The Incredible Rise of the Celsius Energy Drink

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1:22Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, we're in the office drinking Celsius energy drinks. I'm just going to start this one like really directly. Wait, should I do the ambient sound? Oh yeah, let's do it.

1:41There we go. Okay, yes, you can't get better than being in the office drinking Celsius. It's not that early actually, it's nine in the morning. So we needed the caffeine boost. This is actually my second one of the day. So I've had two, I'm on my second can of the Celsius energy drink. And also I had a coffee today. See, people are always like – I love caffeine. People are always asking, oh, does Joe just not sleep? How does he get up so early in the morning? The answer is no, he doesn't because he has like three Celsius and two coffees and who knows what else. Okay. So we could talk a lot about my weird sleep patterns or my caffeine consumption patterns.

2:19But speaking of Celsius Holdings, this energy drink that we're both drinking in the office right now – Or speaking of Celsius, it's owned by a company called Celsius Holdings. This was like a$3 stock in 2018. Today, it's$167 stock. So just an absolutely extraordinary mega home run winner for the company behind this energy drink. And the thing is, I don't know why, and I don't know why I'm drinking it. Like, why am I drinking Celsius and not Monster or Red Bull? I don't know. It's something in the air. Well, I was going to ask because you introduced me to Celsius and you're like, oh, we got to go get a Celsius.

2:58And at the time had never heard of it before. How did you hear of it? Why did this become a thing? I think like, you know, the cool I go to the gym and it seemed like the cool people at the gym were drinking it or they had it in the they have it in the refrigerator at my gym. And I think like, I don't know, I probably saw someone on Instagram drinking it and then I started drinking and then I posted about it. And then someone was like, oh, you know, it's publicly traded, which I didn't even realize. and then I've like been obsessed partly around I don't know like I've just sort of been fascinated but like where did it come from what like how does this happen that a new brand emerges and we're all drinking it like who where did it come I just don't like I want to know where it came from because it's now it's everywhere yeah but I don't know why well also the weird thing about energy drinks is I feel like you know if you go into a 7-eleven or a bodega or whatever are there are so many of them.

3:47So many. And there seem to be new ones all the time, and it's difficult to keep track. And yet some of them really do have staying power. So we did an episode previously about Monster. That stock has been absolutely phenomenal over the years. Red Bull is the other classic one. And I don't know, it just feels like it's such an interesting product in that there must be insane amounts of competition, but if you can get it right, It seems like it can be really, really profitable. Right. I mean, and in the end, like, I mean, I know that, you know, like, supposedly, like it says on the can of Celsius, it's fat burning.

4:23I'm like skeptical of any of those claims. But, you know, whatever. I'm not a scientist. But like they all seem like the same, right? Which is a lot of caffeine and then either some sugar or an artificial sweetener of various sorts, some different flavors. None of them are like that great. You're not really drinking them for the taste. Not really. But again, like they are kind of the same. So why do people gravitate? Like, why do some people drink Celsius? Who drinks a Monster? Who drinks a Red Bull? Who is drinking those Swedish fish-flavored energy drinks? That's what I want to know. So this gets to the other thing, which is that, as you mentioned, if you go into any bodega or 7-Eleven, there's so many different brands of energy drinks these days.

5:00And some of them are, like, really weird. Like, there's Skittles-flavored ones, and I think an Oreos-flavored one, and a Swedish fish-flavored one, and ones aimed at gamers. I don't—it's all very strange. So how do you win? Why do some companies win? And you mentioned some of them are just such big winners, like Monster, as you mentioned, is one of the best performing stocks of all time. It's been better performing than Amazon over the years. Celsius, obviously just incredible. So there's so much money in the space for those companies that can get it right between distribution, branding, and product.

5:32And so I think the question is like, what does it take? Why do some companies catch fire? Yes, I have many, many questions. I have many questions. So in 2021, we did an episode, as you mentioned, on the incredible performance of Monster Beverage. Our guest then was Mark Astrakhan. He's an analyst at Stifo Nicholas. And we have him back two years later. Actually, that was February 2021. So about two and a half years later. And now we are talking about a new energy drink winner in Celsius. So Mark, thank you for coming back on Odd Lots. Yeah, thank you for having me. I think the last time I was doing this, I was locked in my six-year-old son's bedroom doing this.

6:09So it's nice to be in person. All in person, all three of us. You were drinking the sparkling, it's apparently the top selling Celsius flavor. How do you get to be the energy drink guy? You show up. I started covering Monster as the only publicly traded energy drink company, probably about, oh gosh, 17 or so years ago. At the time it was, hey, this is a fad. When is it going to go away and why are you recommending this thing? And 17 years later, nobody's asking about the fad piece, just about the new brands coming in. So it's sort of like I can't get out of my own way at this point. People want to talk about the space and it's sort of ballooned around me.

6:48How many energy drinks do you need to drink as part of this job? That's a good question. On certain days, you can drink a lot. On certain days, you get home at like nine o 'clock at night and you wonder why your hands are still shaking. And you remember, right, I had six or seven of these over the course of the day, especially during earnings season, during trips to go see energy drink companies, to go to trade shows and whatnot. Yes. Oh, God. We're going to talk for like three hours about this. We're going to go along. No. But it's interesting. I remember, so like right before, I want to get to like, why are we drinking Celsius and not others?

7:20But right before the recent Celsius earnings, and I think they hit it out of the park, I went to my local bodega because I wanted to pick one up before going to the gym. and I looked and I didn't see them. There were like none on the refrigerator. I'm like, oh, what's going on? It turned out the answer was literally the day before they got a whole new Celsius refrigerator. And so they had like, the Celsius had been moved to their own refrigerator within the bodega and they had way more. I just didn't see it at first. So that was like a sign to me. It's like, oh man, they must be like doing really well.

7:51And they must be moving a lot of product if like, you know, there's a special Celsius branded fridge. Are those like when you do your work as an energy drink analyst? Is that what you're looking at? Are you counting the number of cans on the shelf? What is the field work? Probably back in the day, you could do that. At this point, you're talking to folks who are putting the product on the shelf. You're talking to the distributors that are managing the folks that are going into stores every day and resetting. And you also have what we like to call scanner data, which is basically data that we pay for that measures how much product is purchased on a weekly or biweekly basis.

8:25So you sort of cheat and you get to see the revenue, you get to see the volumes, and you can slice and dice the data into grocery stores and into convenience stores in all sort of which ways and have a whole lot of fun with it. My favorite brand of analyst research is always when they just send people outside to the stores. Like they send them all to the shopping mall to measure like retail footfall and things like that. But Mark, why don't we start sort of at the beginning and maybe go back in time because Joe mentioned the Celsius stock chart. I'm looking at it going back to, I think, 2007. What is this company?

9:00Were they always making these energy drinks? Because Celsius itself, I feel like, is fairly new, or at least I had only heard about it relatively recently. What have they been doing for the past more than a decade? Well, essentially the same thing. It's just a question of showing up and getting increasing brand awareness, people knowing the product and sort of trying it and trying it again. I like to call it a 10 or 15 year overnight success in that the product has always essentially been the same. You have a lot more iterations of it today, but essentially it's the same product. And they had struggles for a while in terms of getting the product on shelf, getting people to understand what it was or why they wanted to drink it.

9:40And then it sort of blossomed as you had more product on shelf. The joke, of course, is like 80, 90 % of success is showing up. And then once you get there, you have to figure out how to keep people coming back and in this case consuming the product. And so I think that's an interesting sort of story in and of itself in that you have to understand how to get on shelf or understand why these products get on shelf because that's really what drives a lot of the opportunity to be successful. So as you can imagine, it starts with money. And so you have a bunch of beer and legacy soft drink distributors selling this stuff.

10:15And they're always on the lookout for the newest and latest and greatest products to increase consumption of stuff on their trucks, right? You think about a beer or soft drink distributor, you've got a truck, you've got stuff on shelf. And so if it's selling well, great. If it's not selling well, you're trying to figure out what you can put on the shelf. And so from a volume standpoint, you think about beer distributors and volumes have been declining for a long time. And so they're always looking for things, especially outside of alcohol, to put on those trucks that ultimately sell. And so if you go back 15 years ago, Monster, which was the up and comer at the time, goes and does a deal with Anheuser-Busch.

10:49A few years later, Coke gets a little bit jealous and says, man, this is doing really well. They strike a deal. So you have 50 % of Monster's business in the late 2000s going through Anheuser-Busch, 50 % going through Coke. 2014, Monster and Coke announced a big asset swap, including Coke taking what's now a 20 % stake in Monster. As part of the deal, Monster has to put all of its distribution into the Coke system. So you leave 50 % of the Anheuser-Busch network high and dry. They're looking for products to replace. Our math is like a billion dollars of profit at that point that beer distributors lost when Monster decided to go to the Coke system.

11:27So we're talking lots and lots of money. We're also just talking about trucks to go to the same store at the same time of day, every day with the same driver. You already paid for the truck. And so you're trying to figure out a product that you can put on there to make money. So those distributors went out and found a brand called Bang. I've had some of that. It's not bad. But it's like their flavor is like they have a little more candy flavored, like bubble gum flavor. And it's a little I go back and forth. But anyway, keep going. Yeah. So so Bang replaces Monster in a lot of those Anheuser-Busch houses.

11:55They do it across the country. They move from the 50 percent to 100 percent distribution by late 2017, 2018. The product is just flying off shelves, hundreds and hundreds of percent growth. The brand goes from a nothing sort of like where Celsius was 10, 15 years ago to a four or five market share and starts to get the attention of Monster. and a whole bunch of these other companies. By 2019, run rate revenues are probably approaching a billion dollars at retail. It's got something in the high single digits of market share. Like a lot of brands, you look for the better distribution. And so by early 2020, Pepsi decides to go out and buy a brand that they had a long time distributed called Rockstar because Rockstar had an exclusive relationship with Pepsi that didn't allow Pepsi to sell any other energy drink brands.

12:38And once they bought Rockstar, they allowed themselves to go out and do more distribution deals, including going after Bang. So early 2020, Bang moves over to the Pepsi system. The Anheuser-Busch distributors who have been selling Bang and making lots of money doing it are like, uh-oh, now what? And they go out and they find this brand, Celsius. And they put it on trucks. And essentially at that point, it's kind of muscle memory to put the product on the same space that Bang was losing to go over to the Pepsi system. And all of a sudden, Celsius is everywhere. And obviously, it's get on shelf.

13:09As I said, 80%, 90 % of success is getting there. And then once If you get there, you've got to keep it.

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14:42Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokered services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA, and SIPC. Crypto trading provided by XeroHash. Complete disclosures available at public.com slash disclosures. So Monster kind of shot itself in the foot with the Coke deal, it sounds like, or at least they made a hole for a potential competitor to come in and fill.

15:17Well, they didn't. They didn't. Monster stock's probably up four or five X. This is true. From 2014, 2015. Monster got great distribution through Coke domestically, but what they more got was international. Joe's had so much energy. He just knocked over his Celsius. I just spilled my can on my keyboard. I was worried I was going to do that. Well, okay, keep going. It's not too bad. They really work. We're like literally buzzing in the studio. All right, keep going, keep going. So yeah, Monster also got a big international distribution through Coke. You know, Coke is one of the biggest, if not the biggest, and best distributed brands around the world, and they have their distribution system.

15:58So Monster got a great, great distribution from Coke. But yes, they also gave up their slots with others and sort of created opportunities for other brands to come in. But I also think, and we'll probably touch on this, there's an evolving consumer taste going on here as well, right? So it's not just, hey, I want to drink this Celsius. There's a reason behind it or why Ghost or C4 or Alani Nu or all these other upstart brands have done what they've been able to do. I definitely want to get into that. But before we do, I have a sort of like distribution versus customer preference question. And I actually don't drink a lot of energy drinks on a normal basis, but I do drink a lot of Diet Coke and things like that.

16:39And at my local CVS, they are constantly running out of, actually the irony is I mostly drink caffeine-free Diet Coke. And they're constantly running out of it. It is a certainty that every week they will run out of caffeine-free Coke, but they will have hundreds of bottles of vanilla-flavored Coke and God knows what else. And my question is, it is clear that consumers are expressing a preference here by buying the stuff they like and leaving the stuff that they don't. And yet the shelves seem consistently filled with, it feels like things that the brands are trying to push. So how do the decisions about what to stock and distribute actually get made?

17:19Well, I guess in theory, it should get made on analytics and what people are consuming. And so going through the data that I alluded to before on what people are purchasing, I mean, essentially, that's what drives the decision. I think your caffeine-free Diet Coke is probably one of those brands that may be a little smaller today than it was 10 or 15 years ago. And so I think they might be surprised. It's sort of like there was an old Simpsons episode when I think somebody bought Al Gore's book. And it went through all of these machinations. And it back to him. And all of a sudden, somebody bought the book.

17:50And he put on a record and said, celebrate good times. It's sort of like, I remember this episode. I remember that. I'm sort of thinking there's that domino meme. It's like monster signs deal with Coke and then like one distributor has a hole to fill and then the next distributor then has a hole to fill. And so like this big game of musical chairs and suddenly we're drinking Celsius. So one of my questions is if you look at some of these big distributors like a Pepsi or an Anheuser-Busch that is sort of senses, okay, beer consumption is down. We need something to fill this gap because we just lost this client or partner to another distributor, et cetera.

18:30What is the process by which they go out and find the next one? Is it a sort of mutual bidding thing where the small upstart energy drink companies try to fill that spot? How does that process work? Do they look for a brand that seems to have something? Talk to us about how that works. I think it's all of the above. I don't think there's any special secret sauce here. I think you can kind of arrive at the same answer in a lot of different ways. Remember, you have all these companies that are going in and out of stores all the time, that they're talking to distributors, talking to companies. And so they have some idea of what's selling and what's not selling.

19:04They have some idea of where consumer tastes are evolving to. And so some of it is you're just trying to find the next big thing, even though there are various examples where you've tried and failed and you've moved on to the next thing. And so from their standpoint, you can put a whole bunch of stuff on the truck and what works you stick and the rest you kind of move on with. And I think there's a lot of examples of that. I think people talk about the big winners over time and forget some of the smaller brands at the same time that have tried and failed. I mean, gosh, remember the Jolt brand in the 80s, right?

19:33That was an energy drink before its time. And yet it never really took off. I used to drink Surge when I was in high school. It was another one that we used to get. I mean, obviously like a distribution and just sort of the pure muscle of the trucks and everything and shelf space is important. But But what about the role of brand? And so Celsius seems to have an athletic – like I mentioned – I saw the people at my gym drinking. I was like, oh, what's that? It seems like they've sort of branded themselves as kind of the one for athletes and they have this fat-burning claim, which like I said, I'm skeptical of.

20:09But how significant is that in terms of the staying power for these companies? Alani New is supposed to have vitamins as well, right? They all have vitamins. Oh, really? monster has vitamins of course you can get your b12 fix anytime you want all right no more flintstones vitamins for me something like that i i i think it's it's it's it evolves into a question of who's drinking this in brand positioning right if you go back 15 20 years ago and maybe even longer red bull created this category yes in most of the world but it evolved into a product that was consumed or still is consumed by 18 to 35 year old, largely white collar males, more consumed on premise than any other brand, meaning bars and restaurants.

20:56Monster decided that they wanted to go after a different clientele. They offered a 16 ounce can. They geared it on a more value oriented proposition, selling essentially twice the volume for the same price as Red Bull. It evolved into more of a blue collar construction worker, sort of not on premise, not bar and restaurant business that was still is the core consumer of Monster today. Rockstar was a brand around 15, 20 years ago that did kind of the same thing, sort of positioned itself as a little bit more value priced as it evolved over time. And then really, the category didn't do a whole lot.

21:36You had Five Hour Energy, if you remember that, that came in maybe late 2000s, early 2010s, and was offering obviously a shot, so in a really concentrated form of caffeine. But you had a period there that nothing else was really changing until really Bang came along and sort of positioned this as more of a performance gym-oriented brand, as Joe was talking about. And I think you had a whole lot of other brands and people that saw the success of this and tried to figure out how they could participate in this category. Because remember, it all goes back to the money. It all goes back to the categories importance to the store selling this stuff.

22:09Volumetrically, a lot of beverage categories are declining. Energy as a category continues to grow because the selling price is higher. You make more money selling an energy drink. It becomes a bit of a self-fulfilling prophecy here. So you want to put more stuff on shelf. I mean, interestingly too, it continues to evolve. I was looking at this the other day. Total distribution points for energy drinks are up over 40 % over the last three years in stores. There aren't many or any other categories that you could say that about in beverages that have seen shelf space increase. I mean, seltzers and things like that, which are now on the decline.

22:38What kind of stores are they going into? Where's the expansion coming from? It's coming from everywhere. But the bread and butter is convenience stores. 70 % of energy drink sales are largely sold in convenience stores, 7-Eleven, Speedway, places like that. And so back to what I was saying, you have these just different propositions. So Celsius, I mean, uniquely, it's very interesting, is a little bit more older male and female. It's a little bit younger female, which is very different than the Monster and Red Bull consumers. Alani, you talked about more older female. C4 Ghost are a younger, more performance and lifestyle brand, folks going after the gym.

23:19And so each of these has sort of found a niche. Yes, if you look at the Venn diagram, there's probably overlap somewhere in there, but they've kind of found their niche. And what's really fascinating is that the whole category continues to grow. And so Monster continues to grow. Red Bull continues to grow. Sure, they're losing a little bit of share around the edges, but the category, who would have thought 15, 20 years ago when I started covering the energy drink category that here we are in 2023 and the category is going to be growing 15 % on a dollar basis in 23. It was up 10 % in 22, 15 % in 21.