PepsiCo’s Next Move is Bangin’ & Hangin’ with Bang Energy
Can you imagine spending almost $4 billion on a “cover charge” to get access to the hottest beverage nightclub in the U.S.? If you hadn’t heard yet, PepsiCo acquired Rockstar Energy for $3.85 billion last week.
“This is one of the largest and most transformational deals PepsiCo ever made and it will dramatically accelerate our growth trajectory for years to come.”
Before I dig into that part of the M&A story-line, I want to share a bit about the Rockstar Energy story because I find it interesting how it brings us to this recent event.
Rockstar Energy Founding Story
While working at Skyy Vodka, Russ Weiner actually pitched Rockstar Energy to the alcoholic beverage company’s CEO (Side Note: Can you imagine if he said “yes” and they also created Four Loko), but he did not like the idea. Still fully believing in the idea, Mr. Weiner quit his job at Skyy Vodka and took out a $50,000 line of equity on his condo to start Rockstar Energy. The first order of business with those 50 stacks? It was to head to the local Kinko’s to rent a computer (this was 2000 😁), so Russ could design a logo for Rockstar Energy.
Next up, Rockstar Energy needed its signature product. Russ used his past employment and connections to Skyy Vodka to persuade beverage flavor innovation houses to help him develop a recipe. After thousands of samples, Rockstar Energy’s original product differentiation strategy was using a bigger 16oz can (used for “tall boys” in beer industry), but priced at the same level of smaller-sized competitors, and also making it taste sweeter than Red Bull.
Finally, when Rockstar Energy officially had product in 2001, Russ drove around in an old limo painted with the logo to promote his new energy drink.
2001 Revenue (Year 1)= ~$2.8M
Rockstar Energy’s Short Marriage With Coca-Cola
In 2005, Rockstar Energy started distributing through the Coca-Cola system…
2005 Revenue = ~$215M
In 2009, Coca-Cola more than doubled Rockstar Energy’s business, but the relationship unraveled in 2009 because Russ was unhappy that…
- Coca-Cola was focusing more on other product lines (ie. vitaminwater)
- Coca-Cola was trying to create their own energy drinks
- Coca-Cola didn’t like the aggressive use of female models in advertising campaigns
Rockstar Energy “Homie Hops”
After ending the Coca-Cola distribution deal, Rockstar Energy quickly signed a new 10-year distribution deal with PepsiCo. Fast forward these last ten or so years and Rockstar Energy is now sold in around 30 countries worldwide and does just about $1 billion in annual net sales. Reading that…all seems well and good in Rockstar Energy’s world, right?
Fact is, the energy drink brand has had stagnant volume growth the last several years. To add to that sluggish performance, Rockstar Energy was recently passed as the longtime third-largest energy drink brand in the $13 billion U.S. market to hyper-growth brand Bang Energy. So, why exactly would PepsiCo acquire Rockstar Energy in this stage of the brand’s lifecyle?
Reasons PepsiCo Really Acquired Rockstar Energy
#1 — PepsiCo has the worst Big 3 “owned” energy drink portfolio
It is predicted that U.S. sales of energy drinks could total about $17 billion by 2022. The beverage segment has grown so popular that even Amazon launched its own private-label energy drinks under its Solimo brand.
- PepsiCo = Mountain Dew Amp, Kickstart, and GameFuel, Gatorade Bolt24 Energize, and distribute Starbucks RTD beverages
- The Coca-Cola Company = Coke Energy, Coke Plus Coffee, and also owns 16.7% of Monster Energy’s drink portfolio
- Keurig Dr. Pepper = distributes Adrenaline Shoc, acquired Xyience, and sits on the Keurig/Green Mountain coffee portfolio
#2 — Rockstar Energy was entrenched in the PepsiCo system
Familiarity is valuable when you are working with a large billion-dollar organization that doesn’t change fast like startups. PepsiCo will now throw major marketing resources towards it to gain market share. By not investing in building its own energy drink, this move can have much less risk expsoure and provide a faster ramp-up with existing sales levers.
#3 — It removes longtime contractual stipulations
Remember how Russ hated Coca-Cola working on their own energy drinks during their distribution agreement? Because of that prior experience, Rockstar Energy’s distribution agreement with PepsiCo had clauses that essentially did not allow for the beverage giant to create non-Rockstar Energy products. By acquiring Rockstar Energy, it will now open PepsiCo up to be “more aggressive” in the energy drink category.
PepsiCo’s Aggressive “Portfolio” Energy Drink Next Moves
- Aggressive product development within the Rockstar Energy brand
- Aggressive product development within the Mountain Dew brand (this won likely could get interesting in the gaming and esports world)
- Aggressive product development within the Gatorade brand
PepsiCo’s New Partnerships in Energy Drinks?
What got me “buzzing” with this M&A announcement was PepsiCo CEO stating that “this move gives us the ability to create meaningful new partnerships in the energy space.”
“Partnership” Level 1 (almost certain) = Distribution contract with another energy drink brand. This is almost certainly Bang Energy and my sources are saying that the wheels might already be moving in that direction. Additionally, this could also include Nutrabolt’s C4 Energy or Celsius Holdings.
“Partnership” Level 2 (still a coin toss)= Acquisition of another energy drink brand. This is most likely the same names as above, as there is really not any additional energy drink names with material sales in 2020. (Side Note: I still like PepsiCo acquiring Nutrabolt because of the synergies that could happen on the powder-side of the business with Gatorade and Cytosport)
Future of Energy Drinks?
What happens if PepsiCo does acquire or sign an exclusive distribution contract with Bang Energy? I believe it forces The Coca-Cola Company to look at their minority interest in Monster Energy and make it wholly-owned to compete 1–1 with PepsiCo.
Things…Could…Get…Crazy…
I’ll be here Bangin’ and Hangin’, so make sure your are following my social media accounts!
