Vita Coco was launched in the US in 2004

Vita Coco was launched in the US in 2004

This month, soft drinks commentator Richard Corbett takes a look at Vita Coco, the market-leading coconut water brand that is reportedly in PepsiCo's sights.

The word is that Madonna may have something to sing about in the next month or so. Along with several other high-profile celebrities, the singer is reportedly an investor in Vita Coco, a coconut water brand that could soon be poised to join PepsiCo's stable.

If the price tag of around US$1bn for All Market, Vita Coco's owner, is realised, as recent speculation has suggested, then Madonna and others will be singing all the way to the bank.

But, will it be good news for PepsiCo?

The coconut water segment remains very much in the growth stage of its lifecycle. Vita Coco was conceived as recently as 2003, in a bar in New York by two long-standing friends.

From a lifestyle perspective, coconut water is an easy sell. It's a natural sports drink that helps replenish electrolytes, and is an excellent source of potassium, manganese, magnesium, folate, calcium and selenium – it has more potassium than bananas. The beverage also claims to lower cholesterol and blood pressure, and to raise energy levels. Search online for the health merits of coconut water, and you'd be forgiven for thinking this is a magic potion and not a soft drink.

It is not surprising, then, that the segment is in rude health. According to GlobalData, consumption of coconut waters has more than doubled between 2013 and 2016, and has trebled since 2012. The market expanded by nearly 20% last year. In terms of actual volumes, the market remains niche, but that can be interpreted as potential with scope for future growth in the years to come.

Even in markets where coconut water has plenty of presence, there remains a considerable big-city bias, so there is plenty of room for expansion. Looking forward, we can expect the segment's visibility to widen on convenience and supermarket shelves globally.

In part, this growth will also be driven by new flavour offerings and a broadening range of packaging alternatives to suit different consumption occasions. Should the deal go ahead, then PepsiCo will be buying a big coconut water brand that will only grow bigger.

To what level the coconut water segment will grow is more open to debate. Coconut water may be very healthy, but the taste could be a handicap: Many consumers do not take to coconut water immediately.

Another constraining factor is price. Like other commodities, coconut prices fluctuate, particularly when harvests are poor or demand increases above supply. Coconut water is not cheap, so cost will likely prove a barrier-to-entry for many new consumers.

How much bang PepsiCo will be getting for its buck will not necessarily be determined by how much people drink it but how much they use it. Vita Coco is a versatile brand with aspirations not just to sell coconut water but to 'own the coconut'. Coconut oil is an increasingly-important part of the make-up of the brand and is utilised for health, beauty and cooking.

What is also exciting is the involvement in the milk alternatives market. Vita Coco Coconut Milk is a dairy-free substitute for milk which is marketed as something that can be used with cereal, or in coffee or tea. This has enabled the brand to compete in a more-proven category, which is enjoying strong growth from a much bigger base. According to GlobalData, the global market for 'grain, nut, rice and seed milk-alternative drinks' is 12 times as big as that for coconut waters. It is this that will have prompted Danone to buy plant-based alternative milk supplier WhiteWave Foods last year.

Strategically, Vita Coco makes sense for PepsiCo. The brand's consumers are young, vibrant and cosmopolitan. It is trendy and on the up. Any acquisition would be a good fit both with PepsiCo's 'Performance with Purpose' agenda and with one of its core priorities, 'helping to improve health and well-being through the products it sells'.

If the acquisition comes off then the deal represents a statement of intent for PepsiCo's planned future direction and confirms a commitment to invest in healthier categories and segments. It would also be a wise PR move for a company battling to dilute its reliance and association with the much-maligned CSD segment.

Of course, there is no certainty that the deal will come off. The figures being talked about are very high for a brand that, 14 years ago, was just an idea. But, if it does happen, then PepsiCo will be causing a commotion while Madonna will be able to afford her Isla Bonita.