PepsiCo's Rockstar buy takes energy drinks fight global - comment

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The Wall Street Journal got early wind yesterday of PepsiCo's swoop for Rockstar Energy Beverages, publishing an unconfirmed report on the deal hours before PepsiCo released an official statement. In hindsight, however, the signs that PepsiCo was set for a major play in the energy category were all there.

PepsiCo has paid US£3.85bn for Rockstar Energy Beverages

PepsiCo has paid US£3.85bn for Rockstar Energy Beverages

After the full-year results announcement in February, CEO Ramon Laguarta said he wants to do a "better job" with Rockstar, which PepsiCo distributes in North America. Plans were in place to "develop and reinvest".

"The consumers are looking for more caffeine," Laguarta. "It's clear that this is an opportunity that they're looking for."

Another smoke signal went up last year, when Laguarta played down the chance of PepsiCo copying The Coca-Cola Co with the launch of an energy drink under the company's most famous brand. At the time, Coca-Cola was ramping up the global roll-out of Coke Energy. Core energy consumers, Laguarta said, are looking for "something different than what brand Coke or brand Pepsi can offer".

Which brings us to yesterday's announcement on Rockstar, a bespoke energy drinks brand that, according to PepsiCo, can grow into a global powerhouse while leveraging its new owner's existing energy portfolio. More importantly, the purchase sounds the starting gun on a new battle in PepsiCo and Coca-Cola's beverage war as the world's biggest soda companies finally get serious in energy.

It is a fight in which Coca-Cola has a headstart. Alongside Coke Energy, Coca-Cola has a minority stake in Monster Energy owner Monster Beverage Corp, targeting the fast growth in energy that has stolen share from carbonated sodas such as Coke and Pepsi and threatened the traditional business strategies of the larger beverage multinationals.

Until yesterday, PepsiCo's lack of action in energy contrasted with Coca-Cola's vigour. Energy offerings from PepsiCo were largely from its Mountain Dew soft drinks brand, with niche consumers such as gamers served with the likes of Amp Game Fuel and athletes with a caffeinated version of Gatorade called Bolt24. Rockstar may only account for 4% of the global energy drinks market by value, according to GlobalData, but the company offers PepsiCo a platform to bigger things in energy.

There's much to play for. According to GlobalData, the global energy drinks market grew by 8.9% in 2018, making it the fastest-growing category in non-alcoholic beverages. That growth was driven by Asia (+18.7%), Eastern Europe (+16.9%) and Africa (+14.0%). China, meanwhile, became the world's biggest energy drinks market after overtaking the US, signalling that the real action in the category lies beyond PepsiCo and Coca-Cola's developed markets.

Meanwhile, both companies are chasing the energy drinks category's real pioneers.

For years, the world's energy drinks market was dominated by Red Bull, but Monster - buoyed by a sea of cash from domination in the US and its Coca-Cola partnership - has closed the gap by stretching its tentacles into overseas markets. PepsiCo will hope Rockstar can similarly compete on the big stage and expand beyond its current few dozen export markets as the energy drinks showdown goes truly global.

Forget the Cola Wars, here comes Coca-Cola and PepsiCo's Coffee Clash - Click here for a just-drinks comment

Expert Analysis

PepsiCo Inc - Strategy, SWOT and Corporate Finance Report

PepsiCo Inc - Strategy, SWOT and Corporate Finance Report

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