It’s now official: after much rumor and speculation over the last several weeks, PepsiCo announced today it has entered an agreement with Vital Pharmaceuticals, the producer of Bang Energy, to be that brand’s exclusive U.S. distributor. Is the deal “one for the beverage history books,” as stated by Bang Energy CEO Jack Owoc? That remains to be seen, but here’s a quick look at the implications of the deal across the category and the broader beverage market.
Why did Pepsi make the deal?
Much of the buzz around a potential Pepsi-Bang partnership began to swirl when the soda giant acquired Rockstar Energy for $3.85 billion in March. By sealing that purchase, the company could then seek to make distribution pacts with other brands. And in looking at the current landscape of potential partners, Bang has fast become the category’s standout performer. According to data from IRI, Bang was one of three brands — along with Red Bull and Monster — to crack $1 billion in year-over-year sales, and it’s done it with enormous momentum, growing over 187% through February 23.
While diversification has been a major component of Pepsi’s corporate strategy, selling beverages in a can is still its calling card. With a robust national distribution system in place, the company is in position to take Bang’s already strong growth and accelerate it. C-stores remain the key channel for energy drinks, but Bang hasn’t been hesitant to expand its platform to allow it to enter other retail segments; the company is working to secure placement for its new natural line, which contains caffeine from coffee extract, at Sprouts and Whole Foods.
Calling the deal a “coup for PepsiCo,” Andy Morton, deputy drinks editor at GlobalData, praised Bang as being “perfectly placed to go up against the raft of new ultra-performance energy drinks hitting the market, including Monster Beverage’s Monster HydroSport and Reign Total Body Fuel, as well as Coca-Cola’s creatine-based Powerade Ultra.”
Within Pepsi’s distribution ecosystem, Bang slots in alongside a growing range of energy and energy-adjacent products. MTN DEW AMP offers four flavors in 16 oz. cans, while MTN DEW Kickstart is a caffeine-added blend of juice and Mountain Dew and MTN DEW AMP GameFuel is geared towards video game enthusiasts and professional players. Through its partnership with Starbucks Coffee, Pepsi also distributes coffee energy products such as Double Shot and Triple Shot. In February, Pepsi CEO Ramon Laguarta noted that the company was looking to increase its stake in the energy drink space, describing the announcement of low-caffeine SKUs for Bubly and Gatorade’s Bolt24 as opportunities to “participate in the caffeine space from multiple dimensions.”
Of course, this arrangement echoes the ten-year deal Pepsi made with Rockstar in 2009 to be its exclusive distribution partner. That arrangement ended in a multi-billion dollar acquisition, though it’s unclear if the multi-year contract with Bang includes any option for Pepsi to purchase the company in full. Whether that happens or not, Pepsi is still free to pursue further relationships with other energy drink makers in the meantime — although it seems well stocked for the moment.
As for Rockstar, Laguarta said Pepsi will continue to invest in the brand with an eye on growth outside of the U.S.
What does this mean for Bang’s existing distributors?
In taking Bang all for itself, effective immediately, PepsiCo has opened a lane for another independent energy drink brand to step into the void left behind at Bang’s network of mostly Anheuser-Busch (AB) affiliated distributors — assuming they want back in.
With the deal announced just this morning, this mechanics by which Bang will remove itself from existing distribution agreements are yet to be detailed. Several trade newsletters reported earlier this month that certain AB distributors had received letters from Bang management alleging they had “lost focus,” suggesting the establishment of a possible justification for terminating their contracts. But even if that were its motivation, Bang would still likely face the prospect of protracted negotiations and potential lawsuits from distributors.
While Bang is the crown jewel, Vital Pharmaceuticals/VPX Sports also comprises a roster of other brands with varying levels of market penetration. The future distribution for products in that group, which includes Meltdown, the CBD-infused line Stoked and Redline Noo Fusion, announced in March, remains unclear.
In the letter to distributors, Bang makes a reference to certain partners “exploring opportunities to represent competitive energy drinks, including the C4 portfolio of products.” And with Bang now aligned with Pepsi, those opportunities could indeed potentially be seized by other distributors. Offering a similarly positioned fitness-centered energy drink, C4 has moved into conventional retailers like Walmart, Costco and Target through alliances with regional DSD houses including Big Geyser (NYC). After launching its core ready-to-drink lineup in 2018, the brand has followed up with an expansion into nootropic-infused products (Smart Energy) and zero-calorie SKUs. Owned by parent company Nutrabolt, it is one part of a larger sports nutrition platform that has generated over $650 million in retail sales, and which also includes powders and supplements.
There’s also Celsius, another competitor in the fitness energy category that has also been making inroads at conventional retailers, having expanded at Walmart and Target last month. The company saw U.S. sales rise 53% to $60 million, according to a Q4 2019 and full-year earnings report released in March. In that report, the company noted it has added over 50 new regional DSD distributors since July 2019 — including AB, MillerCoors, and Keurig Dr Pepper affiliates — bringing its total distribution network to over 100 partners. Kill Cliff and LifeAID are also fast-growing brands within the energy space that could potentially fit the bill.
However, this interest assumes that the jilted distributors are ready to double-down on energy drinks, having seen first Monster and now Bang pulled out from underneath them. There’s also Hiball, an early pioneer in the natural energy drink category that was acquired by AB in 2017. And with independent brands like North Carolina-based Sunshine Beverages and Congo Brands (3D, Alani) recently having built traction within AB’s system, there’s a chance distributors in that network may seek a more segmented approach to energy.
BevNET reached out to multiple existing Bang distributors for comment, all of whom either declined or did not immediately respond.
How does this reshape the energy drink category?
With today’s announcement, the country’s three largest non-alcoholic beverage companies each have their cards ready to play. And though they are still lagging the overall category leader, Red Bull, which remains independent, they’re betting big on energy.
For Coca-Cola, Pepsi’s Bang agreement means even another chapter in its ongoing competition with Monster Energy, and, more specifically, its ‘performance energy’ sub-brand Reign Total Body Fuel. Frequent BevNET readers will need no reminder of the years-long, lawsuit-fueled conflict between Monster and Bang. Reign is set to grow from nine to 12 SKUs this year, with the first launch being Reign Inferno, a three-SKU sub-line pitched as “thermogenic fuel” available in Jalapeño Strawberry, Red Dragon and Tru Blu.
Meanwhile, KDP already has a stake in the performance energy category through its partnership with A-Shoc, launched by NOS founder Lance Collins in 2018. The company has also expanded its energy portfolio through the acquisition of Big Red and its energy lines HyDrive and Xyience, as well as a distribution deal with Vita Coco that has brought natural energy play RUNA a more prominent position
Taken as a whole, the way that the three major strategics have composed their energy portfolios may suggest the category is segmenting. With Pepsi having acquired Rockstar and aligned with Bang, each of the three companies has a foothold in “traditional” energy drinks: canned products designed for grab-and-go coolers, offering high caffeine and aimed at a male consumer. In coolers with limited shelf space, the competition in energy drinks could see clear winners and losers emerge, something which Monster CEO Rodney Sacks highlighted as a concern in the wake of Coca-Cola Energy’s U.S. launch.
“[Coke] are going to go out and get whatever shelf space they want and they’ll respect our shelf space and we’ll do likewise,” he said. “The dilution is maybe in the coolers where you have limited amount of shelf space. The coolers can’t expand — there are only so many SKUs. That’s where there is compression and competition. What goes in and what goes out? Is it a reduction of Monster or of another brand?”
But with that segment already well defined, the strategics are broadening the concept of energy beverages to include a wider scope of options and the ability to scale. Just as “performance energy” has emerged as a subcategory, products targeted at specific niche audiences like gamers or offering unique benefits like mental acuity via nootropic ingredients are beginning to take hold.
That is starting to be reflected by Pepsi’s own aforementioned portfolio, and even in subtler moves, such as its work with emerging Atlanta-based brand Synapse. For Coke, it means launching Coca-Cola Energy as well as offering a caffeine-spiked version of AHA zero-calorie sparkling water and growing its lineup of “energy coffee” products under the Java Monster banner. For KDP, the acquisition of caffeinated sparkling water brand Limitless also provides the company yet another path toward expanding the audience for energy-related drinks. In a February earnings call, CEO Bob Gamgort said KDP will focus on growing distribution for Limitless and introducing new innovations later in the year.
However the category eventually ends up arranging itself, “performance energy” looks certain to hold an important place within it.
Brad Avery contributed to this story.