Manufacturers
'We are looking to be more disruptive at retail'

Vita Coco CEO on ‘owning the coconut’, staying independent, and class action lawsuits: ‘Things have got totally out of hand’

02-Sep-2014
Last updated on 02-Sep-2014 at 21:00 GMT2014-09-02T21:00:45Z - By Elaine Watson+
Vita Coco co-founders Michael Kirban (left) and Ira Liran (right)
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When Coca-Cola & PepsiCo invested in Zico and O.N.E. in 2009; Vita Coco CEO and co-founder Michael Kirban admits he became a little nervous as pundits predicted he’d get sidelined as the world’s biggest beverage companies slugged it out for supremacy in the burgeoning coconut water market.

In retrospect, he shouldn’t have been, as five years later, Vita Coco remains the undisputed market leader with a 60% share, notching up eye-watering triple-digit-growth in Europe and Asia, and almost as explosive 38-40% growth YoY in the US market (ahead of overall category growth of 27%), despite its relative maturity.  

“Zico remained competitive with Vita Coco for a few years in certain markets, but O.N.E. all but faded away as a competitor after Pepsi acquired them," Kirban told FoodNavigator-USA.

To end up too early inside of a big company kills that [entrepreneurial] dream

But wasn’t he tempted to do a Ben & Jerry’s or an Honest Tea?

While some entrepreneurial brands have flourished under the wing of CPG biggest guns, there is always a risk that they won’t get the attention they deserve, while it can become increasingly hard to sustain the kind of innovation and agility that made them a success in the first place, said Kirban.

Look at Odwalla, it got into the Coke system and hasn’t really done anything since.” Naked (acquired by Pepsi), has fared better, he claimed, because it was “left alone”.

“To end up too early inside of a big company kills that [entrepreneurial] dream. The fact that we were able to remain independent and build this business and drive the category is the reason that coconut water is still here and growing.

“Coconut water will be a massive global category and Vita Coco is proving that it can and will own that category massively, globally, like Tropicana owns orange juice and Red Bull owns energy and Gatorade in sports.

"And we're still independently owned and operated."

We’ve seen even greater success when the product is separated from the beverage aisle

While the recent sale of a 25% stake in Vita Coco to the parent company of Red Bull China will give the brand unparalleled access to the Asian market, growth isn’t just going to come from international sales, noted Kirban, who reckons there is still “enormous growth potential” in the US, where household penetration is still just 3% in some regions.

“Speaking only for the Vita Coco brand,” he added, “we’ve seen even greater success when the product is separated from the beverage aisle or even the cold beverage set, and promoted as a standalone brand.

"At Wegman’s, for example, you’ll often find an end cap of Vita Coco adjacent to the produce department, and Vita Coco is one of the top selling beverages.”

A recent addition to the Vita Coco brand stable

As for flavors, not everything Vita Coco has tried has turned to gold (‘pomegranate acai’ and ‘passion fruit’ variants bit the dust), he said, “but that is also impacted by consumers’ shift to our unflavored coconut water. We’ve found consumers enter the category loving a certain flavor, and eventually migrate to pure, unflavored coconut water over time.”

As to whether there are meaningful differences between the leading coconut water products aside from branding, Vita Coco’s ‘not from concentrate’ positioning and premium price have been key, meanwhile.

“In 2011, when other coconut water brands were switching to concentrate as a cost savings, Vita Coco made a decision to commit to using only fresh coconut water in all its beverages, despite the higher costs. This remains one of Vita Coco’s most meaningful points of distinction from competitors."

Beyond coconut water: The Vita Coco brand has the ability to really own the coconut

So what’s next?

“Vita Coco’s goal is to grow beyond beverage,” said Kirban, who recently launched a coconut oil product, and is now eyeing new coconut-related opportunities “across the store”. 

“First and foremost we’re a beverage company. But second, we are looking to be more disruptive at retail. We think the Vita Coco brand has the ability to really own the coconut; it’s a simple name but a powerful name that really stands for the coconut.

“Coconut in general is a growing trend and we feel we should be tapping into that trend in several areas, not just in beverages.”

Class action lawsuits: The fact lawyers can get away with this... It really gets me going…

As to what keeps him awake at night, not much seems to rattle him, with the possible exception of class action attorneys, with whom he became intimately acquainted in 2011 after finding himself at the receiving end of a high-profile false advertising suit.

Now some of these cases are about righting a wrong - where consumers have been injured - he acknowledged. But the vast majority are “entirely frivolous”, with no real ‘victims’, filed by opportunistic attorneys purely as a money-making enterprise.  

Things have got totally out of hand,” said Kirban. “One of the biggest problems in the US today is the US legal system. The fact that lawyers can get away with this... It’s something that really really gets me going.”

Things have got totally out of hand

In the Vita Coco lawsuit, which related to claims made about its electrolyte content and hydrating properties, the motivations of the plaintiffs - or more accurately their lawyers - became clear at an early stage, recalled Kirban.  

“I didn’t want to deal with the negativity and the stress and strain of dealing with a lawsuit so I called for mediation within a week and we got in a room with a bunch of lawyers.”

So Kirban’s lawyer came to the first meeting armed with a hefty pile of lab test results highlighting the challenges around accurately representing sodium levels in a product that has natural variations. But it quickly became apparent that the lawyers sitting across the table were not there to talk about sodium, claimed Kirban.

They sat across the table from us and said Guys, seriously? We’re not here to talk about the merits of this case

Indeed, the merits of the case itself were of little interest to the suits across the table, claimed Kirban, as were the consumers who had allegedly been misled by his labels.

“They sat across the table from us and said Guys, seriously? We’re not here to talk about the merits of this case, we’re here to find a settlement, where we can make the money that we need to make and the judge will pass it through the system."

The resulting “$10-million settlement”, meanwhile, was “not even anything near that” in reality, noted Kirban. 

“It was money to the lawyers and then a way to dress up the bride and make it look like it was all going to consumers.”

It’s bribery

So what can companies do to protect themselves in future?

“Add a pretty big dollar amount to your annual plan for dealing with these situations,” he suggested. 

“It’s bribery, in Russia you have to bribe politicians, in the US, you have to bribe class action lawyers.”

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