PepsiCo invests in ‘category defining’ energy drink Celsius
The investment will give the beverage and snack giant around an 8.5% ownership share of the company.
The two companies have also announced a long-term strategic distribution arrangement, with PepsiCo taking on US distribution and also becoming the preferred distribution partner globally.
Functional energy
Founded in Florida in 2005, Celsius’ energy beverages use additional ingredients that aim to provide additional functional benefits beyond caffeine and carbohydrate fuel. The company’s main formula rests on a foundation of green tea and guarana seed extracts, with additional vitamins and ingredients such as l-citrulline or BCAAs depending on the product.
It's enjoyed strong growth in recent years: topping sales of $300m in 2021, noting significant growth in convenience store and vending machine channels as well as becoming the No. 2 best-seller in the Amazon energy category (taking a 20% share on this platform).
Over the last few years PepsiCo has highlighted energy as a key part of its portfolio moving forward: for example acquiring Rockstar Energy Beverages for $3.85bn in 2020 (revamping the brand and pushing into new territory with Rockstar Energy + Hemp); as well as launching an energy drink link under its Mtn Dew line last year. The company also has several plays in coffee, such as products for retail with Starbucks.
How to prep for the perfect weekend: Stock up on CELSIUS ⚡ Which flavor are you grabbing first? pic.twitter.com/ZhGQbm0x1G
— CELSIUS Energy Drink (@CelsiusOfficial) July 15, 2022
In last month’s earnings call, CEO Ramon L. Laguarta reaffirmed the company’s commitment to the category, citing a ‘multi-pronged approach’ and highlighting the importance of more functionality and less sugar in drinks (Celsius is a functional, zero-sugar drink).
PepsiCo’s ‘very powerful DSD’ (direct store delivery) system is noted as one of the strategic rationale for the Celsius tie-up: providing Celsius with a ‘transformational opportunity to gain immediate scale and accelerate market share by securing access to [a] leading North America DSD network with global reach’.
Celsius currently has a fragmented distribution network across regions, with more than 300 distribution partners and points of contact. With PepsiCo, it will get a ‘highly efficient and cohesive route-to-market in North America, with additional global expansion opportunities’.
The two companies also note that Celsius will gain ‘meaningful penetration’ across channels including foodservice, independent convenience (through PepsiCo’s Medals program), vending, college campuses and the military.
In brief, PepsiCo will gain a ‘rapidly growing lifestyle energy brand’ in its energy portfolio while Celsius will benefit from PepsiCo’s experience and resources while ‘retaining entrepreneurial identity and agility’.
“We are extremely pleased to partner with Celsius and excited about the opportunity for our two organizations to drive growth and innovation in the energy beverage category,” said Kirk Tanner, CEO, PepsiCo Beverages North America.
“The Celsius brand’s growing momentum coupled with the strength of PepsiCo’s portfolio and go-to-market capabilities create a combination we believe will be very compelling and valuable to retailers and consumers. We are looking forward to seeing the impact these two outstanding organizations can make together to more fully capture energy occasions.”
Celsius President, Chairman and CEO, John Fieldly, commented, “I would first like to thank our employees and partners who have helped facilitate our rapid growth. We believe the opportunity to partner with a global best-in-class distributor provides Celsius with significant near-term additional shelf space in both existing retailers as well as new expansion within the independent retailers that represent a significant portion of the U.S. convenience and gas channel where approximately 70% of energy drinks are sold.
"It also provides a strategic partnership that is expected to accelerate growth for both companies globally.
"In addition, this partnership will drive efficiencies allowing our teams to consolidate sales, marketing, and distribution efforts with associated cost benefits, which we expect to recognize once the initial transition is completed. We look forward to partnering with PepsiCo and maximizing the opportunities we see ahead for Celsius and our shareholders.”
