Item 1. Business
Item 1. Business.
Overview
The Vita Coco Company is a leading platform for brands in the functional beverage category. We pioneered packaged coconut water in 2004 and extended our business into other healthy hydration categories. Our mission is to deliver great tasting, natural and nutritious products that are better for consumers and better for the world. Today we believe that we are the largest brand globally in the coconut and other plant waters category, and one of the largest suppliers of private label coconut water.
Our branded portfolio is led by our Vita Coco brand, which is the leader in the global coconut water category, and also includes coconut oil and coconut milk offerings. Our other brands include Runa , a leading plant-based energy drink inspired from the guayusa plant native to Ecuador, Ever & Ever , a sustainably packaged water, and the recently launched PWR LIFT , a protein-infused fitness drink. We also supply private label products to key retailers in both the coconut water and coconut oil categories.
We source our coconut water, from a diversified global network of 15 factories across seven countries supported by thousands of coconut farmers. As we do not own any of the coconut water factories, our supply chain is a fixed asset-lite model designed to better react to changes in the market or consumer preferences. We also work with co-packers in America and Europe to support local packaging and repacking of our products and to better service our customers’ needs.
Vita Coco is available in over 30 countries, with our primary markets in North America, the United Kingdom, and China. Our primary markets for private label are North America and Europe. Our products are distributed primarily through club, food, drug, mass, convenience, e-commerce, and foodservice channels. We are also available in a variety of on-premise locations such as corporate offices, fitness clubs, airports, cruise lines, and educational institutions.
History
The Vita Coco Company, Inc., formerly known as All Market Inc., was incorporated as a Delaware corporation in January 2007 and incorporated in Delaware as a public benefit corporation in April 2021. We completed an initial public offering (IPO) of our common stock in October 2021.
Industry
We operate in the functional beverages industry. Our brands Vita Coco and Runa compete in the approximately $2.7 billion global coconut and plant waters category in 2022, as estimated by Euromonitor (2022). Our Vita Coco coconut milk product is a plant-based dairy alternative and our PWR LIFT brand competes in the enhanced isotonic category.
We believe per capita consumption of natural beverages is growing as a result of increasing consumer interest in plant-based alternatives and preferences for health-conscious products that have fewer added sugars and artificial ingredients, while providing more nutritional benefits. In addition, we believe that consumer awareness of the negative environmental and social impact of packaged goods has resulted in increased consumer demand for brands that are purpose-driven, take responsibility for their impact on the planet and are focused on sustainable packaging and transparent ethical values. We believe our mission is aligned with this developing consumer behavior.
Competition
The beverage industry is highly competitive and is constantly evolving in response to ever-changing consumer preferences. Competition is generally based on brand recognition, taste, quality, price, availability, selection and convenience, as well as factors related to corporate responsibility and sustainability.
We compete within the broad non-alcoholic beverage category, and our flagship brand, Vita Coco , is the market leader in the coconut water category. Our competitors in the beverage market include large beverage companies such as The Coca-Cola Company, PepsiCo, Inc. and Nestlé S.A. that may have substantially greater financial resources and stronger brand recognition than we have. We also compete with other leading functional beverages including Goya, Harmless Harvest, BodyArmor, Monster Energy, Red Bull, Bang, Ocean Spray, Bubly and Bai, as well as a range of emerging brands and retailers’ own private label beverage brands. Our competition and competitors vary by market due to regional brands and taste preferences.
7
Table of Conten t s
We are also a leading supplier of private label coconut water and oil brands, and we compete with other private label suppliers for that business.
Business Operations
As of December 31, 2021, we operated in two business segments: (i) the Americas segment, comprised of our operations primarily in the United States and Canada and (ii) the International segment, comprised of operations primarily in Europe, the Middle East and the Asia Pacific regions. While over 89% of our business is based on coconut water, we have used our access to market to add other beverage brands with a view to building a diversified beverage platform of compatible brands.
Vita Coco
With the launch of the Vita Coco brand in New York City in 2004, we established the coconut water category as a premium lifestyle drink in America. Vita Coco is the coconut water category leader with approximately 49% market share in the United States according to IRI U.S. for the 52 weeks ending December 26, 2021, and over indexes to younger households and to more multicultural shoppers.
We offer Vita Coco coconut water as an alternative to sugar-packed sports drinks and other less healthy hydration alternatives. Vita Coco has evolved from a single pure coconut water SKU to a full portfolio of coconut water flavors and enhanced coconut waters, such as Vita Coco Boosted and Farmers Organic, as well as other plant-based offerings, such as Vita Coco coconut oil and coconut milk. In 2021, we introduced the Vita Coco Hydration Drink Mix, a powdered form of flavored coconut water to test in limited online markets in the United States.
Internationally, our business is anchored by Vita Coco ’s presence in the United Kingdom, where it is the coconut water category leader with 76% market share, according to IRI UK for 52 weeks ended January 1, 2022. Our United Kingdom commercial team and our supply chain base in Asia has allowed us to sell into other European and Asian countries. In collaboration with our key retail partners in the United Kingdom, we have extended the Vita Coco brand into natural personal care products and CBD-infused beverages. Vita Coco coconut water has a presence in key markets such as China, France, Spain, the Nordic Region and the Middle East.
Runa
Runa is a plant-based, natural offering for consumers in the energy drink market. We believe that Runa ’s clean energy drinks provide consumers with a refreshing energy boost without the jolts and jitters, and with less sugar, than traditional energy beverages. A key ingredient in Runa is guayusa, an Amazonian jungle plant which we believe is a "super-leaf." As part of the acquisition of the Runa brand in 2018, we assumed operation of an Ecuadorian guayusa leaf sourcing and processing business.
Ever & Ever
Launched in 2019, Ever & Ever is a purified water brand packaged solely in aluminum bottles with a pH balance of 7.4. Given emerging consumer concerns with the disposal or recyclability of plastic water bottles, we created Ever & Ever to respond to the consumer need for a sustainably packaged water product in aluminum bottles with potential infinite recyclability. Ever & Ever was launched with a focus on the foodservice and office channels. Ever & Eve r is also available in our DTC channels.
PWR Lift
In 2021, we launched PWR LIFT, a beverage targeted at post-workout and recovery hydration occasions with added nutritional benefits. PWR LIFT is a protein-infused flavored water, designed to provide fitness-minded consumers with protein in a hydrating beverage. PWR LIFT was available through Amazon in the second half of 2021 and launched in select test markets in December 2021 .
Private Label
We expanded into private label coconut water in 2016 as a way to develop stronger ties with select, strategic retail partners and improve our operating scale. Our coconut water private label offering increases the scale and efficiency of our coconut water supply chain, and also provides us with a share of the value segment, without diluting our own brand. We also supply retailers with private label coconut oil.
8
Table of Conten t s
Supply Chain
We engage contract manufacturers, co-packers and third-party logistics providers to manufacture and distribute our products. Our fixed asset-lite model enhances production flexibility and capacity, and enables us to focus on our core in-house capabilities, supplier management, logistics, sales and marketing, brand management and customer service.
Our well-diversified global manufacturing network spans across seven countries, 15 coconut water factories operated by our manufacturing partners and five co-packing facilities for products not packaged near source. Our network provides us with significant production capacity and capabilities, and an ability to re-allocate coconut water sourcing in the event of weather, logistics or other macroeconomic impacts.
Coconut water needs to be transferred from the coconut into an aseptic package within hours of cutting a coconut from the tree. Our supply chain partners are positioned as close to the coconut growing regions as possible to keep quality at the highest level. Through our access and relationships with coconut processors and manufacturers in many countries, including the Philippines, Indonesia, Malaysia, Thailand and Brazil, we have built up a unique body of knowledge and relationships for coconut water processing at scale, as well as gained access to farms across diversified geographies. We also attempt to create a valuable and loyal farming community around our manufacturing partners through our agricultural education programs and investments in schooling. This has strengthened our long-term manufacturing relationships and we believe will support our capacity needs for future growth.
Raw materials used in our business and by our co-packers consist of ingredients and packaging materials purchased from local, regional and international suppliers. The principal ingredients include coconut water, Tetra Paks and caps, cardboard cartons, PET bottles and aluminum bottles and cans. We work with our contract manufacturing partners to purchase our raw ingredients from local suppliers in accordance with rigorous standards to assure responsible sourcing, quality and safety. The majority of our products are produced and packaged with materials sourced from a single supplier, Tetra Pak, whether purchased by us or by our contract manufacturers on our behalf, which provides us efficiency in the packaging and export of our products, and furthers our commitment to responsible sourcing, packaging near source and sustainability.
Distribution, Sales and Marketing
Our beverages and other products are sold in club stores, supermarkets, convenience stores, drug stores and e-commerce websites as well as other outlets. Our products are typically shipped directly from our contract manufacturing partners to a network of third-party warehouses located in our selling markets. We go to market in North America through various distribution channels, including a Direct Store Delivery distribution network (DSD), Direct-to-Warehouse network (DTW), broadline distributors, and our own Direct-to-Consumer (DTC) channel. We match the customers' needs with the right route to market providing us flexibility for our established brands and for our innovations. Outside of North America, we use a combination of DTW, importers, and distributors depending on the needs of the market.
Our European market is primarily retail and e-commerce operator direct sales, with some countries supported by distributor or importer type relationships. In China, we sell to Reignwood Investment (China) Co., Ltd which is our import and distributor partner for the territory, and, through its affiliates, has been one of our principal shareholders since 2014. Other countries are serviced through importers with limited retail direct relationships or in partnership with one of our manufacturing partners through licensing or other agreements.
We employ a dedicated global sales and commercial team. In the Americas, the sales team focuses on three main areas: DSD management, national account management (including club, mass food and convenience) and retail execution. Our European sales team is aligned geographically and by major account or by import partner and is further supported by a small field execution and marketing team in the United Kingdom. Private label accounts are handled by each geographic division in close cooperation with supply chain leadership. Our sales and marketing function in China is handled by our importer.
We also employ a brand, marketing, e-commerce and insights team with strong creative, social, and digital capabilities with a primary focus on the North American and European markets. The primary goal of our marketing function is to educate consumers about the functional benefits of our products while inspiring consumers to fall in love with our brands. Since the early days, Vita Coco has enjoyed a roster of celebrity and athlete fans. Today, Vita Coco continues to leverage relationships with talent and influencers who are aligned with our values and are genuine fans of our brand.
Seasonality
As is typical in the beverage industry, sales of our beverages are seasonal, with the highest sales volumes generally occurring in the second and third fiscal quarters during the warmer months of the year in our major markets.
9
Table of Conten t s
COVID-19
The COVID-19 pandemic has caused general business disruption worldwide. From the beginning of this pandemic in January 2020, our top priority has been the health, safety and well-being of our employees. As of the date of this report, our offices have re-opened and employees have returned, in most cases on a hybrid remote and in-office basis. Our quality lab continues to operate under strict protocols, our field sales teams are working with our distributors and retailers subject to local safety protocols, and business travel continues to be reduced.
Since COVID-19 emerged, among other impacts, we have seen significant changes to global ocean shipping availability and pricing of containers, lengthening transit times, increased domestic transportation costs and some payroll inflationary effects. We have also experienced negative impacts on our inventory availability and delivery capacity which have affected, at times, our ability to fully service our customers’ demand, and seen temporary manufacturing and distribution partner shutdowns that have not materially impacted our business to date. We have taken measures to bolster key aspects of our supply chain and we continue to work with our supply chain partners to try to ensure our ability to service our customers and their demand.
We continue to closely monitor the impact of the COVID-19 pandemic and developments related thereto on our business. For additional discussion of the factors above and the impact of COVID-19, see Part I, Item 1A. “Risk Factors” and Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K.
Product Innovation
We engage in research and development activities and invest in innovation globally with the goal of creating products using natural, functional ingredients. We have years of expertise working with plant-based ingredients to deliver products to meet the needs of our customers. We balance our innovation priorities between adding functionality and taste to existing brands and researching and developing new products and brands for new occasions, need states or specific retailer opportunities.
Our global innovation function sits in the marketing team to ensure alignment with current brand initiatives and sharing of consumer insights across teams and markets. The innovation team works closely with our internal global research and development and technical teams that includes members in the United States, Europe and Singapore focused on supplier capability, quality improvements and new processes. We also have strong supplier relationships that give us access to a broad scope of ingredients, packaging offerings and technologies.
Intellectual Property
We own domestic and international trademarks and other proprietary rights that are important to our business. We view our primary trademarks to be VITA COCO and RUNA. We have a global approach to protecting our trademarks, designs, patents and other intellectual property rights. We believe the protection of our trademarks, designs, copyrights, patents, domain names, trade dress and trade secrets are important to our success.
As of December 31, 2021, we had over 30 registered trademarks and over 10 pending trademark applications in the United States, and over 225 registered trademarks and over 25 pending trademark applications in other countries. Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained.
We consider information related to formulas, processes, know-how and methods used in our production and manufacturing as proprietary and endeavor to maintain them as trade secrets. We have in place reasonable measures to keep the above-mentioned items, as well as our business and marketing plans, customer lists and contracts reasonably protected.
Government Regulation
Our products are regulated in the United States as conventional foods. We, along with our distributors, and manufacturing and co-packing partners, are subject to extensive laws and regulations in the United States by federal, state and local government authorities including, among others, the U.S. Federal Trade Commission (FTC), the U.S. Food and Drug Administration (FDA), the U.S. Department of Agriculture, the U.S. Environmental Protection Agency and the U.S. Occupational Safety and Health Administration and similar state and local agencies. Among other things, the facilities in
10
Table of Conten t s
which our products and ingredients are manufactured must register with the FDA, comply with current good manufacturing practices and other standards requirements applicable to the production and distribution of conventional food products. We and our manufacturing and co-packing partners are also subject to similar requirements in foreign jurisdictions in which we operate. These types of requirements include: product standards; product safety, product safety reporting; marketing, sales, and distribution; packaging and labeling requirements; nutritional and health claim; advertising and promotion; import and export restrictions; and tariff regulations, duties, and tax requirements.
Products that do not comply with applicable governmental or third-party regulations and standards may be considered adulterated or misbranded and subject, but not limited, to, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, import holds, injunctions, fines, civil penalties or criminal prosecution. In addition, some of our products are produced and marketed under contract as part of special certification programs such as organic, kosher or non-GMO, and must comply with the strict standards of federal, state and third-party certifying organizations.
Public Benefit Corporation Status and Corporate Social Responsibility
We operate as a Delaware Public Benefit Corporation and therefore, our operational decision-making goes beyond solely maximizing shareholder value. Our public benefit purpose, as provided in our certificate of incorporation, is harnessing, while protecting, nature’s resources for the betterment of the world and its habitants by creating ethical, sustainable, better-for-you beverages and consumer products that not only uplift our communities, but that do right by our planet. Furthermore, in order to advance the best interests of those materially affected by the Corporation’s conduct, it is intended that our business and operations create a material positive impact on society, taken as a whole.
In March 2022, The Vita Coco Company, Inc. announced it was designated as a Certified B Corporation, a certification reserved for businesses that balance profit and purpose to meet the highest verified standards of social and environmental performance, public transparency and legal accountability. The Vita Coco Company, Inc. joined its subsidiary All Market Europe Ltd, a United Kingdom company, that previously achieved B Corporation status.
We believe that we bring our products to market through a responsibly designed supply chain, and provide our farmers and manufacturers the partnership, investment, and training they need to not only reduce waste and environmental impact, but also bring income and opportunity to their local communities. In 2014, we created the Vita Coco Project to support and empower our coconut farming communities by encouraging innovative farming practices, improving education resources, and scaling our business to promote economic prosperity. With our “Give, Grow, Guide” philosophy we focus on the future, and seek to contribute to educational programs and facilities through efforts such as building new classrooms and funding scholarships; all to impact the lives of over one million people in these communities. Additionally, we attempt to partner with other third-party organizations that share and advance our ideals including fair trade, accessible nutrition and wellness, and environmental responsibility.
We believe this purpose-driven approach has aided our growth as it is strategically aligned with the beliefs of our global consumer base and has improved our supplier relationships.
Human Capital
As of December 31, 2021, we had 281 full-time employees. Of these employees, 197 were employed in the United States. None of these employees are represented by labor unions or covered by collective bargaining agreements. We have never experienced a labor-related work stoppage.
Our people are at the heart of our business. We believe that we have been able to attract diverse and highly engaged employees who share our belief in our mission and further promote our inclusive company culture. To monitor the health of our human capital resources, we track turnover, perform exit interviews, conduct periodic employee surveys, hold quarterly town halls with open question and answer sessions, and conduct performance reviews and build development plans to assist each employee achieve their potential. Based on exit interviews and employee surveys, we identify opportunities for improvement in our benefits and our processes and track our employee engagement levels.
At the time of our IPO, we awarded all full-time global employees a restricted stock grant with vesting based on continued employment in order to align our employees with our shareholders and to reward all employees on this accomplishment.
We promote and value a diverse, equitable and inclusive culture for our employees. In 2020, our employees formed a Diversity and Inclusivity Committee which has worked to celebrate all our employees, educate, and recommend improvements to our processes to enhance our organization and our culture. As of December 31, 2021, approximately 46% of our employees identified as female, 49% identified as male, and 4% did not disclose their gender identity. In addition, at
11
Table of Conten t s
the end of 2021, 39% of our employees identified as Black, Indigenous, and/or People of Color or two or more races and 52% identified as white. We strive to reflect the diverse identities and cultures of our consumers.
Additional Information
The Vita Coco Company, Inc., formerly known as All Market Inc., was incorporated as a Delaware corporation in January 2007 and incorporated in Delaware as a public benefit corporation in April 2021. We completed our initial public offering of our common stock in October 2021.
Our website is www.thevitacococompany.com. At our Investor Relations website, investors.thevitacococompany.com, we make available free of charge a variety of information for investors, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (SEC). The information found on our website is not part of this or any other report we file with, or furnish to, the SEC.