Energy Drink Wars | The Acquirer's Multiple®

During their recent episode, Taylor, Carlisle, and Alex Morris discussed Energy Drink Wars. Here’s an excerpt from the episode:

Alex: There’s tons of competition in the category for one. I think what they’ve said specifically is that C-stores are the ones that are showing the most pressure at the moment, which again, you can obviously think about what’s a purchase at a C-store and what’s the consumption occasion for that versus what’s the purchase at a Costco or a BJ’s or a Sam’s? What are the different dynamics that play into that? So, it certainly feels like there’s some macro pressure on the lower to middle end that is having acute pressures there right now. We’ll see if it expands further over time.

Jake: It’s a K-shaped argument or like bifurcated economy argument.

Alex: Yeah. The other hard part of it too is Monster has a portfolio of brands which partly gets back to the Coca Cola deal. One thing that I’d argue they’ve not done great at is figuring out how to play in the sugar-free category and really a brand response to something like Celsius. They have two brands in Reign and Bang that compete there, but those have not been particularly successful. And now, you’re seeing Alani Nu, which I would say probably plays closer to that category than Monster, is starting to take some share. So, there is a portfolio specific risk for them that I still think they’re not totally well positioned in terms of where the category continues to go.

Tobias: Why does somebody drink Celsius versus say Red Bull versus say Monster?

Alex: I think a lot of it is just branding and how their position includes packaging, includes what’s communicated to the customer in terms of the brand attributes, whether it’s– For example, Reign uses clean energy as the brand tagline that they use, which is in my mind very much trying to compete with the Celsius brand positioning.

Monster starting play– getting back to what you were saying 20 years ago, they’re starting playing in the US market was, “Hey, we’re seeing Red Bull is very successful with these–” I guess they’re probably nine-ounce cans. They were like, “Our cans will be double the size and comparably priced.” So, that was their kind of brand positioning. Just get a lot for your money. Obviously who they targeted with that brand has evolved more over time, but it’s a very different audience than Celsius or some of these other brands.

Tobias: Celsius, an office worker? Is it white collar?

Alex: Yeah, I think they skew– [crosstalk] They’d probably skew more college graduate type of thing. They skew more female. Yeah, they have a certain skew to who they go after that is probably pretty close to the opposite of the Monster brand to the extent that you can say that within the same category.

Tobias: Do you know if the whole category is growing, or is there some cyclical contraction as we’re going through, whatever we’re going through, a little bit of weakness or something?

Alex: Yeah. No, the whole category has come under pressure as of late. So, I have some data on my most recent write up, but I think it was the categories basically flat in Q2, which again is just something that has not been seen in the energy category for quite a while outside of effectively COVID.

Tobias: The way that is people just not spending as much money or going into something else where there’s just too much competition. Well, that doesn’t answer that question.

Alex: Yeah, I think a lot of it is– This is partly a conclusion drawn from a lot of the other companies I follow, Dollar General and Dollar Tree being two examples. But many others, I think there’s just a certain segment of the customer base that the pressure of inflation and broader macro factors has potentially just hit a breaking point where can’t handle anymore. It’s showing up in terms of somewhat discretionary purchases, something like pulling into a gas station at 08:00 in the morning and paying 3 bucks for an energy drink. Maybe you skip that once a week where you wouldn’t have previously. I think it’s probably something like that.

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