PepsiCo boosts energy drink presence with $550M investment in Celsius

Dive Brief:

  • PepsiCo is investing $550 million to take an 8.5% stake in energy drink maker Celsius Holdings. PepsiCo will nominate a director to serve on Celsius’ board, increasing its size from eight to nine. 
  • The beverage giant has also signed a long-term strategic distribution agreement with Celsius to become its preferred distribution partner in North America and globally, effective Aug. 1. The agreement will cover both retail and foodservice channels. 
  • The investment in Celsius allows PepsiCo to broaden its exposure in the energy drink segment with a functional offering after acquiring Rockstar for $3.85 billion in 2020.

Dive Insight:

In comments on the PepsiCo deal during an analyst presentation on Monday, Celsius executives described it as “a transformational opportunity.” CFO Jarrod Langhans said its dual structure — both a distribution partnership and sizeable investment — is designed to set the brand up for success.

The goal was really to make sure that we were fully aligned and maximizing the potential of the distribution agreement. Having skin in the game, having an investment — we just felt it was important to wrap both pieces together into one,” he said.

While acknowledging that Celsius’ network of more than 250 independent distributors has been instrumental to its success, the energy drink company lauded the efficiencies possible in tapping PepsiCo’s direct store distribution network. Celsius expects the deal to boost its distribution over the next 12 months by about a 40%, with opportunities in independent convenience stores, college campuses, military bases, vending and foodservice. It would also cut the cost inherent in managing a highly fragmented distribution network.

Celsius will retain a few partnerships with independent distributors, but most will be moved over to the PepsiCo system by the end of the year, according to the company.

The most important thing is making sure we have a successful transition” to PepsiCo’s system, Langhans said, noting that Celsius is focusing on building its inventory so that PepsiCo has enough product to distribute.

While the $550 million investment will also be truly transformative, Celsius is not in a big rush to spend it, executives said.

“As John’s always preached, we’re looking for profitable growth,” said Langhans. “This will give us the opportunity to invest that ahead of some of that growth.” This includes increasing purchases in coolers and vending on a shorter timeline. Other investment opportunities, such as strategic M&A and vertical integration, can come further down the line, executives said.

Meanwhile, PepsiCo’s stake in Celsius could also grow over time.

“This is just the initial investment,” said Celsius CEO John Fieldly. “There is opportunity on a go-forward basis for them to further invest in the company.”  

For PepsiCo, acquiring a stake in Celsius — which has made its name with its metabolism-boosting, zero-sugar beverage with no artificial colors or flavors and non-GMO ingredients — would allow it to broaden its reach into the category, which so far has been anchored by Rockstar, a mainstream favorite. This is as consumers’ interest in functional energy is only set to grow in the years ahead. Celsius would serve as the exclusive healthy, functional energy drink in PepsiCo’s portfolio for the deal’s first 24 months.

PepsiCo is making its investment in Celsius just weeks after its distribution agreement with Bang Energy came to an end. The beverage giant had been at odds with Bang’s owner Vital Pharmaceuticals since late 2020, when Bang filed a lawsuit accusing PepsiCo of “gross misconduct” and using “intimidation tactics” with independent distributors and major retailers who did not purchase the energy drink exclusively from Pepsi.