seven years ago and now stands as the No. 1-selling U.S. coconut-water brand. The company reported that its revenue more than doubled in 2011 to nearly $100 million, most of that coming from sales in the United States.

The brand signed a distribution pact with Dr Pepper Snapple Group Inc. in 2010 and expects to hit the shelves in about 55,000 stores across the country by April. That move will more than double its reach in December by placing it in chains such as 7-Eleven, Walgreens and CVS.

Coca-Cola is also diving into the coconut water pool. The beverage giant said, according to WSJ, that it plans to exercise its option to acquire a majority stake in Zico, the No. 2 coconut-water brand in the nation by sales, in the coming weeks. Coca-Cola bought a minority holding in the start-up for less than $15 million in 2009. Coke won't disclose the price, but the option was triggered after Zico hit revenue targets, the report stated.

Zico's sales grew fivefold last year, said Deryck van Rensburg, head of Coke's new ventures unit. "We don't know for sure if this will be the next blockbuster, but so far so good,'' he said.

In addition, PepsiCo Inc. is rolling out nationwide distribution of the No. 3 coconut-water brand, O.N.E., on its trucks this year after taking a majority stake in 2010 for an undisclosed sum. PepsiCo's Naked line of juices holds the No. 4 spot for coconut-water sales, the news outlet noted.

Some have raised concerns about coconut water, however. As the news reported, a Malaysian academic study published in 2002 found fresh coconut water to be an effective rehydration tool, with "less nausea, fullness and no stomach upset'' when compared with carbohydrate-electrolyte beverages or plain old water. But U.S.-based ConsumerLab.com reported last year that some samples it tested of Vita Coco and O.N.E. had significantly less sodium, an important electrolyte lost through sweat, than advertised on the labels or found in Gatorade.

Vita Coco said this week it agreed to pay $10 million to settle a consumer lawsuit sparked by the ConsumerLab report, which wasn't party to the suit. Vita Coco, which didn't admit wrongdoing, said nutritional levels can vary in an all-natural product, but that it is tweaking its labeling. PepsiCo, which has an option to buy 100 percent of O.N.E., is involved in a similar suit over labeling, but declined to comment on the ConsumerLab report.

ConsumerLab said its 2011 test wasn't funded by an industry player and that it found higher amounts of sodium in a bottled version of Zico. Zico, for its part, has been sued by consumers alleging its packaging doesn't sufficiently warn that some of its coconut water is from concentrate. Zico maintains the suit is without merit. Vita Coco and O.N.E. aren't from concentrate, the WSJ added.