PepsiCo announced today it has entered a long-term distribution agreement with fitness energy drink producer Celsius Holdings, Inc., maker of the CELSIUS brand, effective immediately.
The deal includes a $550 million investment into the publicly traded energy drink company in exchange for around 7.33 million shares of convertible preferred stock, granting the New York-based conglomerate an 8.5% ownership stake. According to a press release, the preferred shares are entitled to a 5% annual dividend.
“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,” PepsiCo Beverages North America CEO Kirk Tanner in the release. “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.”
As part of the deal, CELSIUS will transition its U.S. retail and food service distribution into the PepsiCo system, however it is “subject to certain exceptions.”
In New York, Big Geyser is expected to be one of those exceptions; the company has helped build CELSIUS in Manhattan and it has a long history of working alongside big soda companies. The move to PepsiCo will affect independent distributors nationwide, however; CELSIUS has grown in many wholesale beer distribution houses nationwide and they will be left to scramble to maintain volume and are likely to force CELSIUS to pay termination fees.
PepsiCo will also serve as the preferred distribution partner for the brand in international markets; beyond the U.S., CELSIUS is sold globally in regions such as Scandinavia and China.
“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,” said Celsius Holdings chairman and CEO John Fieldly in the release. “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.”
CELSIUS will host a conference call to discuss the announcement in depth at 2 p.m. today.
The announcement comes just over a month after PepsiCo and fitness energy brand Bang agreed to terminate a similar distribution deal, entered in April 2020 and originally scheduled to last until October 2023. However, the partnership was marked by internal tension and lawsuits after sales for the brand declined.
The partnership with CELSIUS arrives after the Florida-based brand reported more than a year of consistent triple-digit retail growth year-over-year. In 2021, the company reported domestic revenue up 186% to $273 million and international revenue grew 17% to $41.2 million. Gross profit increased 111% to $128.2 million.
In its Q1 2022 earnings report in May, CELSIUS announced quarterly earnings up 167% year-over-year to $133.4 million, of which $123.5 million reflected the North American business. The company said distributor revenues were up 395% over the prior year in the quarter, and vending foodservice sales rose 296%.
CELSIUS is currently available in over 135,000 doors in the U.S., including around 64,000 convenience stores, according to the company. Most recently, the brand announced plans to expand its presence in the club channel, having added 589 Sam’s Club locations in March and prepping a rollout to BJ’s Wholesale Club stores this year.
The agreement also provides PepsiCo a new path towards growth in the energy drink set. During its turbulent relationship with Bang the brand faced consistent sales declines and the company has frequently struggled to achieve growth with its owned portfolio of Rockstar and MTN Dew. According to NielsenIQ, PepsiCo’s energy portfolio fell -8.2% in dollar sales and -12.2% in volume in the two-week period ending July 18.
Last month, PepsiCo CEO Ramon Laguarta stated during the company’s Q2 earnings call that the “distribution part of the energy strategy is very marginal,” while in-house innovations from Rockstar, MTN Dew and Starbucks would be the focus. However, he said the company would be open to future distribution deals, suggesting he would welcome complementary brands.