The knockdown, drag-out battle over coconut water
The stuff is everywhere, and the battle for the market, worth $400 million a year and growing, now involves big players like Pepsi and Coke. But in the beginning, it looked more like a street fight between two guys.
The New York Times
Like kale salads and Robin Thicke, coconut water seems to have jumped from invisible to unavoidable without a pause in the realm of the vaguely familiar.
The stuff is everywhere — not just in supermarkets and convenience stores, but also on ads on buses (“Crack life open”) and bar signs (“Detox while you retox,” reads one in Manhattan, promoting a Vita Coco Arnold Palmer cocktail). It has turned up on television, as a question on “Jeopardy!,” and it regularly makes cameos in glossy magazines, clutched by hydrating celebrities.
The battle for this market, worth $400 million a year and growing, now involves big players like Pepsi and Coke. But in the beginning, it looked more like a street fight between two guys. One was then a 29-year-old college dropout who rolled to Manhattan bodegas at night, on in-line skates, carrying samples in a backpack. The other was a former Peace Corps volunteer, driving a beat-up Econoline Ford van and fighting for the same turf.
Michael Kirban, who with a buddy founded Vita Coco, and Mark Rampolla, who founded its archrival Zico, happened to start selling similar brands, in the same neighborhoods of New York City, at almost the same time — a week or two apart, in late 2004.
Those in the fray called it the coconut-water wars. Each side quickly bulked up with sales teams and tried to win over Manhattan, one grocery store and yoga studio at a time.
Coconut water went from local skirmish to beverage fame despite what might seem like a major impediment: its flavor. Anyone expecting the confectioner’s version of coconut — the one you find in coconut ice cream, for instance — may be repelled. This is the juice of a green coconut, and the taste is a mix of faintly sweet and a tad salty. Some have compared it to socks, sweat and soap. And that group includes people crucial to coconut water’s success.
“When I tried it, I didn’t get it,” says Lewis Hershkowitz, the president of Big Geyser, which distributes Zico in New York City. “I thought it was disgusting.”
For many, the challenging taste is part of the appeal. Some are so smitten with the flavor they have created online forums that sound like support groups.
A decade ago, companies like Goya sold coconut water in stores catering to immigrants, and in quantities that hardly registered in market research. Today, more than 200 brands around the world sell “nature’s own sports drink,” as fans call it, and sales are rising by double-digit figures.
“This will eventually be a $1 billion-a-year category,” says John Craven, founder and chief executive of BevNet, a trade publication. “It’s the real deal. It isn’t a new flavor of Coke. It’s not Bud Light Lime-A-Rita. This has staying power. People put it in their diet and it stays there.”
The titans of the industry are on board. In 2010, PepsiCo acquired a majority stake in the distant third-place contender, O.N.E., and in 2009 Coca-Cola bought a 20 percent stake in Zico. Last year, it purchased the company outright.
Coke’s initial investment in Zico seemed like catastrophic news for Vita Coco, the only brand still controlled by its founders.
“I thought we were dead,” says Kirban of Vita Coco. “I didn’t tell anybody at the time, but I remember wondering, ‘How are we going to beat Coke?’ ”
The answer would involve Madonna, Hula Hoops, a family-owned investment firm in Belgium and a former professional tennis player turned salesman named Goldy. Vita Coco now owns more than 60 percent of the coconut-water market, while Zico has less than 20 percent, according to Euromonitor, a research company. Two weeks ago, Vita Coco agreed to sell a 25 percent stake of itself to Red Bull China, giving it a head start in the world’s most populous country and valuing the company at about $665 million.
It started in a bar
How a tiny, privately held company outmaneuvered the biggest players in the world is material for a business-school case study. And to tell the whole story, you need to start in 2003, at a bar on the Lower East Side of Manhattan. There, Kirban and his friend and future business partner, Ira Liran, spotted two Brazilian women.
What happened next happened fast. Liran fell hard for one of the women, and a few weeks later, when she returned to Brazil, he went with her. Kirban visited him in São Paulo not long after, and it was already clear that Liran was going to stay put and get married. All he needed was a job.
“Dude, I’ve got to do something with my life,” Liran told his pal.
They batted around ideas. That night on the Lower East Side, the Brazilians had mentioned that what they missed most while in the United States was coconut water, which they said was more popular than orange juice in their native land. While in São Paulo, Kirban realized that they weren’t kidding.
A small guy with a troublemaker’s grin and a hypercompetitive streak, Kirban was raised in a rural part of Connecticut and comes from a long line of entrepreneurs. After leaving the University of Alabama, he was co-founder of a software company that catered to property managers. It was a solid business, but by the time he visited Brazil, he wanted another challenge.
He and Liran found a coconut-water factory in the state of Espírito Santo that would sell them some product. They came up with a name and signed a deal with a carton maker called Tetra Pak. The first shipment — about $100,000 worth of coconut water — was sent in May 2004.
“Two days before it’s supposed to arrive, the FDA calls,” Kirban explains, referring to the Food and Drug Administration. “They say: ‘You have no registration numbers. This can’t land in the U.S.’ I thought you just ship in containers, it shows up and then you sell it.”
He diverted the product to the Bahamas and sold half of it, door to door, to bars in Nassau. It wasn’t until August that the first cases of Vita Coco landed in New York.
About a week into Kirban’s new venture, a guy at a GNC store in Herald Square in Manhattan mentioned that he had seen another brand of coconut water. Kirban was skeptical, then aghast.
“I went and found it,” Kirban said of his first look at a carton of Zico. “I was like, how is this happening?”
Rampolla was just as shocked by the appearance of Vita Coco. He had fallen in love with coconut water in Costa Rica, where he was serving in the Peace Corps. He later became an executive in the beverage-packaging division of International Paper in El Salvador. It was there, about a year before his future nemeses were flirting with Brazilians in the Lower East Side, that Rampolla and his wife, Maura, also an early investor, came up with Zico. The plan was to make a fortune, but a do-good impulse informed their ambitions.
“Part of it was the idea that the developing world needs as many alternative exports as possible,” he said. “And 85 countries around the world were growing coconuts. We thought this could be an industry that created millions of jobs.”
By August 2004, and seemingly overnight, many residents of the Lower East Side, Chelsea and other New York neighborhoods went from zero coconut water options to two.
The dueling waters
The timing was a coincidence, but not the setting. Many American beverage superstars — Vitaminwater, Snapple, Arizona, Red Bull and Mystic — began in New York City, mostly because no place has a greater concentration of independent stores. Instead of having to woo a national chain, and perhaps hand over a few grand in placement fees, you can talk your way into one store at a time.
Zico gained an early foothold with yoga fans, persuading the owners of Bikram Yoga NYC to carry the drink in what was then a four-studio operation. Vita Coco was the first in a Whole Foods Market, in the one near Union Square. But neither brand ceded an inch, and when Zico got into that Whole Foods, the shelves there became a kind of hot zone.
“There’s an old adage,” says Chris Michaels, a former Zico salesman. “If there is no price tag on it, it’s not for sale. The Vita Coco guys would throw away our price tags. Or they would toss all our product in a cart and leave it in the stockroom.”
Zico retaliated in kind. The sales force made crazy deals — buy 50 cases, get 25 free — loading a store with so much coconut water that there wasn’t room for Vita Coco.
“I really tried to take the high road,” Rampolla said, “but I can’t say the same for my team.”
During this period, he and Kirban never met, though they spent many of their waking hours anticipating each other’s moves and sparring. It was like a chess match in which you never lay eyes on your opponent.
Grabbing the attention of consumers was a big part of the game. Vita Coco bought a van, painted it ocean blue and loaded it with free samples and with women who would jump out and Hula-Hoop on the streets. Zico hired college students to roll coolers around the city.
Bodega owners were often the toughest audience. To make inroads faster, Vita Coco hired a ringer, a former Vitaminwater salesman named Michael Goldstein, identified on his business card and known to almost everyone as Goldy. One name. Like Prince.
“You’ve got to be a little bit of a psychopath,” says Goldy of life as a beverage salesman in Manhattan. “You’ve got to love pain, love being yelled at.”
He and his team memorized phrases in Spanish, Arabic, Korean and Hebrew and quickly learned to tailor their pitches to different ethnicities. Owners from the Middle East wanted to haggle. Dominicans wanted to know why they needed anything other than Goya. When all else failed, $20 was slapped on the counter, though that didn’t always work.
At the time, the standard pitch included preposterous health claims, made both to bodega owners and to customers. Vita Coco initially stated that its product would eliminate kidney stones, improve your skin, increase virility — basically, any upside that had ever been asserted in countries where coconut water is beloved, like Brazil, Thailand and Indonesia.
That era of magical boasting ended when Vita Coco was sued in 2011, accused of making misleading nutritional and marketing claims with phrases like “super-hydrating.” Such hype is gone. And while just about every brand of coconut water offers electrolytes and potassium — both beneficial to body processes — the category’s reputation as a natural elixir is undeserved, nutritionists say. Vita Coco contains about 5.5 calories a fluid ounce, a bit less than Gatorade, but still plenty.
“Don’t use it as a thirst quencher,” says Lilian Cheung of the Harvard School of Public Health. “People who get their calories from liquid tend not to cut back on solid food. So it would be a disaster to drink a lot of calories.”
Both Vita Coco and Zico began with bantam companies, and in 2005 both wanted to sign with Big Geyser, the Queens-based distributor that had helped in the introduction of Vitaminwater. Hershkowitz, the Big Geyser president, was able to choose. He went with Zico.
“Our concern with Vita Coco was that it seemed extremely ethnic,” he said. “Zico seemed much more upscale, much more premium, sexier name.”
The decision was a major setback for Vita Coco, at least initially. But a former Big Geyser employee named Steve Gress soon started his own operation, Exclusive Beverage. In 2006, Gress says, Zico came calling.
“Mark Rampolla said he was unhappy with Big Geyser and wanted to leave,” Gress recalls. “We were in the middle of negotiating a contract, and Mark backed out. Well, I saw red. I got mad. I Googled coconut water and Vita Coco was the first name I saw.” (Rampolla says he approached Exclusive, in large part, to gain leverage with Big Geyser in a renegotiation of terms.)
With revenge in mind, Gress called Kirban. A week later, Exclusive had a contract with Vita Coco.
Unlike Big Geyser, Exclusive didn’t have a lot of other brands, so Vita Coco became a star offering. By July 2009, Vita Coco was selling 30,000 cases a month in the tri-state area of New York, New Jersey and Connecticut, with additional sales in Boston, Miami and Los Angeles.
Zico’s expansion plans were a step behind, but the difference between the two brands was, by most accounts, minuscule. Five years in, the coconut water wars had been fought to a draw. Then Coca-Cola showed up.
Redrawing the battlefield
Coke, the country’s largest soda maker, employs what it calls scouts, who look for up-and-coming brands. One of them spotted Zico in a yoga studio.
“People were buying it by the caseload,” says G. Scott Uzzell, Coke’s president of venturing and emerging brands. “Our group spends its time analyzing future consumer trends, and our model is to focus on brands that have been in the market for two to three years that will be hot for many years to come.”
Another imperative for Coke and other megabrands, industry experts say, is to scoop up companies before they become large enough to fetch high buyout prices. (By the time Coke bought Vitaminwater, for example, it had to pony up $4 billion.)
Coke put up $8 million in 2009 for a 20 percent stake in Zico. The news sounded like the grim reaper’s knock for Vita Coco. Not that the company lacked cash. In 2007, Vita Coco sold a 20 percent stake to Verlinvest, an investment firm based in Brussels that was an early Vitaminwater backer. The deal netted $2 million.
But Coke altered the game and Vita Coco had to act. In January 2010, a few months after the Coke-Zico announcement, Vita Coco raised an additional $5 million by selling a 10 percent stake to a group of celebrities, including Madonna, Demi Moore and Anthony Kiedis of the Red Hot Chili Peppers. All were said to be fans of the brand.
The money helped, as did the buzz. Vita Coco was part of a feature in OK! magazine called “How to Live Like Demi Moore.” But the real breakthrough came in June that year, with an event that only insiders would have noted: Vita Coco signed with the Dr Pepper Snapple Group, the nation’s third-largest beverage distributor.
When your rival has teamed up with the No. 1 distributor, signing with No. 3 sounds like the booby prize. But it wasn’t. Because Dr Pepper Snapple is smaller, Vita Coco was a sizable part of its portfolio, says Kirban, which made the brand a priority. Just as important, Vita Coco retained the right to sign additional deals with 45 independent distributors around the country. Today, more than half of Vita Coco is sold through those indies.
That matters because Vita Coco has a sales staff of 200 who either ride along with those distributors or tour markets on their own during what are called sales blitzes. On either mission, the staff is supposed to get Vita Coco better placement in stores where it’s sold and to have it stocked in stores where it’s not.
This is shelf-by-shelf work, and it requires diplomacy, energy and charm, as Goldy demonstrated during a recent trip to Minneapolis-St. Paul. In four frenetic hours, he persuaded a manager at a Target store to give Vita Coco prime real estate near a cash register and convinced a manager at a Walgreens to display a Vita Coco floor stand.
Zico doesn’t employ people like Goldy — well, not any longer. The last 30 or so members of its sales force were either laid off or quit after Coke completed its purchase of Zico last year, Rampolla says. (Coke would not comment about personnel.)
Without a Zico-focused crew, according to Kirban, the brand is getting lost in the vast sea of Coke’s big sellers.
“It was the kiss of death, Zico’s deal,” he says. “Look at the numbers over the last two years. It’s just not working out.”
Asking Coke to manage a brand as small as Zico, in Kirban’s telling, is like asking the Hulk to do needlepoint — it’s too brawny for the task. Rampolla, who is still technically a consultant, but not active in the business, used a slightly different metaphor.
“It’s like Coke is a giant and Zico is an infant and Coke wants to dance,” he says. “Well, we need to grow up and at least be a teenager. Otherwise, the giant will kill the infant.”