ZICO founder re-acquires brand from Coca-Cola via PE firm: ‘The cycle has swung back’

ZICO-founder-re-acquires-brand-from-Coca-Cola-The-cycle-has-swung-back.jpg

Speaking at Expo West in 2015 two years after selling his coconut water brand to Coca-Cola, ZICO founder Mark Rampolla observed that his nine years running the business had been “absolutely brutal.” Six years later, he’s back at the helm, after buying ZICO back from Coke via growth equity fund Powerplant Ventures.

So what does the move - which comes eight months after KRAVE Jerky founder bought his brand back from strategic acquirer Hershey via Sonoma Brands – say about the ability of big CPG companies to nurture and scale emerging brands?

A few things, although we should be careful not to generalize, said Rampolla, who founded ZICO in 2004, sold it to Coca-Cola in 2013, and has now bought it back for an undisclosed sum after Coca-Cola announced it was focusing on top sellers and emerging brands with more 'global' potential.

While some entrepreneurial brands have flourished under the wing of CPG biggest guns, he said, 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.

Strategics are great at doing things efficiently on a massive scale," said Rampolla, who famously engaged in 'guerrilla tactics' in the early days of building his brand in a sometimes ugly fight with rival Vita Coco to win the hearts of New Yorkers. "But they don’t lend themselves well to an emerging growth phase, between $50-200m in revenue; it’s challenging; these brands need passion and special attention and agility that the larger strategies sometimes struggle with.

“I’m surprised ZICO had not grown significantly more under Coke’s tutelage," he told FoodNavigator-USA.

"It was out there and relevant but definitely not increased in availability like I would have expected, and I was aware of that and took it to be the fact that Coke struggles with smaller brands.

“I wasn’t excited about it," added Rampolla, who watched Vita Coco go from strength to strength over the years as ZICO failed to catch fire under Coca-Cola's umbrella," but I had come to terms with the fact that this was no longer my baby.”  

'It became a little ridiculous how many investors came into this space'

Food & beverage brands with world class management teams will continue to attract funding, said Rampolla, co-founder and partner at Powerplant Ventures, which invests in 'disruptive plant-centric brands. But the days of throwing money at emerging brands and seeing what sticks are over, at least for now, while big CPG firms - who have until recently been investing in brands at a far earlier stage - may be reassessing their approach.

The cycle has swung back," he said. "Strategics dipped down and looked at brands that were sub-$50m, but I think that’s unlikely to happen again for a little while. I think they’ll be looking at brands doing $100m plus in revenue and often larger than that, and they will be more cautious.”

Brands, in turn, “need to learn to stand on their own two feet,” he said. “You need to be built to last and have the capital and team that they can run potentially independently, potentially IPO, or roll into a SPAC [special purpose acquisition company], you know there are a lot of other vehicles now than just the big strategics.”

Meanwhile, VC funds investing in emerging brands with the expectation that a strategic acquirer would soon provide a lucrative exit are also reassessing their approach, he said. “It became a little ridiculous how many investors came into this space without the knowledge, the stomach, or the time horizon to really ride this out. It was all based on exits, frankly, like ZICO, Vitaminwater and Beyond Meat.”

The path to profitability

He added: “We realized OK, we as investors and brand builders, we need to do an even better job making sure these brands are strong and have the ability to survive, and at the same time, strategics need to rethink the way they manage these brands, the people, the attention, the time and the expectations.

“When I started out, there was an expectation that you’ve got to get to profitability sooner or later, and then for a period of time it didn’t matter, but right now I can tell you, every business we’re involved in, they better be on a path to profitability real fast, that’s the only way they can ensure they survive.”

‘We absolutely will bring some smart, relevant innovation to the brand and the category’

So what’s next for the new company – ZICO Rising - which will be led by beverage industry veterans Thomas Hicks (CEO) and Alan George (CFO), who worked together at Monster and most recently at CBD specialist Ojai Energetics?

tom-hucks-alan-george-zico.jpg
ZICO Rising CEO Thomas Hicks (left) and CFO Alan George (right)

“This first year is making sure we have the right foundations,” said Rampolla, who noted that, “We acquired the brand, so we’re not inheriting a team in the US at least; there are a variety of co-packers, growers and other infrastructure that we’re beginning to take over and build out across Asia, but the core team will begin with Tom and Alan.”

Conversations with a ‘number of major retailers’

So has ZICO – which has had a challenging 2020  - experienced a significant reduction in distribution? “As best we can tell, no,” said Rampolla. “It would have, but we’re at a point where we can save most of that; we’ve already had conversations with a number of major retailers.”

While ZICO has launched some brand extensions such as Coco-Refresh and protein-fueled variants, they have not generated meaningful sales, said Rampolla.

“Across the coconut water category, it’s plain coconut water that dominates, and we’re going to go back to the core and focus on the plain coconut water while we assess the right path for innovation. But over time, we absolutely will bring some smart, relevant innovation to the brand and the category.”

He added: “One thing I respect Coke for is that they retained the core of ZICO plain coconut water, which has never had sugar or other ingredients added, which is not true of other brands and is a real differentiator. ZICO also has a particular taste profile that many consumers prefer. The efforts to build out a sustainable supply chain also make us quite a bit different.”

zico-close-up.jpg
"Over time, we absolutely will bring some smart, relevant innovation to the brand and the category.”

‘We expect to turn those numbers around’

According to SPINS data, US retail sales of coconut water, which have been in decline, moved into positive territory for the full year 2020, with shelf-stable products up 1.6%, and refrigerated coconut water (a far smaller category) up 11.9% in the 52 weeks to Dec 27, 2020.   

“I think a lot of declines related specifically to … some of the challenges Coke was having with the brand that came to light during COVID-19, and like most major companies they focused on their core,” said Rampolla. “But we expect to turn those numbers around.”

Distribution: We don’t have to worry about unwinding it from the bottler network’

Asked about distribution, he said: “Coke had already begun to pull ZICO out of the bottler network and was in the process of working more directly with major retailers and with some smaller independent distributors, which made things more challenging to execute during COVID-19. But it creates an opportunity for us; we don’t have to worry about unwinding it from the bottler network.”

Right now, ZICO coconut water is “predominantly sourced in Thailand with secondary operations in Indonesia and the Philippines,” he added. “We’re in the process of assuming all of that, so we’ve been in touch with all the suppliers and we’re expecting to be producing again this month.”

Energy and excitement

As for the branding and marketing strategy, he said, “I’m still trying to get my head around this as we only closed the deal on December 31, but we believe there’s still a lot of work to do around category awareness.

“There’s still a passionate base of consumers that care about ZICO, so we have to figure out the right way to communicate with consumers that we’re back, but we think we can bring some energy and excitement to the category.”

zico-range.jpg

“We are incredibly proud of the results we achieved growing ZICO when it was a part of the Coca-Cola family of brands and wish PowerPlant Ventures continued success as they take the ZICO brand on a new journey.”

Manolo Arroyo, global chief marketing officer, The Coca-Cola Company

James-Quincey-Coca-Cola.jpg

Coca-Cola: Placing 'bigger, more scalable bets and exiting ‘zombie brands’​​

Coca-Cola – which unveiled plans to discontinue juice and smoothie brand Odwalla​ ​in July 2020 – is slimming down its portfolio to focus on top sellers and emerging brands with more global potential.

Speaking on Coca Cola’s Q2 earnings call in July 2020, CEO James Quincey said the company planned to prioritize "fewer, but bigger and stronger brands across various consumer needs,​" while at the same time "exiting some zombie brands, not just zombie SKUs.

"Of our 400 master brands, more than half are single-country brands with little to no scale. The total combined revenue of those brands is approximately 2% of our total. They’re growing slower than the company average but each one still requires resources and investments."

He added: "We believe the best way forward is to be more choiceful and target bigger, more scalable bets and be disciplined in our experimentation. 

"We are leading with global bets like the continued opportunity with reduced-sugar offerings in brand Coke. We also see high potential in regional and local bets like AHA-flavored sparkling water in the US.”