It's the drink with "wings" but can Red Bull keep flying?
Red Bull has personified the extraordinary growth of the energy drinks category. But as demand for carbonates falters and consumers turn to healthier options, Harry Drnec, managing director of Red Bull, talks exclusively to just-drinks.com on plans for continued success in this rapidly changing environment.
Within minutes of striking up conversation with Harry Drnec, managing director of Red Bull you know where you stand. This interviewee is not a man who takes a step back lightly. He is quick to dominate conversation and at first he can be unnerving. But once the conversation settles Drnec's matter-of-factness and straight talking become surprisingly refreshing.
His manner with personal relations have parallels with Red Bull's business, particularly in The UK, where the brand has achieved such success with an aggressive but focussed approach. But soft drinks are in a period of transition and the trends show signs of moving towards still beverages and healthier alternatives. There are also those who believe the energy drinks market has peaked, so what next for the sector and its flagship brand?
"Red Bull is a functional food, the fact that it's carbonated is irrelevant," says Drnec pointedly.
"I think we are part of that movement (healthy alternatives) more than we are the carbonates movement. The fact is we happen to be carbonated, but we are not carbonated in the sense that we are a refreshment drink. The carbonation is irrelevant to us in some ways, if we were a still drink, people would put us in the still category and would we be competing against different people - I don't think so."
Having dealt with that issue he quickly goes on to dismiss worries of a fall in growth. "If you look at it volumetrically we are tiny. If we ever got to the point where Red Bull was selling across the globe at 10 cans per capita in the current environment we could all go home.
"We are at a per capita consumption in the UK of three right now, with a very profitable business and we think ten is possible. Why do I think ten is possible?"
But before I can even attempt to answer he continues: "Because in Northern Ireland we have a per capita consumption of 14, so it must be possible."
Drnec's snapshot of the UK market is that it is about to enter a period of stabilisation, with only one or two new product launches after a period of unprecedented brand activity. However, surprisingly, he also believes that once the category has matured, the UK will once more see double-digit growth.
"I believe when more consumers are reached and they have had a little more experience of the category we will see it grow again and start back to 15-20%," he says. "But I think what we have seen [in the UK] is all the distribution gains that were there to be got, have been gotten."
"The product really doesn't have any real weak spots and the whole company grew last year at about 40%"
Estimating only a further two or three entries coming into the UK sector, Drnec doesn't mince his words when talking about his competition. Indeed he calls Coca-Cola's approach to its energy drink Burn "schizophrenic."
"These guys truly do not understand the energy drink category. But they are throwing so much against the wall they are hoping something sticks. They've got Burn here, in South Africa they have Play (for which I own the trademark here anyway, so they can't do that over here) KMX in the US and another one in New Zealand. I don't know who's running the show but they're not even all the same product or the same packaging.
"I think Burn is the end game and when we have had that confrontation in the (UK) marketplace we will see things settle pretty much in to whatever pattern comes out of it. Coca-Cola is a very good company and a great marketing organisation. But I think they are just really good at doing Coca-Cola," he adds.
When discussing Red Bull's business and its competitors the marketing images associated with the brand through its successful ad campaigns (words like strength and energy) transcend into Drnec's conversation.
'V' advertising in NZ
"The product really doesn't have any real weak spots and the whole company grew last year at about 40%. But there are places where it has seen a lot of competition, in New Zealand and in Australia with 'V' (Frucor Beverages). V came into the market just before we did and did a big price number. We had our back turned in the off-trade when they jumped the gun with a 375ml bottle selling at half what our 250ml can was selling at - they took well over half the business."
However, defeat is obviously a bitter pill to swallow even on this level, and there is just a hint of satisfaction when Drnec adds: "But we have just seen that their results were down 25% below on expectations on the basis that they've basically fallen flat on their face in the UK and they're not doing all that well down there (New Zealand/Australia) either."
And it wasn't just V that Drnec was quick to put in its place, Battery a brand popular in Finland also came under scrutiny. "That fell flat on its face in the UK, but gave Red Bull a bit of a black eye over there (Finland) for a while. But that's also falling by the board now."
Red Bull and control go hand in hand, a business style epitomised in the way the drink is still produced and exported out of Austria, the company's headquarters, for every market around the world. With plans to increase focus on the US, potentially the most lucrative market in the world, questions have been raised as to whether this level of control is practical on such a vast and fragmented market. does Red Bull anticipate grabbing a decent share and more importantly convince distributors and retailers alike that money is to be made?
Red Bull bike tube race
"On a logistic side it costs nothing to ship and the company would probably be happy to continue to ship it, to maintain quality control. But whether or not at some point in time they will take a look at other markets like Brazil where import taxes are about 40% or 50% and look at other packaging or manufacturing facilities I don't know. My guess is they (Red Bull) will keep it as tight as they can in Austria. So shipping it isn't very much of an issue frankly," he explains.
"And we do have a relatively high price so as a percentage of the price the shipping is nothing so I don't think it's an issue."
The level of control the company has established in the US has also stretched to a rather unique distribution system, which has allowed Red Bull to remain relatively individual of any of the big drinks portfolios in the country.
"The company adopted a unique system," Drnec explains. "Van teams cover each market individually and each one of the US distributors has a set area. It is not part of any portfolio and is sold all by itself. If you are lucky enough to be a wholesaler instead of an entrepreneur that was given the franchise for the area, it was demanded that you start an independent van team, independent of your current business. With the idea that at some point in time when Red Bull reached its critical mass you might, might, be able to blend that into the rest of your business.
"The combination of the volume turnover which is of course much smaller than Coca-Cola and the value provides a healthy enough margin that the distributors can breakeven within three to four months and begin to make money within six. Consequently it's worthwhile doing. Van teams sales in the US and distribution is one of the real reasons why the brand is so successful there."
"Van teams sales in the US and distribution is one of the real reasons why the brand is so successful"
Comparing the US to the UK energy drinks market Drnec says: "It's [the US] there to stay and is doing extremely well so far. It'll be even more spectacular when it finally hits and will be more sustained as a unit because of course it's coming out [in different states] at different times. Very, very heavy growth will last over a period of three or four years."
Today in Los Angeles alone, Red Bull sells 3m cans a month and Drnec is so confident of the success he predicts Anheuser Busch will eventually pull its brand, 180 degrees, out of the marketplace.
Innovation will play a major role in sustaining this growth, but surprisingly given the plethora of marketing gimmicks currently dominating the sector, Red Bull's marketing is focussed on the basics of business. "I think one of the things we pride ourselves on is integrity and when you talk of innovation it'll be business applications, packaging and innovation from a marketing standpoint on how we reach consumers."
Red Bull will probably spend between 15%-20% of its global turnover on its marketing spend, £20m in the UK alone. And yet for all the flash TV ads, its old fashioned product sampling which, Drnec says, has proved most successful.
'I'm coming soon' by Michael Hopfgartner
"People are so sceptical and the best part of our marketing programme is our sampling without a shadow of a doubt. Put the product in their hands when they need it, and, when they take the whole can, they say, 'hey the stuff works'. That's the way we gain consumers as opposed to giving t-shirts away."
But continuing growth will not be easy over the coming year with global recessions predicted, increased competition from the likes of Coca-Cola and the constantly evolving nature of the functional category. However with typical single-mindedness Drnec says: "Our future's bright, I think we'll go through a period of settling in the UK. Globally we will continue to progress at 20%-30% a year I would guess. We haven't had a year that has been as low as 20% growth. They have all been 40%-50% growth over the last six years.
"In terms of our ambitions - to have perhaps 1% of volume, 3% of value and 10% of profits is kind of the back of the envelope look of where we want to be in the market."
For further information on the global sports and energy drinks market, visit:
Companies: Red Bull
A recent report on the UK soft drinks market showed that growth in non-carbonates at the expense of traditional carbonated soft drinks is much less marked in the on-premise sector than in the take-hom...
Functional soft drinks are relatively undeveloped in Latin America in comparison with Europe but there is significant growth potential. Hope Lee of industry analysts, Euromonitor International, examin...
Conflicting reports circulated this weekend over whether Bacardi International is looking to form a counter-bid for Allied Domecq....
Todays press reports into Pernod and Fortune's hopes to buy Allied Domecq warn of possible conflicts and set a date for completion....
Pernod Ricard and Fortune Brands are hoping to buy Allied Domecq for around 670p per share, according to press reports....
LVMH has said it is not looking to buy Mumm Champagne from Allied Domecq....
Equity analyst Legg Mason has downgraded its rating of the US brewer Anheuser-Busch from "hold" to "sell" after the company issued a statement saying it expected sales below previous estimates....
The US brewer Anheuser-Busch Cos has reported first quarter 2005 domestic beer volumes below previous expectations....
- What Brexit means for drinks industry? - Analysis
- The post-Brexit winners and losers - Analysis
- What does Brexit mean for AB InBev's SAB deal?
- Interview - Seedlip founder, Ben Branson
- Customisable drinks - The next consumer trend
- The UK Referendum - just-drinks Live Blog
- Pernod Ricard exec shuffle - Denis O'Flynn leaves
- Ex-William Grant CEO Stella David re-joins Bacardi
- UK spirits producers braced for Brexit impact
- C&C Group will be a Brexit victim - analyst
- Adultifying Soft Drinks; Capitalizing on rising adult demand for non-alcoholic beverages
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends
- Global non-Scotch whiskies insights - market forecasts, product innovation and consumer trends
- Spirits and Wine: Corporate Overview
- Global RTD insights - market forecasts, product innovation and consumer trends