Once primarily aimed at hot yoga studios and health food stores, the Vita Coco Company is targeting bars, coffee shops and smoothies in an effort to boost household penetration and promote the versatility of its coconut products to consumers, a top company executive said in an interview.
The company’s Vita Coco brand, which includes coconut waters, milks and powders, has long been coveted for its role in hydration and its nutritional properties. But Vita Coco has started aggressively looking at other uses for the brand.
While sales for Vita Coco coconut water, which surged 18% in 2022, remain robust, the decision to identify new consumption occasions and sectors that lack a coconut beverage option is vital to positioning the brand for future growth and fulfilling the company’s broader goal of making it a permanent fixture in American homes. Currently, the tropical liquid is found in 11% of U.S. residences, according to Vita Coco.
“We’re still in the real early innings of building this category,” said Mike Kirban, the company’s co-founder and executive chairman. Vita Coco has “all these different usage occasions and it pulls from all these different categories, which is why we think the potential total addressable market is just completely untapped at this point.”
Vita Coco, which was founded in 2004, has long had a presence in grocery, and more recently, in convenience stores. It’s aiming to replicate that success in coffee shops as well as bars and restaurants, striking partnerships with small businesses designed to generate buzz and increase consumer awareness.
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Vita Coco is working with Alfred Coffee, a chain with locations in Los Angeles, San Francisco and Austin, Texas, to use its recently launched Barista MLK, a plant-based coconut milk developed in partnership with
baristas. Other coffee chain partnerships are expected to be announced later this year.
An agreement with Bloom Nutrition, a female-focused health and wellness brand, is touting Vita Coco as a supplement to greens in smoothies and other food offerings.
One of the brand’s biggest opportunities is in alcohol as a mixer, or as a component of on-premise cocktails.
Vita Coco is getting its coconut water stocked in bars, restaurants and clubs, starting with a few locations in The Hamptons this summer. Several locations will serve the Coco Blanco, a drink made with Vita Coco coconut water, tequila, agave and lime. At the Surf Lodge, the hotel and restaurant will offer Coco Blanco, and Vita Coco will be automatically served on a tray next to a spirit drink. The Vita Coco logo also will adorn surfboards and yoga mats.
Vita Coco Company is no stranger to alcohol, having introduced a line of premium canned cocktails this year crafted with Diageo’s Captain Morgan rum and its coconut water.
Vita Coco is modeling its growth plan after cranberry giant Ocean Spray, which has four times the household penetration, size and distribution even though both brands have roughly the same velocity on store shelves, Kirban said.
He noted in the 1940s that Ocean Spray observed people mixing cranberry juice into their cocktails. Rather than sitting idle, it named the drink the Cape Codder and started paying bars and restaurants in the New England town to carry and market it with its Ocean Spray juice. It helped grow Ocean Spray sales and brand awareness.
Getting Vita Coco into trendy coffee shops or bars is less about the revenue it generates and more about creating consumer awareness of other ways coconut water can be used, Kirban said. The company is hopeful that once people see it being incorporated in these real-world settings they will be more likely to purchase it at a store for use in their own homes while telling their friends and family to do the same.
“We are finally hitting our stride,” Kirban said.
Daniel McCarthy, an assistant marketing professor at Emory University, was “a bit skeptical” about Vita Coco’s strategy. He said it could be costly to get into bars, while he was uncertain how much availability in restaurants and coffee houses will translate into sales at the grocery store.
“Vita Coco is likely concerned that organic growth from existing core markets won’t be enough to meet satisfy investors’ sales growth expectations,” he said.
‘Everybody thought I was crazy’
It wasn’t always this way. Vita Coco traces its roots back to a cold winter evening in 2003 when Kirban and his friend Ira Liran met two women from Brazil in a New York City bar.
Liran later sold everything he had, married one of the women and moved to Brazil. During a visit, Kirban found packaged coconut water as prevalent as bottled water on store shelves, and recognizing an untapped market back in the U.S., the friends worked to create the brand Vita Coco.
Kirban said it took 10 years to convince people to drink coconut water and then another decade to expand Vita Coco into new usage occasions and demographics. Vita Coco discovered that its customers are actually younger, city dwellers and multicultural. Today, more than half of its customers are nonwhite, a growing demographic in the U.S.
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“It takes time to build a category. The category 20 years ago did not exist. Everybody thought I was crazy,” he said.
The company’s Vita Coco coconut water is far and away the dominant leader in American retail with a 50% share — more if you include its private label business — of the almost $600 million in measured channel sales compared to 42% in 2020, according to the company. The brand is attracting users away from premium bottled water, juice and sports drinks, Kirban said.
Vita Coco Company parlayed that success into a 2021 IPO.
Kirban said in contrast to other trendy beverages that have seen sales decline or level off, coconut water benefits from its use across multiple occasions — unlike kombucha, for example, known only for its role in gut health.
Vita Coco also has benefited from large price increases in other beverage categories like sports drinks, which Kirban said are up roughly 70% in the last year. Vita Coco prices increased 6% in the first quarter, according to IRI (now called Circana), a bet made with the assumption that shipping costs, a major expense for the company, would ease. Shipping costs for Vita Coco have declined considerably from their peak, saving the company tens of millions of dollars annually.
It wasn’t all that long ago that Vita Coco was “outrageously expensive” compared to other beverages, he noted. “We are now more affordable.”
In addition, Vita Coco has benefited as cash-strapped consumers are willing to spend money for a product that provides functionality. It stands in contrast to something like premium bottled water that people are forgoing in favor of getting the liquid from a tap.
“When we went public a year and a half ago, everybody was asking, ‘Is there any growth ahead for this company? … Are there actually more households that are bringing coconut water? Those were the questions we were getting on the [IPO] roadshow and after every earnings release,” Kirban said. “That question doesn’t even come up [anymore]. We’ve proven ourselves quarter after quarter after quarter through really tough times.”
