Written by Zhu Tingting

A new “quasi-listed” player has emerged in the health beverage market.

Recently, coconut water brand Vita Coco officially submitted its S-1 prospectus to the U.S. Securities and Exchange Commission (SEC) on September 27, Eastern Time. It is planned to be listed on Nasdaq under the stock code "COCO". Goldman Sachs, Bank of America, UBS, etc. serve as joint lead underwriters. According to estimates from Bloomberg and Seeking Alpha, the IPO valuation may exceed US$2 billion.

The origin of coconut water is related to an accidental trip to Brazil by the two founders. The two co-founders of Vita Coco, Michael Kirban and Ira Liran, discovered when traveling in Brazil that sweet, thirst-quenching coconut water is common there, but this category is rare in the United States. In 2004, the two chose to create All Market Inc., the predecessor of Vita Coco Company.

According to IRI Custom Research data, Vita Coco has become the leading coconut water brand, with a 46% market share in the United States, 36% ahead of the second place, and has established a global presence It is sold through more than 100,000 distribution points in 24 countries.

The prospectus shows that in 2019, 2020 and the first half of 2021, Vita Coco’s net sales were US$284 million and US$311 million respectively. and US$177 million, a year-on-year increase of 9.5% and 15%. Net profits were US$9.42 million, US$32.69 million, and US$9.42 million respectively. The first half of 2021 increased by 43.2% compared with the same period last year. The revenue increase was primarily due to increased sales of Vita Coco Coconut Water.

Vita Coco, a beverage brand founded in 2004, has attracted many industry giants and stars to invest in it, including the Verlinvest family associated with Anheuser-Busch InBev and the Reignwood Group, the parent company of Red Bull China , movie star Matthew McConaughey, singer Madonna, etc. As one of the top ten brands (non-alcoholic beverages, milk) in the U.S. natural beverages (approximately 13 billion market size), what is the quality of the first stock in this segment?

Following white peach and green tangerine, coconut can be said to be the “top trend” in tea drinking in recent years. From Luckin’s “raw coconut From "Latte" to Heytea's "Raw Coconut" to Nayuki Tea's "Domineering Coconut" coconut smoothie, sweet and refreshing coconut-flavored drinks have successfully taken the tea market by storm. This "everything can be coconut" trend has also further expanded to other areas, from coffee and tea to bread and rice, and various coconut-flavored toiletries have been put on the shelves. It seems that products linked to coconut are all popular.

Tea drinks and toiletries with coconut as an auxiliary ingredient have successfully "out of the circle", but in sharp contrast, coconut is used as an auxiliary ingredient. The coconut drink, which is the main raw material, is "not fragrant" this time.

Coconut milk drinks, represented by Coconut Palm Brand Coconut Juice, have been struggling to sell well since 2014 as the beverage market has been hit by new tea drinks. Turn the tide. Public information shows that the annual output value of Coconut Group from 2013 to 2017 was 4.456 billion yuan, 4.45 billion yuan, 4.291 billion yuan, 4.021 billion yuan, and 4 billion yuan respectively. The output value continued to decline. By 2019, its revenue was only 3.916 billion yuan. The prospectus of Happy Home, the first coconut juice company that was just listed on June 2 this year, also shows that its revenue in 2020 is only 1.247 billion yuan, lower than the 1.424 billion yuan in 2019 and the 1.355 billion yuan in 2018.

Another derivative of coconut, coconut water, which focuses on "healthy and pure natural", has been tepid for 7 years since it entered the Chinese market in 2014. fire. This market segment with many multinational beverage giants seems to be facing growth difficulties. In addition to Vita Coco, there are also Zico (which has been repurchased by the founder), Malee Coco, and Danone's Harmless Harvest, which were once owned by Coca-Cola.

Nielsen data shows that although the sales of coconut water in the United States increased slightly by 4.4% during the epidemic, ZICO’s sales fell by 46% during the same period. Subsequently, Coca-Cola Announced an update to its product portfolio, discontinued and phased out multiple "underperforming products" including ZICO coconut water, such as Odwalla juice, Coca-Cola Life, Feisty Cherry Diet Coke, Tab sugar-free soda, etc.

There are reports that Mark Rampolla, the early founder of ZICO, and PowerPlant Ventures, the company he founded, repurchased ZICO from Coca-Cola for an undisclosed amount.

The same dilemma does not only appear in the international market.

In 2015, Vita Coco entered the Chinese market with the help of Red Bull’s parent company Reignwood Group. The next year, Zico followed suit and launched in the Tmall flagship store. . Coconut water did not become an instant hit after entering China. As a natural moisture supplement and electrolyte supplement drink, coconut water has a sugar content and calories that are very consistent with the "healthy drink" standards. The giants have increased their investment and new consumption trends have failed to drive it to become a popular beverage. According to data released by Euromonitor International, in 2019, compared with bottled water, ready-to-drink tea, juice, and carbonated drinks, which have a wide audience, coconut water only accounted for 0.7% of the bottled water market in China.

Under such circumstances, the giant has ceased production, growth is sluggish, and costs are high. Under such circumstances, coconut water leader Vita Coco announced its listing with a high profile.

For Vita Coco, a "veteran" of coconut water, the first stock to "bounce the trend" in this segmented track is ushering in a new chapter in the history of brand development. Big milestone moments. For the health beverage market, it is obviously also a crucial node in the innovation and development process. Returning to the company itself, what is its financial position?

Vita Coco’s revenue mainly comes from three sectors, one is coconut water products, and the other is its own brand products such as coconut oil. , and the third is other products, including products such as Runa, Ever & Ever and PWR LIFT. In the first half of 2021, they achieved US$104 million, US$40.48 million, and US$5.11 million respectively, accounting for 70%, 27%, and 3% of total revenue respectively.

The prospectus shows that in 2019, 2020 and the first half of 2021, Vita Coco’s total sales were US$284 million, US$311 million and US$177 million respectively, a year-on-year increase 9.5% and 15%, with net profits of US$9.42 million, US$32.69 million and US$9.42 million respectively. Net profit in 2020 increased by 247% year-on-year compared to 2019, and the first half of 2021 increased by 43.2% compared with US$6.578 million in the same period last year.

Vita Coco’s revenue growth was mainly due to the growth of its flagship product, coconut water. The prospectus shows that during the epidemic, Vita Coco’s sales increased by more than 100% year-on-year. According to IRI Custom Research data, in the 104 weeks, 52 weeks, 26 weeks and 13 weeks ending September 5, 2021, Vita Coco coconut water sales increased by 13%, 24%, 33% and 29% respectively year-on-year. Sales are on a continuous growth trend.

In terms of gross profit, due to the continued rise in fulfillment costs and transportation costs, although its revenue bucked the trend and achieved a 15% growth during the epidemic, Its gross profit margin also dropped from 34.4% in the first half of 2020 to 29.9% in the first half of 2021. According to the financial report, its cost of sales increased from US$100 million in the first half of 2020 to US$124 million in the first half of 2021, a year-on-year increase of 23.1%. The main reason for the increase is the rise in sea freight costs due to transportation restrictions and port restrictions, especially due to the COVID-19 pandemic.

Vita Coco has an asset-light layout and has not built a coconut water-related factory. Its supply chain covers various tropical countries, and about two-thirds of its raw materials are Originating from Asia and a third from Latin America, its global supply network spans 10 countries and includes 15 coconut water factories and 5 co-packaging facilities.

In addition, thanks to people’s pursuit of healthy drinks during the epidemic, and the continued growth of revenue in the Americas and international countries, the impact of other expense increases on net profit was offset. Although in the first half of 2021, its sales, general and administrative revenue was US$41.222 million, an increase of 13.2% from US$36.401 million in the same period last year. Marketing expenses increased by US$1.4 million, personnel-related expenses increased by US$1.8 million, and administrative expenses for professional consulting for the company's listing in the United States increased by US$2 million. Vita Coco finally achieved a net profit of US$9.422 million in the first half of 2021, an increase of 43.2% from US$6.578 million in the same period last year.

According to Euromonitor data, the global coconut water market has expanded to US$2 billion.

According to the prospectus, during the epidemic, Vita Coco’s sales also increased by more than 100% year-on-year and expanded to 24 countries and regions.

In terms of global market share, the UK is the country with the deepest penetration of Vita Coco, with a market share of over 70%; while in other European and Asian countries, Vita Coco is still in the development stage. As of June 30, 2021, the European region accounted for 60% of its international business, the Asia-Pacific region accounted for 15% of its international business, and other regions accounted for 25%.

Vita Coco sales channels include club stores, large wholesalers, online marketplaces such as Amazon, chain pharmacies, supermarkets, independent pharmacies, health food stores and other retailers. The prospectus shows that Vita Coco's largest distributor KDP and the largest retail direct Costco accounted for approximately 19% and 35% of total sales in 2020 respectively. Other retailers or distributors accounted for less than 10% of sales. Over-reliance on major distributors and retailers may cause hidden worries for its development. Once this sales channel is cut off or the revenue of related retailers/distributors drops significantly, it will directly affect Coco Vita's product revenue.

From the perspective of segmented sales channels, in 2020, the coconut water category will be the most popular in MULO+C (Multi Outlet plus Convenience Stores, a variety of The performance in retail channels and convenience stores) channels has been better than that of other beverage categories. Among online channels, Vita Coco accounted for approximately 6% of total sales in Amazon's Americas business in 2020; in the year ending August 28, 2021, Vita Coco's retail sales increased by 45% year-on-year.

Following the discontinuation of ZICO, the coconut water brand that once rose to the second largest in the United States, Vita Coco seems to have become the Coconut water is the unicorn in this segment. In the post-epidemic era, with Vita Coco mainly promoting the sales expansion strategy of large single products and coconut water product sales exceeding 70%, with the rapid changes in consumer preferences, market competition environment and other factors, the sales channels and drinking scenes of coconut water are changing. Being single also brings certain uncertainty to the development of Vita Coco.

From coconut water, to soda water, to last year’s “hot” sparkling water, low-alcohol alcohol, to plant-based drinks. It has to be said that the food and beverage industry is also undergoing an iteration of express delivery. It can be said that you sing and I come on stage. In addition to out-of-the-circle marketing stories, the capital market, which votes with its feet, is more interested in actual data: In addition to the story of health and low-calorie drinks, what other investment value does coconut water have?

Euromonitor data shows that the global coconut water market size is US$2 billion, and the total retail sales of global non-alcoholic beverages will exceed US$952 billion in 2020, and is expected to reach US$952 billion by 2025. $1.36 trillion, with a CAGR of 7%.

Judging from the proportion of coconut water in the overall non-alcoholic beverages, this is still a relatively niche market, and its growth rate is not fast.

Annual sales growth in the coconut water industry nearly doubled between 2004 and 2013, but has declined since then. According to data from Euromonitor International, in-store sales of coconut water in the North American market fell by 22% between 2015 and 2019, with sales of leading brands including Vita Coco, Zico, etc. falling by up to 40%.

Driven by the epidemic, the sales of health drinks have increased against the trend around the world. In the 26 weeks ending on September 5, 2021, Vita Coco performed well in the domestic US market, driving sales of coconut water beverages to grow by 15%; its own sales also increased by 33% year-on-year, while soda water only grew by 4% during the same period. %.

However, coconut water, which is popular around the world, has experienced a lukewarm reception in the Chinese market. The reason is that because the consumption habits of coconut water are far less mature than those in Europe and the United States, plant-based protein drinks such as oat milk, soy milk, almond milk and other plant-based drinks seem to be more popular with the public. Soy milk, in particular, has a greater consumer base in China. The subcategory of coconut water may not be as popular as carbonated drinks, sparkling water and other categories with a wide audience, but there is still room for growth for some subdivided groups with specific usage scenarios (exercise, hydration, sugar control, etc.) .

In addition, Vita Coco still has hidden concerns in terms of cost, distributors, product matrix, etc.

The cost of coconut water remains high due to the demand for extraction, packaging and logistics transportation to keep it fresh at the supply chain end. It is understood that the average price of each bottle (330ml) of Vita Coco and Zico, another major coconut water brand, is about 10 yuan. Compared with the sugar-free and low-calorie representative Yuanqi Forest Sparkling Water, which is currently popular in the market, a bottle of 480ml only costs 5 yuan. It has many functions. Red Bull, the leading sex drink, only costs 5 yuan per bottle (250ml). High preservation and transportation costs prevent it from reducing marginal costs through scale expansion like carbonated beverage manufacturers.

In addition, the use scenarios of coconut water in China are relatively vague. Compared with the representative of low-alcohol alcohol - RIO cocktail, which is positioned as "young people enjoying a relaxing and leisure time alone", The representative of sparkling water - Yuanqi Forest is positioned as "0 sugar, 0 fat, 0 calories, 0". Whether it is low-alcohol wine or sparkling water, it is necessary to find the user's high-frequency usage scenarios as an entry point. On the other hand, coconut water has failed to achieve a strong connection between the scene and the product, whether it is focused on low-sugar and low-energy daily drinking scenarios or post-exercise water replenishment scenarios. The lack of users who are just in need of the core scenario makes it vague no matter which usage scenario it is used in.

In addition, over-reliance on main products and distributors has also laid hidden dangers for its development.

In the first half of 2021, Vita Coco’s main product, coconut water, accounted for 70% of its total revenue. Vita Coco’s own brand products and other products combined only accounted for 70% of its total revenue. 30% of revenue. In contrast, competitor Danone's Harmless Harvest coconut water brand has a relatively complete product matrix. In addition to original coconut water, it also has fruity coconut water, coconut milkshakes, coconut yogurt and other drinks.

In recent years, Vita Coco has also been trying to diversify its product matrix, but the results have not been significant. In addition to Vita Coco coconut water, it has already tried to launch coconut oil and coconut milk products, as well as a plant-based energy drink "Runa" inspired by Ecuador, native plant-based drinks Ever & Ever and protein-infused water PWR LIFT.

The audience of a single product is relatively limited. When the coconut water market is not growing rapidly, if other products are unsuccessful, its overall revenue growth will be restricted.

In addition, the prospectus shows that Vita Coco’s largest distributor KDP and the largest retail direct Costco accounted for approximately 19% and 35% of total sales in 2020 respectively, and other retail sales Each dealer or distributor accounts for less than 10% of sales. If the company's cooperative relationship with downstream retailers/distributors changes, it will have an adverse impact on the company's financial condition and operating results.

High costs, vague usage scenarios, over-reliance on main products and distributors... In the niche market of coconut water, how can Vita Coco tell a good story to the capital market? ?