PepsiCo to distribute Bang in the US, updates market on coronavirus impact

By Elaine Watson contact

- Last updated on GMT

PepsiCo to distribute Bang in the US; Quaker gets coronavirus boost

Related tags: Quaker oats, Bang, Energy drinks, Rockstar

PepsiCo has struck a deal with Vital Pharmaceuticals to distribute Bang Energy in the US a month after closing a $3.85bn deal to buy Rockstar Energy, further boosting its presence in the energy drinks category as rival Coca-Cola (which owns a stake in #1 player Monster) rolls out Coca-Cola Energy.

Launched in 2012, Bang is now the #3 brand in the energy category behind Monster and Red Bull, carried in 200,000+ outlets in the US, said​ PepsiCo Beverages North America CEO Kirk Tanner: "This alliance … enables us to significantly accelerate the distribution of Bang Energy to meet rising consumer demand.

"The combined power of our two organizations will be a meteoric partnership – one for the beverage history books​," said Bang Energy CEO Jack Owoc, who courted controversy last month​ after hosting a strategy meeting and dance party at a warehouse in Broward County, FL, to announce the launch of a new line despite employee concerns about large gatherings in the current climate. (Owoc later claimed in an Instagram post that there was “no physical contact​” at the event.)

‘We have the freedom to operate in the energy space a great deal’

While PepsiCo recently acquired the #4 brand in energy (Rockstar), it has also dipped its toes in the energy drink category via line extensions of existing brands, with the launch of Mtn Dew Kickstart, Amp Energy, and Amp Game Fuel​​; and Gatorade Endurance Carb Energy Drink​ and Bolt24​.

Speaking on PepsiCo’s Q1, 2020 earnings call this morning, CEO Ramon Laguarta said: “Our distribution muscle will give Bang an additional push, and there's clearly a lot of consumer positive reception to that brand, so we'll benefit from that…. Mountain Dew… has a lot of opportunities in that space as well, and it's kind of natural for Mountain Dew to play in the energy boost category. So you will see some more innovation of our Mountain Dew brand to play more intentionally in that space.”

Asked about a path to ownership [of Bang Energy] for PepsiCo, CFO Hugh Johnston said: “In terms of any forward deals or sort of M&A contemplated, none of that is in there ​[the deal]. So we expect this to sustain for a good period of time… Unlike the Rockstar deal, we really don't have meaningful restrictions in terms of the way that we manage our portfolio. So we certainly feel, as we take a more assertive posture, we have the freedom to operate in the energy space a great deal.”

As for the timing, he said: “The movement from the existing distribution network of Bang to our network… will be progressive. It will start in some channels as early as, early May. And I would assume that by the beginning of Q4, it should pretty much be in our tracks.  

Euromonitor: Deal ‘gives PepsiCo leadership in this high growth, high caffeine, ‘performance’ space’

The deal “gives PepsiCo leadership in this high growth, high caffeine, ‘performance’ space​,” said Howard Telford, head of soft drinks at Euromonitor International, although it’s “going to be tough for the next few months given how dependent energy has been on single-serve and impulse channels like forecourt​,” he noted.

He added: “I think that a big part of the value in the Rockstar acquisition was removing any obstacles that the previous distribution agreement presented​ [details were never disclosed, but the previous distribution agreements with Rockstar had certain restrictions that limited Pepsi’s ability to innovate in US energy drinks or acquire other energy brands that would compete with Rockstar].

Adding Bang gives them leadership in this high growth, high caffeine, ‘performance’ space but it also frees them up to use Mountain Dew or perhaps even Gatorade or other brands in the functional energy space as well," ​said Telford. "So they’re obviously gaining a stronger presence in the energy category but also important freedom to create functional propositions with other brands in the portfolio.”

“As we saw with the Coke/Monster arbitration over Coca-Cola Energy​,​ it’s not clear how ultimately binding these are or how blurred the category lines between carbonated soft drinks with a functional position versus energy drink actually are. But full ownership removes any obstacles, so my guess is we’ll see Game Fuel and other products in the near future that look more like full energy drinks in terms of caffeine content, and merchandising.”

GlobalData: ‘Bang is perfectly placed to go up against the raft of new ultra-performance energy drinks’

Andy Morton, deputy drinks editor at data and analytics company GlobalData, added that this was “a coup for PepsiCo. The brand is enjoying significant growth and spearheads the newly-emerging ultra-performance energy category - a melding of energy drinks with the old-school, muscle-building, powder shakes that make up the rest of VPX's product portfolio.

“Bang is 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.”

‘PepsiCo has closed the energy gap with Coca-Cola’

PepsiCo's announcement is “a statement of intent to The Coca-Cola Co that the world's number one beverage company will not have it all its own way in energy drinks,” ​added Morton.

"Not only does Coca-Cola have a share in Monster Beverage Corp, but the past year has seen the expansion of Coke Energy​ in markets around the world. In the past two months, however, PepsiCo has closed the energy gap with Coca-Cola through the agreement in March to buy Rockstar Energy Beverages and today's agreement with VPX's Bang."

But he added: "There is still some distance left for PepsiCo to run; in terms of US and global reach, Rockstar cannot hold a candle to Monster ​[to provide some perspective, Monster's US retail sales are more than 7x higher than Rockstar's according to Nielsen data].

"At the same time, however, Coca-Cola's minority stake in Monster has caused a few corporate headaches. Only last year, the two parties ended up in a US arbitration court over the launch of Coke Energy.”

‘Our distribution muscle will give Bang an additional push’

Speaking on PepsiCo’s Q1, 2020 earnings call this morning, CEO Ramon Laguarta said: “Our distribution muscle will give Bang an additional push, and there's clearly a lot of consumer positive reception to that brand, so we'll benefit from that.

"And then as we said in the past, we have a brand in our portfolio, Mountain Dew, that I think has a lot of opportunities in that space as well, and it's kind of natural for Mountain Dew to play in the energy boost category. So you will see some more innovation of our Mountain Dew brand to play more intentionally in that space.”

Reallocating resources into e-commerce  

Asked about the company’s channel strategy in light of COVID-19, Laguarta said: “We're reallocating resources from other parts of the P&L into e-commerce and capturing consumers in that particular channel, and then obviously, we'll keep investing to retain those consumers as they probably stay in the e-commerce.”

Asked about the firm’s outlook, he noted that, “There's a good part of the universe of outlets that we service that are shut down or partially shut down during the lockdown​,” adding that previous forecasts had been ditched given the uncertainty: "We don't think it's going to be a straight line once people go back to moving around.

“It's going to be a restricted mobility I think and with potential second waves in some particular markets. That's why we're staying cautious.”

'The number of families that have bought Quaker in the last six weeks has gone up a lot…'

However, Quaker is performing particularly well during the lockdown as more Americans eat breakfast at home, he said: “The number of families that have bought Quaker in the last six weeks has gone up a lot… we're emphasizing in our marketing not only the breakfast opportunity, but also the cooking and the recipes where our oats can be part of that cooking opportunity.”

Snacks: 'We're seeing our multipacks, our variety packs increasing massively'

Snacks are also performing well, he said: “There’s many more occasions in the family now with the kids at home; we're all taking breaks during the day between our busy days and then occasions watching TV together as a family or whatever. So, there are a lot of occasions at home now that they were not there six or seven weeks ago.

“So we're also emphasizing in our advertising the opportunities that the snacks category give consumers to have moments of enjoyment during this confinement. We're seeing our multipacks, our variety packs increasing massively. We're seeing our Tostitos brand, our dips going up a lot.”

PepsiCo’s Q1 net revenues (12 weeks to March 21, 2020) rose 7.7% to $13.9bn, with Frito Lay’s organic revenue growth +7%, Quaker Foods +7%, and North America Beverages +6%.

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