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Is Coconut Water Headed for a Boom or Bust?

Last week, Coca-Cola took a step closer to becoming Coco-Cola.

Zico Coconut Water
Source: zico.com
Zico Coconut Water

The world's largest beverage brand announced it had acquired a majority share of Zico, the number two brand in the estimated $350 million coconut water space.

It was another moment of affirmation for the coconut water business and for those with a piece of the pie.

But while some have called Coke's further investment in Zico the next step to making it the next great beverage, others say coconut water, which has been heavily marketed as nature's sports drink, might be at its peak today.

The two sides of the story can be seen through the eyes of Coke's competitor, Pepsi, which led the charge in 2009 by acquiring Amacoco, Brazil's largest coconut water company. A year later, the company bought a greater piece of O.N.E., the third largest US brand after Vita Coco and Zico.

But not everything Pepsi did turned to gold. A partnership with GNCto produce a coconut water brand called Phenom is selling its inventory and getting out of the market after a year test run. It's believed that GNC didn't think it could get enough market share to make the venture worth it.

But that hasn't stopped seemingly every beverage company from making sure it has something with coconut water in it, including Pepsi, which just added three coconut water flavors to its Sobe line. Rockstar has unveiled an energy drink with coconut water in it and Bigelow Tea now produces three tea mixes with coconut water.

There are now 250 companies that have a beverage with some form of coconut water in it, according to John Craven, founder and CEO of BevNet, a beverage publisher. And it's not slowing down. Craven says roughly 3 in 10 new beverages coming to market today have coconut water as a component.

Craven is one that believes coconut water is the next big thing.

"It's like in 2002 if you didn't have some sort of energy drink in your stable, you were an idiot," Craven. "I think people think the same way about coconut water today."

Despite robust growth in the last two years in the US—sales more than doubled forVita Coco and grew five fold for Zico—Craven says the space still has so much upside.

"More people haven't tried it than have," Craven said. "The people that have tried it love it and it has Brazilian roots, which is hot in the marketing world right now."

Craven says that the sports science angle is definitely pushing sales and that Coke's further investment in Zico will do two things: Make it more prominent where it is sold and perhaps lower the price to under $2 (A 14-ounce bottle currently retails for $2.79) due to supply chain efficiencies.

But there are some significant challenges in coconut water's path. The first is taste and texture, which many find hard to stomach. If there's a reason why, in a recent Twitter poll I took, nearly four out of five people (79 percent) said that coconut water would not grow exponentially in the years to come—it's the taste.

That's what John Sicher, publisher of industry trade Beverage Digest, is worried about.

"It's a real part of the beverage business," Sicher said, "but Americans have a problem with the taste. As a main product, I think it will do some volume, but I think it has a bigger future in beverages as an ingredient."

Critics say that when the taste is effectively masked, like in the popular chocolate flavor of Zico, or in Coco Cafe, an expresso coconut water drink that Vita Coco bought a stake in, the healthy properties of coconut water are diminished.

And then there's the debate as to how healthy coconut water really is. Pitched as a better alternative to Gatorade and particularly strong in potassium, which prevents cramping, the rise of the beverage has led to some questioning the credibility of its claims.

A consumer group called ConsumerLab.com revealed that Vita Coco and O.N.E. had electrolyte levels on its labeling that didn't match the reality. Vita Coco didn't admit any wrongdoing, but did agree earlier this year to pay $10 million to settle the lawsuit brought by the group.

Questions? Comments? SportsBiz@cnbc.com

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