PepsiCo’s Celsius Pact Signals Shift as Soda Fizzles

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PepsiCo has taken another step to grow its share of the energy drink market.

Earlier this week the company announced a $550 million investment in energy drink maker Celsius Holdings, roughly an 8.5% minority stake, as part of a long-term distribution deal.

And the timing of the transaction appears to be perfect.

The global energy drinks market is projected to reach $108.40 billion by 2031, according to Allied Market Research, growing at a CAGR of 8.2% from 2022 to 2031. Further, Celsius has reported explosive growth for its energy drinks during the pandemic. In the first quarter, its U.S. revenue soared 217%, to $123.5 million.

 “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,” said Kirk Tanner, PepsiCo Beverages North America CEO, in a press release.

Celsius positions its beverages as “healthy” energy drinks, targeting younger, more active consumers. Celsius drinks include ingredients such as ginger and green tea and no artificial preservatives or sugar. The company also claims that its beverage lineup helps burn calories, especially fat.

For Pepsi, the deal boosts its ties to energy drinks.

The category is one of the fastest growing beverage segments outside of alcohol, and Pepsi has been investing in energy drinks in recent years as soda consumption drops. In 2020, Pepsi bought energy drink maker Rockstar for $3.85 billion with a goal of revitalizing its sales. Celsius recently overtook the brand as the fourth most popular energy drink in the U.S.

Pepsi had previously bet on another fast-growing upstart, Vital Pharmaceuticals’ Bang Energy, through an exclusive distribution agreement. But the relationship quickly fell apart, resulting in a legal battle that ended in Pepsi’s favor. In June, the two companies parted ways earlier than expected.

The breakup fueled speculation that Pepsi would seek to acquire Monster Beverage or Celsius to increase its market share in the energy drink category. (CNBC, Aug. 1)