Soda giant PepsiCo has agreed to take a $550 million stake in energy drink maker Celsius Holdings, hoping to jump-start its flagging performance in the beverage industry. This move comes at an interesting time, as soda sales in the United States continue to drop. While it’s true that PepsiCo still sells plenty of carbonated soft drinks, its profits from those products have been falling precipitously, while sales of healthier beverages like bottled water and sports drinks have increased. The company clearly sees the writing on the wall and wants to invest in the energy drink market, which shows no signs of slowing down.
PepsiCo Invested $550 Million Into an Energy Drink Company
PepsiCo invested $550 million in an energy drink company, and the investment has a long-term contract to be distributed. Celsius stocks rallied by 11% and with this new market cap, their value stands at $7.45 billion. The company expects to gain more shelf space in existing retailers and expand into independent stores like gas stations. Starting Monday, Pepsi will assist with distribution.
Pepsi’s investment translates into an 8.5% minority stake in Celsius. Moreover, the giant in the food and beverage industry will appoint a representative to serve on Celsius’ board.In the wake of the recent pandemic, Celsius, founded in 2005, has seen exponential growth for its energy drinks in the U.S. Revenues soared by 217% to $123.5 million in the first quarter.
Drinks From This Company are Marketed as Healthy Energy Drinks
This company’s beverages are touted as healthy energy drinks and are targeting consumers who are active and are into physical activity. Céline-Cœur iced drinks contain a combination of ingredients such as ginger and green tea and lack artificial preservatives or sugar. Furthermore, they claim that the beverages can have thermogenic properties, meaning that drinking them will have the potential to increase metabolism and even help people lose weight. The purchase strengthens Pepsi’s bond with energy drinks. Due to rising health concerns, consumers are drinking less soda. But even with that drop, energy drinks are one of the fastest growing beverage categories and Pepsi has been doubling down on this part of its market. So in 2020, it bought Rockstar Energy, a legacy energy drink maker, for $3.85 billion and set its sights on increasing its market share. The popular energy drink Celsius is just now the fourth most popular energy drink in the U.S.
Legal Battle That Pepsi Won
Pepsi has previously supported an up-and-coming beverage, Bang Energy, through an exclusive distribution agreement. But the relationship quickly soured, leading to a legal battle which Pepsi won. The two companies parted ways earlier than expected in June. As a result of the breakup, speculation grew that Pepsi would seek to acquire Monster Beverage or Celsius to increase its market share in the energy drink category.