The coconut tree has many versatile applications derived out of its various parts. Major end products derived from the coconut tree are coconut oil, desiccated coconut, coconut milk, and coir. Currently, there is insignificant growth in the 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 energy drink replacement.

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Demystifying Supply Strategy for Coconut Water
Copyright © Beroe Inc, 2013. All Rights Reserved
Authors: Samyuktha S.R

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Introduction
The coconut tree has many versatile applications derived out of its various parts. Major end products derived
from the coconut tree are coconut oil, desiccated coconut, coconut milk, and coir. Currently, there is insignificant
growth in the 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 energy drink replacement.
Growing Health Awareness:
Coconut water is in its burgeoning phase and has become
a part of the sports beverage market. The trend exists
due to its nutritional benefits and natural rehydrating
qualities. The global sports beverage market, which
encompasses the coconut water segment as well, is
witnessing phenomenal growth mainly due to rising
health and fitness consciousness across the general
population. Earlier, athletes and body builders were the
major consumers of the sports beverage market.However,
the trend has, currently, 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 sales are growing at USD
40 to 60 million range,Y-o-Y, and is expected to reach
USD 750 million.The growth is evident from the recent
mergers and acquisitions, such as:
• In 2009, Pepsi acquiring Amacoco (Brazil’s 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, soft drink giants have
not only tapped into high growth geographical areas,
however, have also asserted their commitment towards
expanding into the health and wellness portfolio.
Existing and Emerging Trends:
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.
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.
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.

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Paradigm Shift in the Coconut Water Market
2012 è è è 2020
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
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 RTDTea.
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
manufacturer’s original market leading
to an overall decline in sales.
Level of Shift
Lower product differentiation:There is
currently few variations introduced coconut
water. Until now, it has come in standard
flavors, primarily, fruit derivatives Degree of Product
Variation
Higher product differentiation:
There are high possibilities of
introducing multiple flavors and product
enhancements, in terms of introducing
newer/innovative product line derived
from coconut water, namely, low calorie
smoothies.
Level of Shift

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

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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 beverages in the
future,it still has a major hurdle to overcome:widespread
lack of consumer awareness.
The coconut water market outlook is expected to traverse
from many fragmented players to few consolidated
players; this is mainly due to increased MA’s 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
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, although it has 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 trends validate the fact
that 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 the right product portfolio and coconut water
has the potential market to address it.
Supply Scenario:
Coconut water which was once considered a waste is
currently in huge demand.The product is well established
across the US and in parts of Americas, including Brazil,
whereitoriginated. Boththedomesticandexportdemands
for the beverage soon exceeded the supply capacity of
Brazil. This created a need for global partnerships,
wherein 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 litres
in 2010.
The present procurement strategy by coconut water
manufacturers is obtained 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 a possible
shift in the style of long term sourcing strategy in the
coming years, to ensure a continuous supply of coconut
water, by either becoming a major/minor stake holder in
the suppliers firm,or by vertical integration.By vertically
integrating, the companies are bound to own coconut
plantations which require high investment and trained
labor. 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.

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Procurement Strategy Overview Outlook:
SupplySustainability
Degree of Integration
Low
High
Low High
Vertical Integration
Shared Ownership
Long Term Contract
Existing Best Practices
Current Strategy
Potential Strategy
Buyer
Regional Strategy Global Strategy
Sourcing Strategy
Engagement Models
Long Term Short Term
ProcurementofCoconutWater
Multi Supplier Single Supplier
Vendor Management
Note: If the buyer ensures higher degree of integration with the supplier, higher the supply assurance for the buyer.

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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 farmer’s
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:
Senile Trees
Supply Constraints
2012 2020
Weather Concerns
Soil Conditions–
Nutrient Deficit
Competing Crops
Acreage E xpansion
Lack of Government
Regulations

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Conclusion
Global demand for coconut water is around 100 million litres and is expected to reach around 350 million litres by
2020.The impact of certain factors may perhaps have a positive or negative influence over the industry and might
decide on the overall growth prospects of the industry.
Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc.The information contained
in this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and are
subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.
For more information, please contact info@beroe-inc.com.
Authors:
Samyuktha S.R | Senior Research Analyst
Population:
1. Rising global population
2. Global aging population
Low High
Measures taken by the Government to
promote the Coconut Industry:
1. Replanting activity
2. Increased budget allocation
3. Providing tax rebates
Low High
Consumer Preference:
1. Growing Health Consciousness
2. Consumer preference for packaged
coconut water
Low High
Weather Concerns:
1. Rising global temperature – global
warming
2. El Nino La Nina weather
patterns
Low High
Low High
Low High
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
Constraints in acreage expansion
1. Loss of agricultural land – Urbanization
2. Acreage competition – Competing crops