JULY | 2012

AUGUST | 2012

Demystifying Supply Strategy

for Coconut Water

Copyright Beroe Inc, 2012. All Rights Reserved

Introduction
The coconut tree has many versatile applications derived out of its various parts. Few major end products
derived from the coconut tree are coconut oil, desiccated coconut, coconut milk, and coir. Currently, there are
few evolving end-use segments for coconut products such as coconut water and virgin coconut oil. Nonetheless
the focus is primarily with respect to coconut water which has currently gained popularity due to its potential
health benefits and as a best possible replacement of energy drink. Growing consumer preference toward natural
and healthy drinks coupled with willingness to pay a higher price resulted in growing demand for coconut water.
In due time, with increasing awareness among consumers and further product innovation there is a potential risk
of coconut water replacing the demand for traditional soft and sports drinks.

Growing Health Awareness:

Existing and Emerging Trends:

Coconut water is in a burgeoning growth phase and has

become an integral part of the sports beverage market.
The trend exists due to its nutritional benefits and
natural hydrating qualities. The global sports beverage
market, which encompasses the coconut water segment
as well, is witnessing a phenomenal growth mainly due to
rising health and fitness consciousness across the general
population. Earlier, athlete and body builders were the
major consumers of the sports beverage market. However
now, the trend has been shifted to the general population
which in turn affects the supply-demand dynamics of the
sports beverage to a great extent. Therefore, the sports
beverage market is expected to grow at a CAGR of 17%
and hit a global value of USD 48 billion in 2015. The
global coconut water market is worth more than USD
450 million in 2011 and the sales are growing at USD
40 to 60 million ranges Y-o-Y and expected to reach
USD 750 million. The growth is evident from the recent
mergers and acquisitions, such as:
In 2009, Pepsi acquiring Amacoco (Brazils largest
coconut water company),
In 2009, Coke invested in Zico and holds a minority
stake in the #2 brand in the US.
By investing in these companies, the soft drink giants have
not only tapped into high growth geographical areas but
also asserted their commitment toward expanding into
health and wellness portfolio.

There are three main players in the US market for

coconut water, namely Vita Coco, O.N.E, and Zico. Vita
coco held a major stake of 60% in USD 350 million
coconut water market in 2011. Initially the product was
targeted at yogis, sports athletes, and health conscious
consumers. However, strategic investment (by major
players across the industry namely Pepsi and Coca-Cola)
and distribution coupled with product positioning as
natural product helped coconut water to enter into the
mainstream.

Changing consumer
taste and preference
validate the fact that brand
awareness will no longer be
the only lever for companies
to achieve sustainable
competitive advantage.

Current Trends:
Increasing demand from developed regions mainly from
the US and Europe.
More flavors introduced.
International partnerships.
Increasing health consciousness.
Improved processing methods CWC (coconut water
concentrate).
Exponential growth of coconut water exports from the
Philippines.
Naturality The biggest trend in the food industry.

2012

Paradigm Shift in the Coconut Water Market

Concentrated demand: The demand for

coconut water is mainly from the developed
countries, especially from the US. There
is an increasing demand from EU and
Australia as well.

Demand Focus

2020

Demand across the globe: Increasing per

capita income, and disposable income
across the developing regions will
attract more demand for coconut water.

Level of Shift

Price premium: At present, coconut water

is priced roughly double of other mass
market sports drinks.
Price Equivalence

Price parity: It is essential to bring the

prices of coconut water to similar price
points of other existing product category
to sustain in the market.

Level of Shift

Expansion of product portfolio: The

major
beverage manufacturers are
currently expanding their product portfolio
comprising more naturally healthy drinks
such as coconut water and RTD Tea.

Consumer Preference

Market cannibalization: There is

potential threat from naturally healthy
drinks category that can cannibalize
the existing traditional soft drinks.
This might be eating soft drink
manufacturers original market leading
to an overall decline in sales.

Level of Shift

Lower product differentiation: There are

currently very few variation introduced
coconut water. Till now it has come in
standard flavors primarily fruit derived.

Degree of Product
Variation

Level of Shift

Higher product differentiation: There is

high possibility of introducing multiple
flavors and product enhancement in
terms of introducing newer/innovative
product line derived out of coconut
water namely low calorie smoothies.

Leveraging on Coconut Water:

There are three main players in the US market for coconut water, namely Vita Coco, O.N.E, and Zico.Vita coco held
a major stake of 60% in USD 350 million coconut water market in 2011. Initially the product was targeted at yogis,
sports athletes, and health conscious consumers. However, strategic investment (by the major players across the
industry namely Pepsi and Coca-Cola) and distribution coupled with product positioning as natural product helped
coconut water to enter into the mainstream. With outstanding health benefits such as muscle performance, weight
loss, kidney cleansing, stress reduction, heart health, diabetes control, hypo allergenic etc. the drink is expected to be
tremendous success across the older population segment as well. With global population growing old, it is essential to
satisfy their needs with right product portfolio and coconut water has a potential market to address the same.

Regional Insights Coconut Water:

Factors

Market Share

US

Europe

Southeast Asia

Consolidated

Consolidated

Fragmented

Vita Coco is the largest player in the US which holds roughly 60% of the share. In
the EU, Green coco is the leading player, but in Southeast Asia the market is highly
fragmented.
Low

Low

High

Coconut Availability
Southeast Asian countries are the largest coconut producing countries. Large
quantities of coconut are available in these regions for extracting coconut water.
Low
Consumer Awareness

Low

The natural beverage has a locational advantage in tropical belts in terms of widespread
consumer awareness about its health and nutritional benefits due to centuries-long
use unlike other regions namely the US and EU.
High

Health Consciousness

High

High

Low-Medium

Increasing health awareness across the EU and US have resulted in growing demand
for health focused drinks. This has paved way for the demand for coconut water in the
recent past.

Industry Structure & Promotional Strategies

Coconut Water:
The global coconut water market is fragmented with
too many small players across various regions; however
in the US the market is dominated by very few players,
there are emerging players such as Green Coco, ICoco
in Europe, and Coconut Water in Australia. Traditionally,
coconut water is sold fresh across the tropical countries
by setting road side stalls. However, presently there are
many small domestic players who sell packaged coconut
water which is relatively new across these regions. The
natural beverage has a locational advantage in tropical
belts in terms of widespread consumer awareness about

its health and nutritional benefits due to centuries-long

use unlike other regions namely the US and EU. Despite
optimistic supposition that the natural drink would
replace other existing alternate sports beverage in the
future it is still having a major hurdle of overcoming
widespread consumer unawareness.
The coconut water market outlook is expected to traverse
from many fragmented players to few consolidated
players; this is mainly due to increased M&As of many
smaller players across various regions by larger ones.
Therefore, the market value of few large players is
expected to increase, thereby holding a significant market
share in the industry.

Market Consolidation
2012

2020 (E)

Market Value

High

Low
Low

High

Market Consolidation

The US market is dominated by Vita Coco, which is

estimated to hold a 60% share in the lucrative US
market, while in the European market Green Coco is the
leading brand, yet to make a big dent in the market. The
product is promoted as a low calorie natural beverage
that has 5 naturally occurring electrolytes: calcium,
potassium, phosphorus, magnesium, and sodium. The
latest promotional strategy being, host of celebrities
endorsing the product and investing as well, has enhanced
the product image.
Changing consumer taste and preference is persuading
companies to think of new product concepts and ideas
to sustain in the market. Current trend validates the fact
that the brand awareness will no longer be the only lever
for the companies to achieve sustainable competitive
advantage. With outstanding health benefits such as
muscle performance, weight loss, kidney cleansing,
stress reduction, heart health, diabetic control, and
hypo allergenic the drink is expected to be tremendous
success across the older population segment. With global
population growing old, it is essential to satisfy their
needs with right product portfolio and coconut water has
a potential market to address the same.

Supply Scenario:
The coconut water which was once considered a waste
is having a huge demand currently. The product is well
established across the US and in parts of Americas,
including Brazil, where it originated. Both domestic
and export demands for the beverage soon exceeded the
supply capacity of Brazil. This created a need for global
partnerships, where in major players such as Vita Coco
and O.N.E have entered into partnerships with Philippines
and Indonesian coconut water manufacturers. This is
evident from the increasing exports of coconut water from
the Philippines where the exports saw a 315% surge in
the first half of 2011 to 7.5 million litres compared to
1.8 million liters in 2010.
The present procurement strategy by coconut water
manufacturers is by entering into a long-term contract
with multiple suppliers across the major coconut producing
countries like the Philippines and Indonesia to ensure
supply assurance. However, there is possible shift in the
style of long term sourcing strategy by the companiesin
the coming years to make certain on continuous supply
of coconut water by either becoming a major/minor stake
holder in the suppliers firm or by vertical integration. By
vertically integration the companies are bound to own
coconut plantation which requires high investment and
trained labor to take care of plantations. Nevertheless
the companies can have assured supply through vertical
integration excluding unfavorable weather conditions,
which has a critical role to play in terms of supply
disruptions.

Currently,
the US is dominated
by Vita Coco, which is
estimated to hold a 60%
share in the lucrative US
market, while in the Europe
Green Coco is the leading
brand, but yet to make a
big dent in the market.

Procurement Strategy Overview & Outlook:

Current Strategy
Buyer

Existing Best Practices

Sourcing Strategy

Procurement of Coconut Water

Regional Strategy

Global Strategy

Vendor Management

Multi Supplier

Single Supplier

Engagement Models

Long Term

Short Term

Potential Strategy
High

Supply Sustainability

Vertical Integration
Stakeholder

Long Term Contract

Low
Low

Degree of Integration
7

High

Sourcing Constraints Across Major

Producing Countries:
India one among the top 5 coconut producing countries
has a huge domestic appetite for the tropical juice. There
are domestic players in the country, who are marketing
the product across major metros targeting the IT industry.
The younger population across the service sector has well
received coconut water as a result of increased health
awareness and consciousness. The major players namely
Pepsi and Coca-Cola while they approached the Coconut
Development Board (CDB) India, for the supply of
coconut water through partnerships with local players, it
failed as the volumes required were too huge to be met.
Therefore, it is very important to have foresight on the
supply-demand balance. The Philippines and Indonesia
being the key players in the industry it is important that
the government take necessary steps to back the industry
as it has huge potential to generate revenue other than
traditional products derived from the coconut tree. The
current state of affairs in the Philippines signifies that
the coconut industry is still the poorest sector of all
as it received little attention from the national budget
in 2012, around P1.5 billion which is only 5% of the
budget allocated for rice.To improve the coconut farmers
income level it is essential to promote awareness about
other emerging products based out of coconut and
better revenue prospects. A similar situation prevails in
Indonesia as well in terms of improved management of
coconut processing industry and synchronizing regulatory
policies.

Supply Outlook:
S upply Constraints
2012
S enile T rees

Weather Concerns

S oil Conditions
Nutrient Deficit

Competing Crops

Acreage E xpansion

L ack of Government
R egulations

2020

Conclusion
The global demand for coconut water was around 100 million liters and is expected to reach around 350 million liters
by 2020.The impact of certain factors might have positive or negative influence over the industry and might decide
on the overall growth prospects of the industry.
Low

High

Constraints in acreage expansion

1. Loss of agricultural land Urbanization
2. Acreage competition Competing crops
Low

Low

High

Measures taken by the Government to

promote the Coconut Industry:
1. Replanting activity
2. Increased budget allocation
3. Providing tax rebates

Population:
1. Rising global population
2. Global aging population

Low

High

High

Low

High

Weather Concerns:
1. Rising global temperature global
warming
2. El Nino & La Nina weather
patterns

Consumer Preference:
1. Growing Health Consciousness
2. Consumer preference for packaged
coconut water

Scope for training, educating and alleviating the

poverty levels of the coconut farmers:
1. Forming cartels Knowledge sharing platform
2. Awareness about the market dynamics

Low

High

Authors:
Samyuktha S.R | Senior Research Analyst