All right, everybody, we're going to get started here. Thanks for joining us. I'm John Anderson, the research analyst at William Blair that covers consumer staples, and in this case, Vita Coco. We're happy to have the team from Vita Coco here with us. We have Chief Executive Officer Martin Roper, Chief Sales Officer Charles van Es, and Chief Financial Officer Corey Baker. Vita Coco pioneered packaged coconut water in the U.S., and it's the clear leader in both the U.S. and international markets such as the U.K. and Germany. Coconut water, as it turns out, is one of the fastest-growing categories in the beverage aisle. As more households are seeking out natural alternatives for hydration occasions, consumers choose coconut water for those.
As the market leader, Vita Coco is driving growth by expanding the range and availability of its water products through the rollout of multi-packs, an organic line, juices, and cans, and introducing new products such as its Treats line, which aims to serve a more indulgent consumption occasion. That's my kind of consumption occasion. Despite all the company's success, the company appears to have ample runway for growth, given the potential for greater household adoption of coconut water and ongoing use case expansion. Before handing it over to management, quick housekeeping items: immediately following the presentation, there'll be a breakout session in the Richardson Room, so please join us for that. That's the Richardson Room. Lastly, I need to inform you that a complete list of research disclosures or potential conflicts of interest can be found on the William Blair website.
With that, I'll toss it to Martin. Thanks.
Thanks, John. Also, following on disclosures, a quick message from our lawyers, which I won't endeavor to read, but hopefully you have memorized by the time I move to the next slide. Introductions: I'm Martin Roper, CEO of Vita Coco, 30 years of beverage experience, 24 years at Boston Beer, and now six at Vita Coco. I'm joined by Charles van Es, who's our Chief Sales Officer, primarily responsible for commercial sales in North America. Charles has 22 years of beverage experience, I think 10 years at Vita Coco, I'm proud of that, at Heineken. I'm also joined by Corey Baker, our CFO, who's been with Vita Coco just over two years, has over 18 years of beverage experience primarily in a wide range of functions at PepsiCo, and he brings that experience to us. We're here to talk to you about Vita Coco.
We'd like to think that we're building the better-for-you beverage platform of the future around the Vita Coco coconut water brand. We have an authentic core brand that is the number one branded coconut water brand in the U.S. and in the U.K. and now in Germany, and is probably the largest retail sales value coconut water brand in the world. We have a proven track record of innovation around coconut water, including introducing coconut water to the U.S. back in around 2004-2005, and then introducing flavored coconut waters, coconut water with pulp, coconut milk-based beverages, coconut milk. There's a proven track record of innovation around coconut water. We think we're a very unique business. We're fast-growing, we're profitable, and have been for quite a while. Cash-generative, asset-light, very light on investment, and with a proven management and a responsible approach to business.
We are B Corp certified, and we're a B corporation driven around a purpose as well as driving shareholder value. We have strong commercial capabilities in North America and Europe, which we're very proud of, with a 42% share of the coconut water category in the U.S. and over 80% share in the U.K. We think we have a very unique route to market, both particularly in the U.S., where we combine DSD with direct-to-retailer. We think we're in a very unique position to build a beverage platform for the future. We're trying to do it in a way that does good for the planet and for our communities in which we operate, and we'll talk about that in a little bit. We're not just purely profit-focused, but we try to find that right balance while obviously taking the shareholder return very seriously.
The supply chain is how we do take that responsibility of the planet seriously. It's designed for positive impact at all stages, from protecting natural resources. Our coconut water largely comes from, or almost all of it comes from the tropics all around the globe, with major sourcing from the Philippines, Brazil, Thailand, Vietnam, Indonesia, and Sri Lanka. We take our responsibility to those communities very seriously, both in protecting the coconut farms and replanting those trees that are now, many of them were planted just after World War II, so many of them are now getting to be old and senile. We're trying to regenerate those trees to basically improve the crops for these farming communities.
We're also heavily investing in the communities through building school classrooms to try and provide education to the next generation of farmers to allow them a way out of the farming lifestyle, as well as providing solar power and other sort of resources to those communities, while also educating them on how to improve the yields in their farms through cross-cropping, how to improve the health of their trees through irrigation and/or planting new trees to replace the ones that are now sort of senile. Heavy investment back into the communities in which we operate. As it relates to our consumers, championing health and wellness and healthy lifestyles, which most of our consumers participate in. We think we have a beverage business that's strongly aligned with current key consumer trends. We have a very clean label that's coconut water. It comes from the coconut.
That's what it is. So remarkably clean. It's obviously plant-based. Coconut is a fruit. It's a fruit juice, but it doesn't taste like orange juice or cranberry juice, and it has actually better sort of hydration properties, active hydration properties than any of those fruit juices. Functional benefits is an important part where we obviously play in the functional beverage space, and that's a growing part of the beverage category. That's also how we think we're aligned with consumer trends. We're heavily focused on positive impact that I've touched on, which again rings true with our younger consumers. We have a very diverse consumer group. We over-index with Asian, African American, Hispanic consumers in the U.S. We over-index with younger consumers in the U.S. We're still a young brand, and we still have a lot of room to grow as our population ages with us.
We bring people into coconut water through that wonderful, unique occasion that most of you have experienced, which is Sunday morning at college after a busy party night on Saturday night. Does that sound right to the guys in the background? Yeah. Okay, good. We've all been there. People are still finding coconut water. It is a nice way to feed our growth. Why do we think we're a special company and worthy of your attention? I think we combine a number of things. We have a great culture. I'll touch upon that. We have a supply chain, which we believe creates a moat for us in the business and is unique in coconut water and probably in beverage generally. We are sitting in a growing category with a very strong brand with retail execution, and we're delivering results.
We now have a track record of being a public company. We went public in 2021, four years in. We're one of the top performing of our IPO class in the CBG space. We're very proud of that, but it's still young, and we'd like to be at that point in 10 years' time too. We are very focused on performance and output as well as doing what's right. When I describe the company to people, we're high energy. We have a very flat structure. We're quite small. We're only about 300 employees. People know the CEO, which has its good and bad attributes to it, so apologies to those who know me. We have a very diverse global talent base. We have over 40-50 people in Europe. We have 40 people in Singapore running the supply chain, and the rest are sort of North American based.
We have a nice balance of youth and experience. This is our leadership team, and there is a great number of years of experience across a wide range of functions. How we behave and we describe our culture, we talk about it being human-first and treating the individual seriously. We take people very seriously. We believe nothing is impossible. This presentation is impossible. We are united in our will to win because we are fighters and we are competitive, but we are part of something bigger. That is how we sort of think of ourselves. I think it is a very unique culture, and we are actually very sticky, as witnessed by the 10 years there. That translates into a young employee group, ways and drives consumer interaction. In beverage, you know that is what you need.
I had it at Boston Beer, and now I have great pleasure to have it at Vita Coco. Culturally, I think we're in a very good place organizationally and experience management team. I touched briefly on the supply chain being a critical moat for us. I think what happened to the company was the company launched coconut water sourcing from Brazil and then needed more coconut water and went into Asia looking for coconut water. What it found was there were these coconut processing facilities that were processing coconut for desiccated coconut, coconut milk, coconut cream. They were throwing the water away, partly because there wasn't a local market for coconut water, because if you lived in those communities and you wanted coconut water, you just picked a coconut off the street. Our founders went there and said, "We will take this coconut water.
We'll show you how to package it. We'd like to sell it in America." We developed relationships with these large coconut processing facilities to take their waste stream, coconut water, and sell it as a consumer good in the U.S. That has worked incredibly well, both in delivering low-cost coconut water into the U.S., but also in these partnerships that we have with these coconut processing facilities in Asia. Today, we're at 19 factories across nine countries, very diversified to deal with weather risk, political risk, economic risk, exchange rate risk, supply chain risk, shipping risk. We do ship all of our product into the U.S., so we're exposed to tariffs. We're currently expecting or currently operating under a 10% baseline tariff. If the reciprocal tariffs went into place, we'd be operating on tariffs in the low 20% range.
We are exposed, but obviously, who knows what's going to happen with tariffs, and we're going to worry about that when we actually know what's going to happen with tariffs. We are a major importer. Our major markets are North America, Europe, and a little bit in Asia, in China. Diversified supply chain that's very hard to duplicate, very hard to scale, very hard to ramp up, and that is actually providing a moat to us in our business. I'll now pass to Charles van Es to talk a little bit about what's going on in America. Charles?
Hello, everybody. I'll just take it through, start with the product, and we'll talk a little bit about consumers and then some commercial activities. For those of you who don't know it, it all starts with coconut water. To re-ground everybody a little bit in it, why is coconut water a good product? It's very simple. It comes from a tree. We take it out of the coconut, put it into packaging. It's rehydrating, replenishing, nourishing. It energizes. It has a little bit of natural electrolytes, a little bit of natural sugar, and great tasting for most people. Sustainable sourcing is a very important part of what we do. Why we think it's a good product for consumers?
It is one of those products that you find in stores, very rare for beverages, that can actually operate, can work, sort of function for you in a lot of different occasions, right? Some people drink it in a cocktail. Some people drink it in the afternoon. Like right now, you might need a little bit of energy. You could drink a Vita Coco. I highly recommend it. You might put it in a smoothie in the morning. You have it in your breakfast. From the chuckles earlier on when Martin was presenting, I think a couple of you have maybe gotten too used to know it when you were a little bit hungover. Everybody who's guiltily looking at their laptop right now probably was one of those.
It is one of those products that's very versatile, can be used in different occasions, and therefore we can attract a very broad consumer base, which I'll talk a little bit about. It's important that not only coconut water has these benefits, but also what we've been working on for the last 20 plus years here in the U.S. and in other markets is educating the consumer on these benefits. When we talk to our consumers now, we ask them, "What does coconut water help you with? Why do you drink it?" People will tell us, "I drink it for hydration. I drink it for health benefits. I drink it because it's a very, I use it because it's a very versatile product. I can put it in my smoothie. Some people even cook with it.
You can put it in your cocktails. Lately, we're hearing more and more that it's important for skin health. People will drink it for a lot of different reasons. We educate them actively on it. We do this through digital campaigns. Most of our marketing efforts are digital, and most of our marketing content is based on these occasions. One thing that you'll probably hear us talk a little bit more about in the first slides that I showed you, we talked about active hydration. Think about going to the gym, going for a run, going for a long walk, going on a long hike. This has traditionally been actually one of the sort of the benefits or one of the occasions we've communicated quite a bit, but we realized early on when we did that, we were up against some pretty big other brands out there.
We haven't, in the range of different occasions, this has probably been the one over the last couple of years that has had the least attention given to it, but we really believe there's a huge opportunity, which is why you'll see us come out in the next couple of times ahead with a pretty powerful message saying there's 3.5x as many electrolytes in a bottle of coconut water as there is in the average or the, I think what we call it here, the leading sports drink, right? The leading source of hydration is electrolytes. That's been communicated quite well. We definitely think there's an opportunity to tap into an even wider range of occasions and more frequently talk about electrolytes. Talk a little bit more about our consumers.
One of the key benefits and one of the reasons why we believe there's still a lot of opportunity and growth ahead is we have a younger consumer. You can see here these indexes, right? We over-index with Gen Z, millennial, and even Gen X consumers, which I will be a part of. We under-index with boomers. We have a more diverse consumer base. Our consumers, we sell more than half of our volume in the U.S. to non-white consumers, over-index with Black consumers, Hispanic consumers, and quite heavily over-index with Asian American consumers. There's a good mix of different pieces, different groups of consumers that we bring to the store. We are more concentrated in urban areas. Very importantly, we slightly over-index as well with a more affluent consumer.
If we show this profile to our retailers, very often they tell us these are exactly the type of consumers and shoppers they are trying to attract more to their stores. What matters to these consumers? Natural, organic. They are concerned about the environment, and they like to try and do new things. All of this has led the coconut water category in MULO Plus with C, which is basically the larger part of what we measure in the U.S. The category is roughly $1.2 billion in size, $1.2 billion in size. You can see that coconut water over the last five years has outgrown the total beverage category consistently. As total beverage growth has slowed down slightly, you can see that the coconut water category has actually held up and recently accelerated even a little bit more. Where is this growth coming from?
About half the growth is coming from new households buying. This category has relatively low household penetration, and we think there's a lot of opportunity to build that out further, which is bringing more people in to buy it at least once a year. Half the growth is coming from new people coming in, and about half the growth is coming in from people spending more. They're already buyers, but now they're spending more on that because we might have sold them a multi-pack instead of just a 500 mL bottle.
What's also important is that our shoppers, and I alluded to it on the first page, we have a quite affluent shopper, and our average coconut water basket, so the shop, the basket of goods that somebody buys who buys coconut water is significantly higher than the average buyer, which makes this a very attractive category for retailers because that means if they bring these shoppers in, they might buy other stuff as well. That was the category. Now, if we're clicking down on the U.S. situation and looking at the brand itself, so Vita Coco, coconut water in the light blue and then the sort of pinkish color, not sure what the color is from afar, but is our coconut milk drink. You can see consistently this brand has delivered very strong growth over the last couple of years.
Last year, we've had a bit of a dip. We had some supply challenges. It's a product like Martin talked about, comes all the way from the other side of the world. Whenever there's international shipping challenges, we sometimes get hit with that. You can see there's very strong demand for the brand. Year to date, we're sort of in the high teens, and then we just recently launched our treats line, which is adding a very nice amount of growth, bringing in new consumers as we speak. We rolled that out nationally. We also have some success with some coconut milk products. On the blue Vita Coco core, we're continuing to recruit consumers, expanding channels, and having continued success with our multi-packs. A little bit more about our route to market and how we get to market and where we sell.
On the left, you see our 2024 branded sales by route to market. Route to market means what are the means by which we get from our warehouse, the product ultimately lands on the shelf. On the top part, about 51% you see is direct store delivery. That means that's a distribution system where we sell to a distributor. That distributor puts it on a truck and brings it to a Walmart, a 7-Eleven, a Walgreens. Our largest partner in that sense is Keurig Dr Pepper. They have a broad beverage portfolio of which we are a part. Like I said, it gets to Walmart, Publix, you name it.
We also have a direct-to-warehouse route to market, which means we take the pallets from our warehouses and drop them directly at the warehouses or the stores, depending a little bit, but mostly the warehouses of our retail partners, Costco, Sam's Club, Amazon. The last part, which we call broadline distribution, we have partners like UNFI and Sysco, they have a much broader portfolio. They do not just do beverage. They sometimes do food. They even do, Sysco will do napkins. That gets us to places like Whole Foods, Sprouts, but also the food service environment, which Compass is an example. On the right-hand side, you see our 2024 branded sales by channel.
You can see this is we estimate that Circana MULO Plus with convenience tracks about 85% of the branded America's case equivalents, 38% going to club, around 36% food, drug, and mass, and then 26% going to other places as well. That is sort of the breakup of the ultimate channels where we land in. From a distribution perspective, on the bottom, you can see club, food, drug. We have very high ACV, which means we're in most of those stores. We're in 97% roughly of every club store in America. We still have a decent amount of opportunity in the convenience channel. The largest channel in terms of number of doors in America, I think it's roughly 150,000, so it's a very granular distribution channel. International, international growth currently outpacing the U.S.
growth, and we still have a lot of opportunity to further capture the upside potential. International makes about 13% of total net sales, outpaces America's volume growth. As you can see here, the way we look at it is if you look at the per capita consumption of coconut water in the U.S., where we have the number one brand, by the way, we also have the number one brand. We are the number one brand in the U.K., as well as in Germany, as well as in France. You can see if the U.S. would be indexed at 100, there's a lot of runway in some of these other countries to just get the whole category up to a higher level. We've had a head start in the U.S. We've been building the category for a longer time.
Outside of us globally, there's not really, there are not a lot of really brands building it the way we do it. We see a lot of opportunity to continue to invest in the category and grow it globally. We have a 53-person strong team, U.K., Germany, and the rest of the European markets, and then we're seeding some of the other markets for future growth. With that said, I'll hand it over to Corey.
Thanks, Charles. If we take a look at what all the work that Charles and Martin talked about has delivered, you can see starting with net sales, we've delivered consistent, strong double-digit growth from 2020 through 2025 guidance that we'll go a bit deeper into. Gross profit as well from 2020 to 2025 is approximately doubling. You can see some impact there through COVID from higher ocean freight that the organization chose to absorb to make the business stronger coming out. As a result, the adjusted EBITDA has nearly tripled with strong mid-high teens gross margins, which is what we're trying to deliver overall. If we think about more specifically this year and what we're looking to deliver for the year, net sales of $555 million-$570 million, 8%-10% growth, and that's built on continued strong category growth that Charles outlined.
The category growing mid-teens, the Vita Coco brand growing mid to high teens, recovering some of the softness coming out of the supply challenges last year. The international business is growing much faster than the U.S. Treats sits outside of coconut water. Charles touched on the growth we are seeing year to date. We expect a ten-year incremental growth from treats. We have had some transition of private label regions in different parts of the world that will partially offset that growth. From a gross margin perspective, 35%-37%, we are executing some pricing this year and operating on the assumption of baseline 10% tariffs through the year, and we will manage that within the original guidance provided coming out of Q1. Our SG&A growing low to mid-single digits.
Investments in marketing and people to continue to support our growth, and that's being partially offset by some one-time items this year and last year. As we thought about the guidance for Q1 and we think about the phasing for the year, it is quite a unique year lapping last year. First, from a top-line perspective, Q3 we expect to be very, very strong. We had last year both reduced promotional activity and we had supply challenges. Both of those we expect to be relieved this year within our guidance assumptions. From a gross margin, our assumptions as we gave it were to be relatively flat through balance of the year. Quarters are tough for us with the different route to markets and shipping, but we expect that to be relatively flat.
Similar on SG&A, we're working to better balance the way we account for our marketing spend and our SG&A, and our expectations were that that would be relatively flat as a % of net sales through the year. We tend to see a slight uptick in Q4, but we would expect a more consistent flow of SG&A. If we think in longer term and how we expect to develop the overall business, Charles touched a lot on this. Expanding households and occasions is our core growth driver, continuing to build those households in the U.S. and internationally and increasing the buy rate of each of those households by educating consumers and driving usage occasions, and then innovating outside the core. Treats is a good example of what we're bringing on top of the core coconut water to build upon those households and drive incremental growth.
The international, Charles again highlighted the opportunity that we're seeing. We're seeing incredible growth internationally, both U.K., Germany growing over 100% and really a super exciting market and just very low per capita, very low household penetration in all of our major markets outside the U.S., which we can continue to grow. M&A, we'll touch on M&A we view as an opportunity. The core business is by far and away our number one priority, but we do feel we've built an organization with a strong structure both in the U.S., throughout Europe, with large teams, sophisticated systems where we could bring in brands of the right size with some scale that fit our culture, that are better for you growing and can really help accelerate those brands.
Where we can deliver shareholder value at the right price, we would love to bring those into the system. We think over the long term, that is what will allow us to deliver our algorithm, which is branded net sales growth of mid-teens and adjusted EBITDA margins in the high teens approaching 20%. That is built on those four pillars I have outlined. With that, I thank you for your time, and I think John will move to breakout session for any questions you might have.
Yeah, we have a minute or two to take a question.
Sure, sure.
Does anyone have a question?
Oh, there's one.
What size company would you be looking at as it relates to M&A?
At least probably $25 million of revenue, but not getting so big that it would get into the point where it'd be better fit in a large Pepsi or Coke, but something that is proven with consumers that has some scale. Again, the priority is not to distract from the core business. Something that's been proven with consumers that's working.
Sticking with the M&A question, what kind of beverage type are you really looking for? Are you looking for something with a unique supply chain like the existing supply chain? What are some of the criteria that meet what you're looking for?
Most likely better for you beverages, something that fits the profile of the culture, something that's good for you that fits the B Corp and the public benefit, or something that leverages our coconut supply chain. It could be a coconut water company in another part of the world or something that fits within the model that we have where we have distinct advantages and can drive value.
You said your consumer revenue being 12, so how do you do any pricing sensitivity analysis with the carry? Can you pass on the cost?
We feel very good about the strength of the brand and the ability to take pricing. The brand historically is not taking a lot of pricing. Over the last four or five years, it's been about 15% of pricing, which compared to other beverages is quite low. We are comfortable. There's a lot of volatility in the market, but we are comfortable that the brand is strong enough to support pricing.
What percent of the mid-teens growth is line extensions?
The way we think about it broadly is the core coconut water in the U.S. has been growing double digits. There is 10% growth coming out of the core U.S. coconut water. International is growing much faster than the U.S., and then innovation around that is growing, adding the additional points to get you into that mid-teens.
Your growth of case beverage market substantially has been for several years. When you look at panel data or whatever sources you look at, where are you sourcing volume? What's happening at the consumer level that's driving people to coconut water and what are they swapping it for?
It's a mix of different categories we source from. We'll interact with juices, we interact with enhanced waters, we'll interact with sports drinks. I think it comes down to the slide we showed with all the different occasions and how consumers are increasingly understanding this is a very versatile product. It is coming from different places, which is, I think, sort of like the strength and the uniqueness of this specific product. I think it's one of the reasons why we can outgrow total beverage because we could take a little bit from juice and we could take a little bit from enhanced waters and a little bit from sports drinks by emphasizing these different occasions. It also depends a little bit in different stores. We're placed in different places. Sometimes we're next to this product and sometimes we're next to that product.
That often helps as well, of course.
Okay, we're out of time. Thank you.
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