Why Did Coca-Cola Energy Fail?

When The Coca-Cola Company announced it was leveraging positive early indicators from foreign markets and bringing its branded energy drink to the domestic market in 2020, I honestly believed Coca-Cola Energy would do more for the U.S. energy drink market than any other product or brand since Red Bull originally landed on the shores of California in 1997.

Here was my logic at the time:

  • Despite its ~10% CAGR and ~$15 billion market size, the U.S. energy drink market still gets shade thrown at it constantly
  • Coca-Cola is one of the strongest brand names in all consumer categories
  • The powerful brand of Coca-Cola would help validate the energy drink market
  • Coca-Cola Energy would be a great introductory product for consumers who were not already an energy drink consumer because traditional Coca-Cola has arguably the most market-validated taste profile throughout the entire beverage industry

That last part assumed Coca-Cola Energy would have taste parity to Coca-Cola, Coca-Cola Cherry (and its Zero counterparts). Additionally, I assumed The Coca-Cola Company wouldn’t go through all the trouble of arbitration with Monster Beverage Corporation allowing the company to launch an energy drink if they weren’t extremely confident that it would be a success.

I was wrong…at least analyzing it through today’s hindsight 20–20 lens!

If you haven’t heard yet, The Coca-Cola Company decided to discontinue its Coca-Cola Energy product in the U.S. market. The timing of this announcement surprised me because in the 2020Q4 The Coca-Cola Company earnings call (2/10/21), CEO James Quincey was asked by Rob Ottenstein (Analyst — Evercore ISI) for an update on Coca-Cola Energy. James Quincey answered by stating…

“we’re going to come back to Coke Energy in 2021 despite the challenges we’ve had…we think there’s something working there. Back to the original hypothesis that there was space in the energy category to come in with a present proposition that would attract new drinkers to the category. So, there are reasons to think that we should double down again in 2021.”

In its first year in market, Coca-Cola Energy did close to $100 million dollars in sales across all tracked and untracked channels. That revenue number at launch is certainly nothing to laugh at and it would gladly be accepted by every energy drink brand that ranks below Coca-Cola Energy in market share. That being said, $100 million dollars in sales is a utter failure for the most powerful beverage brand in the world. The Coca-Cola Company launches several hundred new products every year and a lot of those end up failing, but almost all of them don’t use the most sacred brand in their portfolio…the namesake Coca-Cola!

Most of the blame is being placed on timing, as Coca-Cola Energy launched in U.S. market in early 20Q1. Before any go-to-market plans could get rolled out nationally, the company was facing off against the “COVID-19 Effect” that hurt field employees’ ability to properly sell/market the new product. Additionally, it created an inability to sample Coca-Cola Energy across in-person events and retailer sampling programs. Finally, consumer mobility screeched to a halt, cutting down foot traffic to convenience stores where ~70% of all energy drinks are sold.

Outside of those “COVID-19 Effect” external threats, I believe there were some internal weaknesses that The Coca-Cola Company overlooked that hurt Coca-Cola Energy becoming its next billion-dollar brand.

  1. Taste = this is subjective and The Coca-Cola Company has mentioned they were seeing good initial repeat rates, I believe the product did not give fans of Coca-Cola the taste parity needed for massive successful
  2. Packaging Design = this is also subjective, but something never computed with me on the packaging design. This is especially true when you consider the newest simplified designs across the Coca-Cola family of carbonated soft drinks.
  3. Packaging Form = the 12 oz. can choice is odd for the energy drinks market. The Coca-Cola Company also uses that packaging form for the new Diet Coke flavors. I think this confused customers, especially in the convenience channel.

The Coca-Cola Company’s patience was tested throughout 2020. They watched their energy drinks market leadership (by way of minority ownership of Monster Beverage Corporation) fade away, as main competitor PepsiCo made massive move after massive move in the category.

  • Acquired Rockstar Energy
  • Signed Bang Energy to an exclusive distribution contract
  • Refocused on energy drink sub-brands of Mountain Dew

PepsiCo became the new energy drinks portfolio leader…or so everyone thought!

  • Rockstar Energy turnaround plans remain unsuccessful
  • Bang Energy is trying to legally “break up” with PepsiCo after poor results and them focusing an absorbent amount of resources on Rockstar Energy
  • Mountain Dew energy drinks sub-brands haven’t materially made an impact yet

While this competitive landscape could have pointed The Coca-Cola Company to invest further in the needed changes to make Coca-Cola Energy successful, James Quincey decided he’d seen enough from extremely poor Q1 and early-Q2 sales results to realize it was time to fail fast and refocus on better investments…

“our strategy is focused on scaling big bets across a streamlined portfolio. As we scale our best innovations quickly and effectively, we need to be disciplined with those that don’t get the traction required for further investment.”

The Coca-Cola Company wants to stay focused on only beverages and not diversify into snacking and CPG food segments like its major competitor PepsiCo. That means The Coca-Cola Company is going to want to own all large categories, thus they aren’t going to give up on the energy drinks category.

Will they build or buy is the ultimate question…

The Coca-Cola Company won’t make the same mistake twice, so I see them working with Monster Beverage Corporation to clear the non-compete language in the ownership contract. This could be done in two main ways;

  1. Acquire Monster Beverage Corporation completely
  2. Sell some or all of their minority ownership in exchange for categorical flexibility. This would allow them to buy other energy drinks brands like Celsius Holdings or Nutrabolt (which owns C4 Energy)

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