Energy drinks in Celsius
Courtesy: Celsius Holdings
PepsiCo announced Monday a $550 million investment in energy drink maker Celsius Holdings as part of a long-term distribution deal with the smaller company.
Shares of Celsius rose 8% in morning trading after the news, bringing its market value to $6.7 billion.
Celsius expects to gain more shelf space in existing retailers and expand more into independent stores such as gas stations. Pepsi will help with distribution starting Monday.
Pepsi’s investment in Celsius means a minority stake of about 8.5% in the company. The food and beverage giant will also nominate a director to serve on the Celsius board.
Celsius, founded in 2005, has seen explosive growth in its energy drinks during the pandemic. In the first quarter, its US revenue jumped 217% to $123.5 million.
The company presents its drinks as “healthy” energy drinks aimed at younger consumers who are active and exercise. Celsius drinks include ingredients like ginger and green tea and no artificial preservatives or sugar. The company also claims the drinks have thermogenic properties, meaning drinking them can help increase metabolism and burn calories.
For Pepsi, the deal helps strengthen its ties to energy drinks. The category is one of the fastest-growing non-alcoholic beverage segments, and Pepsi has been doubling down on energy in recent years as soda consumption declines. In early 2020, it bought legacy energy drink maker Rockstar for $3.85 billion in a bid to revive its sales. Celsius recently overtook the brand as the fourth most popular energy drink in the US
Pepsi had previously bet on another fast-growing company, Vital Pharmaceuticals’ Bang Energy, through an exclusive distribution agreement. But the relationship quickly soured, leading to a legal battle that ended in Pepsi’s favor. In June, the two companies parted ways earlier than expected. The breakup has fueled speculation that Pepsi will try to acquire Monster Beverage or Celsius to increase its market share in the energy drink category.