The following is transcript of Beverage Digest's podcast, The Breeze, Episode 7.

Please excuse any transcription errors.

Today, Duane Stanford invites regular Breeze contributor and industry expert John Sicher to discuss the recent wild and crazy days of energy drinks.

Bang Energy went from boom to bust within just five years. After mounting a successful challenge to the supremacy of Monster and Red Bull and capturing the attention of PepsiCo, Bang unraveled and went bankrupt. Now in the hands of archrival Monster and its distribution partner Coca-Cola, will Bang rise again? New challengers like Celsius may have something to say about that question.

DS:

Hello and welcome to The Breeze with Beverage Digest. I'm your host, Duane Stanford. This is where we bring you into the kinds of industry conversations that we have every day at Beverage Digest. We dissect what's happening, connect the dots and ask the most important question, what does this mean? Today I am delighted to have our good friend John Sicher back on the program to talk about the recent wild and crazy days of energy drinks. John has covered the industry for almost three decades. For much of that time, he was editor and publisher of this very Beverage Digest publication. Since then, John has consulted for companies including Coca-Cola and BODYARMOR. He's also served as an expert witness in beverage related court cases. John, welcome back to The Breeze.

JS:

Duane, very happy to be here.

DS:

So while the world during the past few years was consumed by the Global Pandemic, and rightfully so, people might have missed some pretty extraordinary times in the US Energy drink sector. Until 2020, the energy drink market was dominated by Monster Energy and Red Bull, but there was an up and coming player called Bang Energy, whose brash owner forged new ground and what became known as Performance Energy instead of just caffeine and taurine for energy and alertness, Bang promised to build muscle with ingredients like creatine. By late 2019, Bang had grabbed a head turning 10 share of the energy drink category and captured the attention of executives at PepsiCo. At that time, PepsiCo was behind in the energy drink game. Coke was the global master distributor of hugely successful Monster and Red Bull had its own massive distribution system at the center of its business. PepsiCo meanwhile distributed Rockstar, a brand that was flagging after years of underinvestment.

But as the pandemic reached US Shores, PepsiCo made a couple of big bets to get back in the game. PepsiCo acquired Rockstar for almost $4 billion in March of 2020 and a month later, PepsiCo struck a blockbuster deal to distribute Bang Energy, which by that time had become the number three player in the US. It was a major coup. There was one problem though, Bang was run by Jack Owoc, the medallion wearing social media hungry owner who had a habit of filing lawsuits against his partners and picking legal fights with Monster founder Rodney Sacks. Owoc and PepsiCo were like oil and water. By December of 2020, Owoc had terminated the PepsiCo distribution deal without cause and sued PepsiCo. That divorce set off an extraordinary chain of events. Celsius by now had moved into Bang's vacated beer distribution system and had gained momentum. Now they jumped to PepsiCo to take over Bang's now empty distribution slot, creating even more momentum for that brand.

To keep up Nutrabolt C4, another performance energy up and comer signed a distribution deal with Keurig Dr Pepper. All of this left Bang and Owoc casting about for a new distribution network. As the brand's market share faded, all the while Bang was slammed with two massive court judgements at the hands of archrival Monster and Sacks that totaled hundreds of millions of dollars. It was too much to bear, Bang filed for bankruptcy late last year. Owoc would be ousted in the process then in a you can't make this up moment, Monster swooped in late last month to acquire the thorn in Rodney Sacks side out of bankruptcy for $360 million. Now Monster and its global partner Coca-Cola will distribute Bang alongside Monster Energy. The question now is, now that it's in the Coke system, Monster owns it and it will be distributed by the Coke system. Can this brand get back to that previous 8 to 10 share level that it enjoyed before? What do you see in that regard?

JS:

I think one thing that one has to basically take away from what's happened in the last couple of decades is that one, it would be very foolish to underestimate Rodney Sacks and the Monster management. They are very good at what they do. They're very focused, they're very aggressive, and I think that trying to basically manage several brands in the same category is very difficult. I think probably Duane, if anybody can do it, Rodney Sacks and that management team can, so I would think that we'll see probably over the next year or two at least some resurgence and share for Bang, whether it gets back up to that eight, nine level, I don't know, but I think Bang is going to be a player again in this category in the next six months or a year.

DS:

Talked to a number of bottlers in the Coke system. First of all, it's pretty clear they're excited about the brand. They're excited about having that alongside Monster. I think what they see first is the brand needs to be stabilized of course. They also recognize, or at least they've told me, that they believe that it also has a pretty strong core audience to build on. So if they can stabilize it, say over the course of the rest of this year, maybe a little longer, they do see an opportunity to get back to anywhere from a four to six share within about a year roughly, and then kind of see where it goes from there. Does that sound reasonable to you?

JS:

It does, and it's a very attractive proposition. I mean, if you look at categories and channels, about 15 to 20% of carbonated soft drink business is in the convenience store channel. Conversely, about 60% of the energy drink business is in the convenience channel. That's very important because that channel is the highest price, it's the most profitable. That immediate consumption business is something prized by bottlers, and I think that's a really important thing that we all have to remember about energy drinks. They're a huge presence in the convenience channel. Having more energy drink for business, Duane, is just a great proposition for a bottler and I would think the Coke bottlers are probably going to... They'll be enthusiastic and they're probably going to do a great job with Bang led by Sacks and his management team.

DS:

Yeah, I mean one of the things that Bang did as I mentioned in the lead-in was the fact that they forged this performance category, this performance sector, performance energy sector, and what you've seen then is brands like Celsius and any number of "better for you" natural energy drink brands kind of come in and draft off the space as well. I mean you've got performance when it comes to sort of weightlifting and bodybuilding and things like that, athletic performance, and then you've got more healthier for you energy, which has also come in really strong with Celsius. One thing that I think is going to be interesting to watch is the fact that Celsius was able to come in and capitalize on these missteps by Bang, and they've done a fantastic job of first of all just building a lifestyle brand around Celsius, but also moving into these distribution vacancies that happened and being able to capitalize on that.

You've had C4 which has come in with Keurig Dr Pepper, and they've been able to also get a little momentum based on that as well. Now you've got Monster taking Bang back into market and they're going to be fairly aggressive with it, you would think, and it's in the Coke system. Does this mean that Celsius and C4 are going to start to have a little more difficult road now that this other competitor that has the strong base and this strong core audience, are they going to be able to keep the same momentum they've had previously?

JS:

It's a good question. I would think that it's going to be tougher. I would think that Bang under the Monster leadership is going to be as tough, if not even a tougher competitor as they were before under the prior ownership. As I said earlier, I think underestimating the abilities of Sacks and that management team is very foolish, and I would think that within a year or so, brands like Celsius will still keep growing, but Bang's going to be a much tougher competitor than it has been since Bang ran into trouble.

DS:

Another thing that's interesting about all this is you've got these more natural brands coming up. I mean, I've got a refrigerator full of things like FITAID and other brands that are kind of pitching themselves as more of these lifestyle better-for-you energy drink brands, but the big core brands, the Green Monsters and the energy brands that started all this 20, 30 years ago, they're still performing quite well despite the fact that this category has matured. What do you make of that? Is it just a mature category that has room for a lot of different consumer type of consumers and these companies have done a really good job of creating new consumers in the space who come to the drink for new reasons? What are you seeing there?

JS:

I think a couple of things. I mean, first I think that for many, many years the energy drink category grew by existing consumers consuming more. I've heard of some recent research that indicates that the energy drink category is that household penetration is now growing, but sometimes pictures tell a pretty powerful story. So we vacation the summer out in a little town in Long Island called Quogue, and there's a Safeway gas convenience store out there, and it's been under several ownerships, but right now it's under Safeway and I've been going there for years and years and years to get gas, get a morning paper, et cetera.

And not that long ago, the coolers basically were stock full of Coke and Pepsi CSDs and the coolers at the right angle. The center coolers were basically full of Coke, Sprite, Mountain Dew, Pepsi. Today, Coke and Pepsi and their CSDs are off to the side. Those center coolers are now full of energy drinks, mainly Monster, Red Bull, some Celsius. It's a changed ball game, and I think as you've said, Duane, in many ways, energy drinks are becoming the new CSDs and I think this category and its various iterations are going to continue to grow and grow and grow. People love the functionality, the taste of these products has improved. There's a variety of these products now. I'm just very bullish in the future of this category. I don't see any slow down in growth anytime soon.

DS:

Back in the day, CSDs were all about not only refreshment, but energy, that afternoon picked me up. Those were the things that people came to carbonated soft drinks for and why that was such a broad category of consumers and back in the days a decade ago, everyone was so concerned about the declining volume of carbonated soft drinks, but the fact is you still had carbonated soft drinks. They just went by a new name and that was energy drinks and that offer all the same sorts of benefits. But of course then because they did have kind of ingredients like Taurine that people weren't as familiar with, they had this kind of taste that was very particular to energy drinks. They didn't necessarily broaden out as quickly as, or in the same way that a carbonated soft drink might. But as you pointed, out over the years, because we've got all these new forms of energy drinks and the taste has gotten refined, and also there's many different tastes for many different consumer sets.

I mean, you've got Celsius really appealing to women. You've got college students who are drinking them as much for lifestyle now as they are to get through a night of studying. You've got this much broader consumer set now, but again, it's bubbles and it's functionality. So I really do believe it's sort of like a lot of that volume that we saw disappear from carbonated soft drinks really ended up going into energy drinks as well, which then it comes down to the largest companies that make carbonated soft drinks, how good are they at capitalizing on the energy drink category? And frankly, that's been kind of a challenge in some ways over the decades. I mean, you've got Coca-Cola that doesn't really have its own energy drink. It's hooked up with Monster for a number of reasons. You've got PepsiCo who they own Rockstar now, but their big mover and shaker right now is a distribution deal with Celsius. I mean that's been really interesting to watch, right? The big carbonated soft drink companies not really have a brand of their own.

JS:

You're right, and I'll tell you another story. When I bought Beverage Digest back in the mid nineties, the big soft drink companies were really terrified of caffeine. Their products all have caffeine in, the Colas, Mountain Dew, Sprite does not obviously, but a lot of their products have caffeine in them. They were very worried back then about negative blow back on caffeine. I remember a PR person at a large soft drink company asking me not to write too much about caffeine. He was afraid if it appeared too much in Beverage Digest, it would encourage states and the federal government to regulate it, force labeling requirements. So they shy away from caffeine. Lo and behold, in comes the energy drink companies and they capitalize on caffeine and the energy functionality. So I think what happened was because of that concern the soft drink companies had for a long time, they focused on "goes well with food," "lifestyle," and in came Red Bull and Monster and basically they promoted the functionality of these drinks.

Consumers loved it, and the rest is history. It's a very strong growth popular category now. As you said, the irony is that the two biggest beverage companies in the world, Coke and Pepsi really only play in distribution. Yes, Pepsi owns Rockstar, which has not done too well for quite a while. They distribute Celsius. Coke really does not own an energy drink brand. It distributes Monster. So I mean, will the day come when Coke and Pepsi need to own high functioning, high performing energy drink brands? I would think yes, but we'll have to see.

DS:

I mean, you raised a good point about the caffeine. I mean for these large companies like Coke and Pepsi, there's a lot more risk in what they do because basically, they have a target on their back in a number of ways. So that's a lot of the reason you saw that played out the way it did. But on the flip side, you've got the energy drink companies, which in some ways have kind of taken the whole caffeine issue head on. I remember a number of years ago when some regulators were looking at Monster over caffeine content and there was a lot of media stories generated about whether these were dangerous for young people, especially when they're mixed with Sugar. Starbucks and Rodney Sacks came right out on earnings calls and pointed out the caffeine content versus a cup of Starbucks, and it was pretty compelling.

And I think it did a lot to really kind of at least level set the conversation in a different way. And it has been interesting. I mean, wouldn't you agree the amount to which we've had this concern over caffeine because the caffeine levels are all over the place these days. That concern has subsided largely. Why do you think that is? I mean, recently Prime has gotten the attention of a prominent senator who's asked for a look into their marketing, and a lot of that has to do with just how they market and the type of consumers, young consumers that gravitate to that brand. But why do you think that is that Caffeine now is not sort of enemy number one anymore?

JS:

Because I think consumers love it. I think that one of the main reasons why the energy drink category is so popular is that the functionality in energy drinks gives you an immediate payoff. If you drink orange juice, which is loaded with vitamin C, it's healthy, but you don't feel it. You drink an energy drink and immediately you feel the boost of energy from the caffeine. And I think that the popularity of these drinks has basically caused the concern about caffeine to subside a bit. I think consumers want the caffeine, whether it's in a Starbucks coffee or whether it's in a Monster or Red Bull, they like it. And I think that has driven the popularity and probably caused somewhat of the decline in concern over caffeine.

DS:

Another thing is, it's almost as if the caffeine has been overshadowed in a large way by some of the other ingredients. I mean, you had Bang, their big push was the creatine, which of course there's a whole lawsuit that's kind of basically said that a lot of the claims around that weren't really accurate. But putting that aside, a lot of these brands, these energy drink brands now, they're not just relying on caffeine claims, they're relying on other ingredients that provide functionality. And so one of the interesting things about this category is the extent to which it has broadened beyond just sort of bro guys riding motorcycles and skiing and all the things that we remember back from the big days of Red Bull versus Monster. You've got now this whole lifestyle built around these energy drinks that really penetrate into college campuses and any number of just the lifestyles that college students lead.

I don't think you can overestimate the importance of that in terms of first of all, just creating a broader set of competitors within this space. Again, I mean my sample fridge is filled with FITAID. I've got Prime Energy in there. I've got TAPOUT, a new drink by some influencers. This whole category is wide open in sort of a similar way of sports drinks, but a lot of that has to do with these companies really going after new consumers in this space. It is no longer just construction workers or even office workers trying to get that afternoon pickup. People are drinking these as sort of a badge brand too. And the same way again, we used to see CSDs grow their market share.

JS:

Well, look, I think the growth of Monster and Red Bull has done something interesting when back in the late 1990s, energy drinks are virtually unknown in the US and then somewhere in the late 1990s, early two thousands, red Bull came in, Rodney Sacks and his team bought a juice company called Hansen's and basically transformed it into Monster. And back in that era, Duane, as editor of Beverage Digest, I would get probably four or five samples of new energy drinks every week. Then what happened? It seemed to quiet down a bit and it became a two brand category, Monster and Red Bull, and there were some others in there, but it was basically those two brands.

And then two things I think happened. The growth continued and as you said, the offerings in the category began to diversify and they attracted growth too. So you now have a category that went from a duopoly of Monster and Red Bull for some years to a category where you've got Bang and C4 and Celsius and others, not just knockoffs of Monster and Red Bull, but the offerings themselves are diversifying. And as I said, I just think that the taste, the functionality, the good marketing of these brands, there's years and years and years of growth ahead for this category.

DS:

And still even with all these new entrants, you've still got Monster and Red Bull just by far dominating this market and they are not backing down. That's been so fascinating to watch them really just do everything they can to innovate against these new up and coming brands. For instance, Bang Energy, it came along, Monster created Reign Energy and went toe to toe with them. Now they've got a Reign Storm where they're going toe to toe with some of the natural better-for-you energy drinks. One of the strengths of Monster is not only their ability to drive their brands and really get into the culture, but also to create a platform of brands that really go after all of these different needs states and that also are able to fend off some of these challenges. And I think that's one of the reasons why you've seen them continue to stay on top of this.

I don't know if our listeners have looked at Bang's portfolio in a number of years, if they're not regular energy drink consumers, but I mean they're in zero sugar, they're in juice, they're in coffee, they're in tea, they're in performance. I mean, it runs the gamut. So I guess that's to say that you've got a couple of players that are just absolutely strong players at the same time that you have all this robust competition from people trying to take share, and that's just really made for a very dynamic category, wouldn't you say?

JS:

It has, and I think it relates to other categories and brands we've talked about in the past, and that is, I think that brands that are owned by companies and managed by management teams that only have to focus on one category or a few brands do very well. And I've huge regard for Coke and Pepsi, but their management teams have to focus on broad portfolios of brands. Rodney and his team, the Red Bull folks, the Bang folks, the Celsius folks, they have the luxury of focusing on energy drinks, energy drinks and energy drinks and investing behind those brands. And I think basically that's an advantage. I think that the focus that those brands get is largely responsible for their success.

DS:

I'm tempted to say that Monster though couldn't have really reached the heights it did without that Coke relationship, their global distributor. But when you look over on the Red Bull side, I mean Red Bull's built its own distribution system basically. They haven't done it with a big global partner like a Coca-Cola. They've also been much less, I don't know if you want to call it less innovative. I mean they do a lot of flavor work, but they stick to their lane pretty well with their core products and limited time summer offerings that are very successful. The two companies in a lot of ways have really forged very different paths. I mean, what do you make of that if you're a Bang, if you're one of these other companies like Celsius or some of these other companies? I mean, what do you make of that? Do you have to have a big distribution partner to kind of pull this off, or is there some other reason why these two companies have gone down different paths but both been so successful?

JS:

Look, I think you have to have a big distribution partner, and you're absolutely right. I mean, certainly a big contributor to Monster's success has been its presence in the Coke system. However, it probably would've been pretty successful had stayed in the Bud system too. But the point I was making was that a brand stewardship is really important and it's valued by bottlers and distributors. And I think that the energy brand companies have done a great job with brand stewardship, brand focus, and brand marketing. And I think that the partnership of Monster and the Coke Bottlers is a win-win for everybody. But I do think you have to have, again, what I talked about earlier, so much of the energy drink business is in the immediate consumption channels, and no one reaches those channels better than the Coke and Pepsi bottling system. So I think that having those kinds of partnerships are key to long-term sustained growth.

DS:

So John, do you want a hazard a prediction here? You've got obviously, as we've said, Monster and Red Bull at the top here in the energy drink category in the US especially, and then you've got Celsius number three, they've taken that spot from Bang, but now Bang is back with Monster and is with Monster and in the Coke system, what do you think happens here? Is Bang able to come back and take that number three slot, or do you think Celsius is going to be able to continue to sort of outpace and stay ahead of the game on that?

JS:

We could have one of our $1 bets again Duane, I think that Bang is going to basically regain that slot. I just think that a combination of... Look, I think the Coke and Pepsi systems are both great at distribution. Again, underestimating the Monster management would be a mistake. I think Bang is going to have a resurgence under the Monster ownership.

DS:

What about C4? Where do they end up in all of this?

JS:

C4 probably stays in that four or five slot. They've been a good brand. But again, I think that Monster and Red Bull, at least for the intermediate future, are going to continue to dominate this category. And I think Bang is going to be a contender, so will Celsius, and we'll have to see how it plays out. But I think that, as I said, I think Monster and Red Bull will continue to dominate.

DS:

Yeah, I don't know if we disagree here, John. I think Bang, I think from all we know now in terms of the energy that you're hearing from Coke bottlers, the fact that Monster has already come out in a recent earnings call and as we've written about with some pretty specific, really getting to some nitty gritty on how they want to position that brand within the portfolio, I think all of that means that they are going to put a considerable effort forward. So I do think there's an opportunity for Bang to move back towards that number three slot, and I do think it's going to get harder for Celsius at the same time, PepsiCo and Celsius, I mean everything you're hearing out of that relationship has been very positive. Celsius is growing in the convenience channels now, getting placements that it didn't have prior to the Pepsi system.

So I think it's going to be an all out battle for that number three space. And I agree with you. I think Bang has, again, based on what we know now, has a shot at getting back there or at least making it one heck of a battle. So of course, we here at Beverage Digest are going to be watching it quite closely and can't wait to see how it plays out. And we'll let everybody know as it moves along. But I do appreciate you being with us here today to talk about this. It's quite a dynamic and interesting category John, so again, thanks so much.

JS:

My pleasure, Duane.

Speaker 4:

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