Vita Coco at Goldman Sachs Forum: Expanding Horizons in Coconut Water

On Tuesday, 13 May 2025, Vita Coco (NASDAQ:COCO) presented at the Goldman Sachs Global Staples Forum, revealing a robust first-quarter performance and strategic ambitions for growth. Despite challenges such as tariff impacts and distribution shifts, the company remains optimistic about doubling its business over the next four to six years by enhancing household penetration and expanding international markets.

Key Takeaways

• Vita Coco reported a 20% growth in its brand for Q1, with the coconut water category growing at 23%.
• The company aims to double its business within four to six years by increasing household penetration and expanding distribution.
• A new line of Vita Coco treats is targeting a younger, more diverse consumer base.
• The company is managing tariff impacts with pricing strategies and is focused on expanding into Western Europe.

Financial Results

• Q1 category growth: 23%
• Vita Coco brand growth in Q1: 20%
• Yearly top-line growth guidance: 8% to 10%
• Mid-teens branded growth expected for the year
• Incremental growth anticipated from Vita Coco treats
• Regional private label business losses expected to offset some growth
• Gross margin guidance maintained, with a long-term outlook approaching 40%
• Multipacks account for 50% of current volume

Operational Updates

• Vita Coco treats are attracting a new, younger consumer demographic.
• Despite a 50% reduction in Walmart distribution, significant gains are being made in multipacks, Farmers Organic, and other channels.
• Broader retailer relationships are enhancing distribution.
• New partnerships in food service include Joe’s Coffee and Pete’s Coffee.

Future Outlook

• Focus on increasing household penetration to drive category growth.
• Expansion plans in both current and new channels, including food service.
• Continued innovation with new pack formats and product lines.
• International expansion, particularly targeting Western Europe, with aspirations for it to match the US market size.

Q&A Highlights

• Discussions on elasticity and consumer strength for coconut water.
• Examination of growth drivers, including distribution and innovation.
• Clarification on top-line growth guidance and treats’ growth outlook.
• Updates on pricing strategies and tariff impacts.
• Insights into gross margin strategies and food service opportunities.
• M&A strategy update

For a deeper dive into Vita Coco’s strategic plans and financial performance, refer to the full conference call transcript.

Full transcript - Goldman Sachs Global Staples Forum:

Unidentified speaker, Host: All right. Good morning, everyone. Thanks again for joining us today. So it’s a pleasure to introduce our next speaker. With us today is Vitacoco’s cofounder and executive chairman of the board of directors, Mike Kerben.

Mike has served as executive chairman since May 2022 and as chairman of the board since 2024. So Mike’s also previously served as CEO and co CEO of the of the company. So Vita Cocoa was founded back in twin or 02/2004, and they are the market leader in what I would describe as a very attractive and fast growing coconut water category. They have a full pipeline of products, including the recently launched Vita Cocoa treats that fuse functional benefits with authentic and better for you ingredients and just recently posted very strong q one results. So thank you, Mike, for joining us today.

Alright. Glad

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: to hear all these people.

Unidentified speaker, Host: I know. I know. It’s just you, but that’s good. Good. You’re the person we wanna talk to.

Right. So maybe we can start with the health of consumers recently. On your most recent earnings call, you mentioned that some consumers might be focusing a bit more on value, which shouldn’t surprise any of us in the room. And curious how in the context of that, how elasticities have evolved recently. I’m just thinking about that also with some of your guidance, like, kind of what that assumes for the consumer also for the rest of the year.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I mean, the consumer for coconut water and Vita Cocoa specifically is quite strong. Yeah. You know, we’ve been doing well. You know, you saw in q one category growth, I think, was 23%.

Surcana and Vitacoco brand grew 20%. So we clearly have a strong consumer. Okay. And and it continues to grow. So we think that the category and the brand specifically, but the category is in its early days.

Yeah. We believe we’re growing and building this into a household staple across North America and and other markets. And so we feel like the consumer is there, and the consumer is paying. We had a small price increase that went into effect the last couple of weeks. You’re seeing that in Surcana, and volumes are holding up nicely.

And so we think that the consumer is paying They’re paying for health and wellness, and that puts us in a nice position.

Unidentified speaker, Host: Yeah. No. That’s helpful. And sticking with the consumer, I did wanna ask on the Hispanic consumer because you do over index. And I know there’s been some headline concerns about that, you know, health of that consumer or cohort.

So curious how you’re seeing that or elasticities hold up with with that consumer.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I think this is something that has has come up with other other consumer goods companies. I think when you’re flat, declining, or growing single digits, it’s it’s easier to point to something or to point to something specific. Obviously, when you’re growing at 20%, it’s hard to. We do over index with an ethnically diverse consumer, whether it be black consumers, Asian consumers, Hispanic consumers.

I think our Hispanic index is, like, a 60, under 65. But we believe that our Hispanic consumer is second, third generation. We think they’re more affluent, and we, again, come back to this thing where consumers, regardless of ethnicity or anything, are investing in health and wellness and functionality.

Unidentified speaker, Host: Okay. Makes sense. And I’d like to pivot to the category because it’s so attractive. And I think about you know, I cover all of beverages, and it’s probably one of the fastest growing categories of this type of size in the beverage aisle. So curious as the leader, what are you doing to drive, you know, continued growth over the next five, ten years?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I think if you think about the category, it is the fastest growing category, I believe, in the beverage aisle, and we think it’s really early days. And I’ve you know, we’ve had this conversation before where I talk about right. Yeah. Talk about other categories.

Mhmm. And I always like to point to Ocean Spray and Cranberry. This is a Mhmm. A brand that has Ocean Spray has 40% household penetration in a category Cranberry that has 50% household penetration. Compare that to us, which is, you know, low teens household penetration.

We have this huge opportunity to gain distribution, but most importantly, gain households. And I think as we gain households, there’s no reason we can’t double this business over the next four to six years. And I think we do that by growing household penetration. And while we’re doing that, growing breadth of distribution in our current channels and growing distribution in new channels.

Unidentified speaker, Host: Yeah. That was one of my follow-up questions about doubling the category. So you’re thinking the next four to six years. And like you mentioned, through distribution, I assume that’s innovation, driving trial. Is there anything in particular or any order you can rank some of those growth drivers for us to help us understand?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Well, I think it all comes back to households. Right? We’ve been growing households around 10% per year, and if we could keep on doing that, that gets us there. But Okay. By growing households, we’re really focused on all of the many usage occasions for coconut water.

And this is something, I think, very unique about this category. If you, you know, if you think about it, we started talking many years ago about smoothies and using coconut water in smoothies, and that became a big usage occasion. And then mixing it with cocktails. Mhmm. And then mixing it with your green powders in the morning and, you know, getting that, you know, done.

And then also as a hangover cure. And most importantly, Vita Coco has three and a half times the electrolytes of the leading sport drink. Mhmm. So the hydration occasion. So as you build out all these occasions, you’re gonna get more household, and you’re gonna get more usage within the households from different members of the household.

Unidentified speaker, Host: Mhmm.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So that’s how we think we continue to grow this business, that continued education.

Unidentified speaker, Host: Alright. And then, you know, thinking about your q one guidance, which I think was last last week when you reported and you kind of set forward, you reported Was it a week ago or a month ago or three months all blurry. I know. But you I mean, your results were great. 17% top line growth.

But in the context of that, you did maintain your top line growth guidance for the year of 8% to 10%. I know that includes, by the coconut water, growth of mid to high teens. So maybe unpack that for us. And I know there’s a lot of moving parts because I know treats, you know, and the the price increases you mentioned are in there. But maybe talk through the delivery of your top line growth sort of suggests, you know

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yep.

Unidentified speaker, Host: Slowdown for the next few quarters.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I mean, a quarter doesn’t make a year, especially the first quarter. It’s about 20% of our year. We think it’s still early early in the year. We’re really happy with the results.

We’re happy with the continued results. You’re seeing it if you’re looking at the SIRKANA data continuing to expand growth. The year the top line is made up really of three things this year. It’s mid mid teens branded growth. It’s incremental growth from treats, the rollout of treats, which we’re excited about and we can talk about Mhmm.

Offset by some losses in some regional private label business Yes. Which we’ve talked about. Mhmm. And so that’s kind of how we get to that number. Okay.

And, you know, we see we see this this growth continuing. We’re really excited about it.

Unidentified speaker, Host: Maybe we should drill down a little bit on this last two Mhmm. In terms of treats. It just rolled out nationally. So what’s your growth outlook for the brand? Like, what are you seeing from the consumers?

And my understanding is it’s bringing in, you know, an incremental consumer, a new consumer set. And then at scale, what are the margin implications from treats? You know, is that accretive, dilutive to corporate?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So let’s start with the consumer. It is this is a trend that we’ve seen around the world, this idea of using coconut milk as a base for this indulgent kind of opportunity. You’re seeing it we saw it first in China and in all over Asia. There’s all these innovative coffee shops opening up all over Asia, specifically in China, and their top one, two, three, four best selling SKUs are coconut milk based beverages. Mhmm.

So this is something that’s happening on a global level. We’re bringing that to The US, and we’re seeing the results, you know, pretty clearly. It is bringing in a new consumer into the franchise, which is exciting. It’s we already skew quite young with Vida Coco. This is bringing in an even younger consumer.

Unidentified speaker, Host: Mhmm.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: It’s bringing in a less ethnically diverse consumer than our core, and it’s bringing in a more rural consumer than our core. Okay. So it’s opening up the brand to new consumers, which is something we’re very excited about, and and we think it will bring these consumers into the brand and expand the entire brand. But Mhmm. It’s still early days.

Scans look great. Distribution looks great. Points of distribution that we were given by retail is exciting, so we feel we’re in a good position.

Unidentified speaker, Host: And that’s factored into the guidance this year. And then you mentioned the other aspect is some losses, private label losses at regional retailers. And just wanna clarify within the guidance, that’s not anticipating any or you’re anticipating any further potential losses as far as private label. That’s

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. No. We don’t see any further losses. We feel that, you know, private label is is like this. It’s somewhat lumpy, and, you know, we like the business.

We do believe that that our the majority of our growth in the mid to long term will be branded growth, which is good from a margin mix perspective. But we will have periods of time where we gain more private label, and then we lose private label. And that’s kind of the the game in private label and how it works.

Unidentified speaker, Host: And then speaking of not naming this particular retailer, but, you know, is it fair to say that you’re also maybe gaining branded at this particular retailer? Is that the opportunity as well?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I would I would say it’s actually multiple retailers in multiple geographies. Mhmm. And our relationship and our partnership with these retailers is very strong, both on private label, but especially on branded. Yeah.

Our branded business is doing really well in all of these Okay. Retail accounts, so it’s it’s nice to see.

Unidentified speaker, Host: Okay. Yep. Wanna go back to pricing. You mentioned, of course, the price increase you took this quarter. And it sounds like you said it’s broadly sticking, at least from what we can see in the scanner data.

And then I believe you have more pricing planned for Q3, assuming actually, okay, we’re going have to go there. Tariffs, yeah. Assuming. I don’t know. That was assuming, you know, the the tariffs stay in place.

So, yeah, maybe update us on, if you can, how you’re thinking about, you know, the news from yesterday about the the potential impact on your business from tariffs, how you’re thinking about that, and, you know, would that change future pricing if those tariffs really

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. Well today. I try not to watch the news for several reasons. But if we think about the tariff situation, we think that the we believe that the baseline 10% tariff is here for some time. Mhmm.

So as we think about how that affects our gross margins, we’ve talked about the fact that we believe that the 10% baseline tariff will be on around 60% of our global COGS. And so as we think about that, we’re looking, you know, to to mitigate that mostly with price, this first round of baseline tariffs. So if you think about, you know, the number, if we as we roll out that pricing, which would probably be in or around July Okay. It is not super significant. It’s not a it’s not a huge price increase.

We think private label will actually come up a little bit higher and a little bit more pricing than branded. So we don’t think it’s gonna be incredibly impactful. However, we have as we look at the guidance for the year, we’ve taken a little bit of volume for for the price. Okay.

Unidentified speaker, Host: Yeah. Was gonna ask you that. So the price gaps could actually narrow.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah.

Unidentified speaker, Host: And we’re not I’m not necessarily seeing that yet unless I’m missing something in the scanner data, but your thought is as we move forward in the next few months that

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: narrow tariffs. Yeah.

Unidentified speaker, Host: Yeah. And limit potential down trading.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Okay.

Unidentified speaker, Host: Wanted to move or switch gears to Walmart and the distribution. I know you’ve talked about this, that you’ve changed some of the distribution or shelf space at Walmart. And it did. I my understanding is it led to a reduction in SKUs and space. I know you’re in touch with that very important retailer.

So just update us on how that has evolved for you. How are you thinking about your new space? Are you potentially gaining further space as the year progresses, etcetera?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So what happened at Walmart was unfortunate, but I think it’s it’s quite solvable and resolvable. We wanted to move to a more mainline aisle in Walmart for a long time. We were off to the side in kind of this random space in Walmart, which was new age Mhmm. Functional beverages, And we wanted to be in a mainline aisle. Juice in Walmart is a great place for us to be.

Mhmm. We pull a lot of consumers from juice, and the juice aisle is not a high growth aisle, as you know, and we’re bringing growth to places like that. You’re seeing it in seven Eleven where we’re in the juice store driving significant growth. So moving to the juice aisle was great for us. When it happened, it all happened very quickly.

Mhmm. And it we did not get the right SKUs. We did not get the SKUs that we wanted in the reset, which again happened fast.

Unidentified speaker, Host: That’s right.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: However, we’re seeing incredible gains in from a velocity perspective in that aisle. Mhmm. There is more foot traffic. Velocities are We lost roughly 50% of our distribution, yet our volley our sales are currently down high single digits, roughly 10%.

So the velocities are up. Okay. We’ve yes. We’ve been in touch with this retailer. We have actually I think in this has brought us together in a way.

You know, sometimes when you have an issue like this, it creates a deeper relationship.

Unidentified speaker, Host: Yeah.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: And I think we’re in a very good position for distribution gains in the next reset Mhmm. Which would be in the fall. And if that happens, that is, I think, gonna put us in a really nice position in a higher velocity aisle, in a more foot higher foot traffic aisle that Walmart should be a big growth driver for us in the future.

Unidentified speaker, Host: And it’s interesting. So I’m thinking about this particular retailer and the dynamic environment. I wonder if, yes, the next resets would be fall, but do you think they might make some adjustments before then?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So what they those. Yeah. What they they realize they’re losing share in the fastest growing category of beverage. Right? So what they’re doing and what we’re doing together in the meantime is working on off shelf programming, front of store coolers, end caps.

Mhmm. And you’re seeing it. So when this first happened last fall, we saw declines of upwards of 30%. And over the last several months, we’ve been decreasing that, you know, decline to now in the in the high single digits. Gotcha.

And I think it continues to get better between now and the next reset, and the next reset should give us a major jump if if it all comes together how we think it can help conversations have been. Okay. Yep.

Unidentified speaker, Host: Distribution gains. I know that’s a huge opportunity and part of your growth. So maybe give us a little more color on where you’re gaining distribution and where you still see opportunities. And then just thinking about that in context of how that is this year versus previous years.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So broadly, even with 50% decline in distribution in Walmart Mhmm. Net net, we had we’re having distribution gains this year. So that’s a lot of distribution gains outside of Walmart, Walmart being a large portion of ACV and and so on. So there’s been a lot of gains in multipacks outside of Walmart. Farmers Organic, which is doing very well, obviously treats Mhmm.

And continued growth in terms of points of distribution across all channels, c store. I mean, you were to go into a seven Eleven two years ago, and there was maybe one facing Vita Coco. You go into a seven Eleven today in a lot of stores, if not all, there’s a full shelf. Mhmm. And then our one liter on the, you know, on the bottom.

And so we’re really expanding, you know, breadth of distribution at current retail. And then on top of that, we’re starting to gain real distribution in a complete white space for us, which is food service. Yeah. And we see that as a long term growth engine also.

Unidentified speaker, Host: And so so far this year, some of these gains, you expect that to continue whether it’s fall resets in some of these other retailers. And then with innovation, it’s allowing you to drive further Yeah. Gains.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: With innovation. And back to the ocean spray story, which I like to come back to. Yeah. You walk down the juice aisle in any retailer, there’s an ocean spray set, basically. It’s usually at least four feet, and it’s significant.

We never had that. We’re starting to get more and more distribution. And I think over time with all the different types of multipacks, adding new pack formats, all of this stuff, we continue to build that out. And someday, I’d like to see at least a four foot set in every major retailer of coconut water, us being the majority of it.

Unidentified speaker, Host: Alright. Sounds good. Let’s talk a little bit more about innovation. We’ve talked a little bit about treats. Love to hear anything more on that, but also just innovation around whether it’s the core, coconut milk, alcohol.

How incremental has this innovation been? And then thinking about in general, has I know you talk we talked about treats being maybe more incremental, or is there a cannibalization happening with some of the innovation that you’re putting out into the market?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: K. So I think all of our innovation starts right at the core and builds out from there. So the biggest innovation we’ve had in, you know, I think ever has been multipacks. So it’s pack format innovation that has been incredibly successful, and we think will continue to drive a lot of growth long term. From there, it starts to go, you know, further into, you know, farmers organic and these type of things and then treats.

It feels like most of the innovation outside of pack innovation. Right? If you sell a 12 pack, that’s gonna cannibalize the singles. And that’s kind of the goal. You get more more units into the household.

But if we look at treats, we talked about the fact that that’s bringing in a new consumer. We’re not seeing much cannibalization there. Our VitaCoca coconut juice in a can Mhmm. Is also a different consumer, and there’s not a lot of cannibalization we’re seeing there. So we feel good about our innovation.

If you think about treats and coconut milk, which is starting to show some signs of of really working, those are actually sitting outside of Vita Coco coconut water. They sit in our you know, it’s segmented into other within our within our financials, and we see we see growth there and, again, a new consumer in a different usage occasion. Okay.

Unidentified speaker, Host: And then sticking with the multipacks, what do you think is your advantage there relative to peers in terms of what you’ve done? And then can you help frame for us what percentage of your mix or businesses from multipacks today and maybe where you expect that to to get to?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. And on the numbers in front of me, I think it’s 50% of our volume today

Unidentified speaker, Host: Mhmm.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: And growing. I think if if you look across the beverage aisle, we built this business on singles, which is very rare. If you look at a grocery store, any large format, it’s mostly multipacks in the aisle and singles up by the front store cooler and singles in c store and on the go consumption. We’re starting to become, I think, a real beverage company, and so we’re starting to see more and more of that. Yeah.

And I think I think that will continue.

Unidentified speaker, Host: Okay.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah.

Unidentified speaker, Host: Alright. Let’s pivot to international.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Mhmm.

Unidentified speaker, Host: On your most recent call, you mentioned that over international segment will become a larger part of your growth story. You know, you’re significantly underdeveloped relative to The US. So where are you investing specifically, and then how much investment is needed to to ultimately drive growth outside The US?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So we see a real opportunity in developed consumer goods markets. Right? So we’re looking at Europe Western Europe specifically, and we’ve seen for example, our our UK business Yeah. Is a decent sized business. We started there several several years ago, but the growth is tremendous.

Growing in the twenties, and we see that continuing as we’re really like we have started to do in The US, breaking through as more of a mainstream product. Mhmm. Working you know, now really starting to work outside of just the major markets like London and so on. And then as we think about the international expansion, we really like what we’ve done in Germany over the last couple of years. We saw it as a good market opportunity.

There’s a consumer there. There was a category of coconut water that that existed three years ago, but it was kind of flatlining, but it was of some some size. So we went in and we started working with the big retailers who do a lot of private label. We started pitching private label. We got some of that business.

Okay. We then parlayed that into getting the opportunity to bring the brand into these stores. And today, you know, in in the quarter, Germany grew a %. We’ve turned the German coconut water market from kind flat and stale into a high growth category in Germany. And we’re investing obviously ahead of the curve Right.

But it’s not super substantial to the p and l at this point. Right? So we’re building out a team. We’re going from one to maybe 10 people. You know?

So and we’re investing in marketing, but it’s not it’s not anything significant that you’re seeing in the p and l.

Unidentified speaker, Host: What’s your vision then in the next, I don’t know, maybe five or even ten years, how big international could become for your business in terms of the mix top line?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: I think as we start to break down the numbers country by country, I don’t see why Western Europe can’t be as big of a business as The US business is today. Okay. Just looking at population and and per caps, it really should get there, and that’s that’s the objective.

Unidentified speaker, Host: Okay. Yeah. Wanna switch to gross margins, which expanded in in q one. Well, I should say, we’re, you know, definitely better than feared, but you did you know, they were still, you know, pressured by higher year over year ocean freight rates and finished good, you know, product costs, but you did maintain gross margin guidance for the year. So how much of your decision to maintain guidance is really driven by some of the tariff pressures?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: It’s the tariff pressures. Those of you who know our business, it’s COGS is reliant on ocean freight quite a bit. You know, almost everything we do is imported. So there are some unknowns. And I think as we think about, yes, you know, gross margins were strong in q one.

Mhmm. We think we’re gonna continue to, you know, have a good year from a gross margin perspective. But, again, it’s early to make any changes to that. There are unknowns depending on what happens with tariff, what happens with pricing, what happens with ocean freight. If the tariffs you know, if these reciprocal tariffs come into play Mhmm.

I would imagine that ocean freight rates in the midterm decline significantly faster than maybe we had planned.

Unidentified speaker, Host: Mhmm.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: If they don’t, maybe they don’t. So there’s a lot of questions still as it relates

Unidentified speaker, Host: to things. This is challenging. And maybe help us all understand as it relates to tariffs, what exactly are you paying tariffs on thinking about your business and how you’re importing? You know?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. So what what we understand is the tariffs are are levied on the finished cost of finished goods excluding transportation. Yeah. So from the manufacturer to the port, from the port to The US, domestic logistics is all excluded. It is just the finished goods at factory.

Okay.

Unidentified speaker, Host: And then when you think about your gross margins, where do you see the most upside or downside risk as it relates to your margin guidance this year? I mean, you touched on a little bit depending on this lovely tariff situation, but anything else that’s maybe a little more in your control?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: I think more in our control is pricing. Mhmm. I think not in our control, but, again, back to ocean freight. Yeah. Now ocean freight rates have come down significantly from where they were a year ago.

Mhmm. They’ve come down maybe faster than we might have expected. Okay. How much further do they come down through the course of the year? Unknown.

But those are things that we’re clearly watching.

Unidentified speaker, Host: And if you if I stick on pricing because you’ve just implemented, it seems like it’s sticking. And say things change and that becomes permanent within the tariff situation, would you still consider further pricing? Do you feel like that’s a lever you can pull?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: You mean if the reciprocal tariffs come into play? Yeah. So I think we’re thinking about tariffs and pricing two different ways. Right? These baseline tariffs of 10% and the reciprocal tariffs.

Mhmm. Our blended tariff rate based on the reciprocal tariffs that president Trump held up on that whiteboard or what that sign on Liberation Day Mhmm. Our total tariff rate would be around 20 or low twenties. Okay. And that takes into account for Brazil at 10% and Philippines at 17.

Those are our two largest producing countries. But then we also produce in Vietnam, Thailand, Sri Lanka. These are in the forties. So blended, we’re in the low twenties. We’re already we’re already taking care of the first ten percent, right, with the baseline.

If we had to take care of another or had to deal with another 10 to 12%, we would look at a few different things. I think we would start with the fact that I would think ocean freight rates would decline faster. We would also we believe that there will be or there would be potentially some benefit from foreign governments for our manufacturers, which could be passed on to us. And then another large one is we have this really nice geographically diversified supply chain. Right.

And so we can reallocate supply. Okay. So we would reallocate supply from some of the higher tariff countries coming into The US. We reallocate that to Europe and to Canada, and more supply would come from Brazil and The Philippines into The US. That takes a little bit of time.

Yeah. So maybe it takes four to six months. Okay. But we would look at all of those things first Mhmm. Before pricing.

Mhmm. And, hopefully, those would make up for that additional 10 to 12%. And if not, there might be some additional pricing on top.

Unidentified speaker, Host: And so am I correct in stating, though, you are considering or planning on pricing in q three?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yes. We’re planning on pricing in q three on the baseline tariff. Yeah. But, again, it’s not a huge number. Okay.

It’s not super significant. We think that the category with these growth rates will all take price to make up for it

Unidentified speaker, Host: Okay.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Specifically private label, and we think that we are therefore in a very good position, and we believe the consumer is there.

Unidentified speaker, Host: Okay. Yeah. And then you mentioned recently, I believe, on your call that your inventory levels are much better Mhmm. Today, which I think allows you to execute a more normal promotional cadence throughout the summer and into the fall. So maybe touch on that for us if you could, and then maybe elaborate on which SKUs, you know, or product lines you plan to maybe drive the most promotions on.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yep. So let’s start with last year was a disaster. We had really low inventory levels coming into a supply chain crunch, which couldn’t get containers on boats. And so I think we started this year Mhmm. Building we started the end of last year building significant inventory.

Mhmm. We said we wanted to have high inventory levels coming into the summer, and we’re achieving that. K. Maybe even more than we expected, which is great. So we feel we’re in a position to bring back our promotional cadence at least to what it would have been in ’23 and and so on.

That includes a large club promotion, which we didn’t do last year, which is clearly multipacks. Mhmm. And we will be promoting across and continue to promote across different pack formats, but more promotion on multipacks than we might have seen in the past because we think that that is a way to gain more consumption per household.

Unidentified speaker, Host: Okay. Wanna go back to maybe gross margins and just your outlook. You have a long term gross margin outlook of high thirties. Yep. And then your guidance this year calls for gross margins in the 35 to 37% range.

So you’re close to that target unless you just yeah. So what do you expect to be the drivers of future gross margin expansion? And then if we think about maybe five years plus, if, you know, crystal ball, where do you think your gross margins could trend?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: So I think we talk about gross margins approaching 40%, and we’ve had quarters where we’re there, even higher. And I think this business is built today to operate at at those type of gross margin levels, especially as ocean freight Yeah. Returns to normalized levels, which we’re confident that it will. I mean, in twenty one years of doing this, ocean freight rates have been pretty stable. We’ve had some weird times, but I think there is a base rate that we will return to.

So I think that’s how we stay in this 40% range. Now as we look at margin mix, you know, shifting from private label to branded becoming a larger part of our business, that’s an opportunity. As we look at things like treats, which should be margin accretive at scale and other type of innovation being margin accretive, we see a path in the longer term. You know, maybe maybe we could do better than that. But that right now, I think, is where the business operates and operates well.

Okay. So we’re confident we can get there.

Unidentified speaker, Host: Alright. And then in terms of marketing, SG and A spend, your guidance calls for SG and A growth to be up low single digits to mid single digits this year. Longer term, what do you think is the right level of s g and a reinvestment? If and I think about in the context of the coconut water category, you know, like you said, it’s it’s, you know, lower household penetration. You know, the goal is trying to to drive awareness.

You know, how do you think about spend over the, I guess, medium term?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. As we think about, like, marketing specific is a huge component of that, and I think we’re really happy with the way we invest in marketing. I think we have this, you know, mid to long term algorithm of of mid teens branded growth. I think it’s a nice healthy place for us to grow the business and way for us to grow the business. And the marketing that we do as a percentage of net sales helps us get there or gets us there.

I don’t see at this point, you know, we haven’t found some specific unlock that expands that growth even further nor do we think we’re set up from a supply chain standpoint to expand that growth overnight unless we plan a year or two in advance. K. So I think the spend is appropriate as as a percentage of net sales.

Unidentified speaker, Host: Okay. Yeah. Touched on food service earlier as a big opportunity, and I know it came up on your q one call, And it’s undeveloped, you know, for you in the in The US. So could you talk through maybe a little bit further detail the opportunity you see in food service? You know, are you winning new accounts?

I’m thinking, you know, hotels, restaurants, corporate? You know, where do you see the the upside?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. I think there’s a couple of things. We talked about on the call a couple of new partnerships. So it’s like Joe’s Coffee, Pete’s Coffee, and that’s really interesting for us because it’s not only opening up new food service accounts and giving new place for consumers to buy it. It’s teaching people and educating people about these usage occasions.

Yeah. People are now mixing co coconut water with their coffee to create cold brew and all of these type of things. So it has multiple meanings, multiple, you know, opportunities. If you think long term Mhmm. I don’t understand why coconut water shouldn’t be in every bar and restaurant in The United States.

Mhmm. It should be on every cocktail menu, on every mocktail menu. It is such a diverse, amazing ingredient that I think it will be, and that’s the objective. And that’s why we’re building out a food service team and investing in it. And then you have college campuses, and you have hospitals, and you have, you know, the little mini mart in every single hotel in the country, and we’re growing distribution there significantly.

Unidentified speaker, Host: Okay.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yep. We

Unidentified speaker, Host: have just a couple minutes left. I wanted to maybe finish on m and a. I know you and I have talked about this in the past, you know, developing this platform business and company, and I know, you have ample amounts of cash on the balance sheet to fund potential MAs. So maybe update us on your strategy as it relates to m and a, maybe what you’re looking for, how big of a priority is that Yep. You know, to drive future growth.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Yeah. So I don’t think we need it to drive future growth. Mhmm. And we’ve got this incredible core business, this category that is in its infancy that is growing significantly. We have the international growth engine, all of these things.

However, I think we’ve built an incredible route to market in multiple countries. We’ve got a great organization, and we’ve got capital. Mhmm. No debt. No leverage.

So we’re in a very unique position that we could, I think, take our time, be super patient. We’re looking at a lot of stuff. Okay. We’re participating in processes.

Unidentified speaker, Host: Mhmm.

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: And I think, you know, over time, we will find a brand or brands that we think we could drive significant growth and we could bring into the organization at a fair value and could be part of expanding our growth that we’re projecting.

Unidentified speaker, Host: So is it mostly brand or products, or would you think about acquisitions for capabilities or routes to market? Anything like you know?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: Today, it’s mostly brands, and it’s it’s it’s things that I think are close to what we do. It’s functional. It’s health and wellness. Mhmm. And it’s things that we can really, you know, drive growth in.

Unidentified speaker, Host: K. So you haven’t acquired anything. You’re being disciplined Mhmm. Or you’re just not finding exciting brands? Is it valuation that’s stopping you from pursuing?

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: I think the discipline leads to finding brands that aren’t at the right valuation at this point in time. And Cheaper now. We’ll see. Yeah. But I think there are great brands out there.

Mhmm. And I think we’re in a position, especially in this kind of health and wellness Yeah. Subscale. Beverages is all about scale. Yeah.

And it’s hard to operate these companies subscale. And I think we can add a lot of benefit to some of these brands, but it has to be something, not only value. We’re not looking to pick something up on the cheap, but it has to be something that we can really drive significant growth in at at the right value where if we’re driving that growth, we should, you know, obviously be a big benefit benefactor of

Unidentified speaker, Host: that growth. Makes sense. I think that’s all the time we have today. So thank

Mike Kerben, Cofounder and Executive Chairman of the Board of Directors, Vitacoco: you so much. Thanks, everyone. To see you. Thanks.

Unidentified speaker, Host: Alright. Thank you. Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.