$150m+ Mountain Dew Kickstart ‘right for the masses’: PepsiCo shuns energy M&A


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Related tags Pepsico Caffeine Coffee

PepsiCo CEO Indra Nooyi says the firm will not buy brands in the lucrative energy drinks space and insists existing $150m+ offer Mountain Dew Kickstart is ‘right for the masses’.

She was speaking as PepsiCo released its FY 2013 results yesterday for the year ending December 28 – net sales +1% to $66.42bn, net income +9% to $6.74bn.

On a later investor call, analyst Caroline Levy from CLSA asked Nooyi: “Given that you’ve got this valuable distribution system and the fastest growing carbonated drink out there right now is in the energy category, do you still rule out the idea of acquisitions?”

“Yes,”​ Nooyi replied shortly, which prompted the analyst to dig deeper: “Can you explain why? Because you’re not participating in this business that appears to have legs.

“Do you think you can go after it in another way?” ​Levy added.

(Total US sales of energy drinks and shots were $12.5bn+ in 2012, according to a February 2014 report from Packaged Facts.)


Mountain Dew hitches ride on energy bandwagon

Nooyi replied by describing 80-calorie Mountain Dew Kickstart – effectively Mountain Dew with 5% juice content, electrolytes for taste and higher caffeine content, 92mg/16oz can, versus Monster Energy’s 160mg – as “our version of the energy drink that’s right for the masses. And we distribute other energy drinks”.

Earlier in the call Nooyi namechecked four recent North American beverage launches that PepsiCo is especially pleased with, and said they are close to becoming $100m brands.

‘Morning beverage’ Mountain Dew Kickstart is one of these – although it has already smashed this sales target, perhaps by riffing on the loyal following for Dew, the ‘healthy, natural’ connotations (whether true or not) of juice and a less edgy image than the likes of Monster and Red Bull.

The other potential $100m brands are sports thirst quencher Gatorade Frost Glacier Cherry (pictured above, with its distinctive almost milky coloring) Starbucks Iced Coffee and Lipton Pure Leaf.

Launched in February 2013, Kickstart sales surged to $100m+ in the first six months, with 10% of volumes sourced from outside the canned and bottled beverage category, which suggests the drink is picking up custom from hot tea and coffee drinkers at breakfast time.

Amy Whelan, Rockstar

Rockstar distribution deal has 'worked well for us'

PepsiCo also unveiled Black Cherry and Limeade flavors (with identical formulations) on January 15 to target nightime consumption – to better sweat the day in terms of consumption occasions.

Continuing her reply to Levy on energy M&A, Nooyi told the analyst: “Caroline...We’ve looked at this category long and hard, and we look at what we can do with those businesses, and whether it’s value creating for shareholders, if we were to make any acquisition, and all our analysis says it will not,”

“And so we’ve chosen not to do an acquisition here.”​ Interestingly, PepsiCo chose not to mention its own core energy brand AMP, perhaps because less than spectacular sales of $239m in 2013 (for a 13 year-old brand) put it fourth in the US energy category.

Hugh Johnston, PepsiCo CFO reminded investors of the firm’s distribution deal with Rockstar Energy ($821m sales in 2013) “that’s worked very well for them and it’s worked well for us”.

“Mountain Dew Kickstart plays around the energy space, but it’s not in the energy space, in a similar way that Starbucks Frappuccino and iced coffee and other potential innovations go down that path as well,”​ he said.

*Make sure you read my colleague Elaine Watson's article on PepsiCo's results yesterday​, which focuses on new non-cola products sweetened with stevia and sugar will hit the US market this year, while cola products combining stevia and sugar will be tested on other markets.

(Rockstar picture: Amy Whelan/Flickr)

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