As he sits down with his third energy drink of the day, Celsius Holdings CEO John Fieldly exerts a laid back demeanor that stands in sharp contrast to the pick-me-up his company's beverages provide.
But the 40-year old's message is decidedly more upbeat as Celsius finds itself in the sweet spot of a "renaissance" in the $14 billion beverage category behind its energy-boosting, calorie-burning drinks despite going head-to-head with industry juggernauts Monster, Red Bull, PepsiCo's Rockstar and scores of smaller competitors.
Despite the pandemic, sales are rising double-digits annually and its stock price has soared nearly 400% since this year in an otherwise turbulent market amid optimism that its push into stores such as Walmart and Kroger is just the start for a company once relegated to shelves at vitamin stores and gyms.
"We're not that far off from being a billion-dollar brand," Fieldly said during a hour-long interview at Celsius' headquarters in Boca Raton, Florida. "At this stage of this company, we need to keep our foot on the gas and keep our foot on Celsius. We have a lot of work ahead of us."
The U.S. energy drink sector is one of the strongest performers in the nonalcoholic space. Energy drink sales totaled $9.3 billion in 2014 and are projected to more than double to $19.2 billion in 2024, according to Mintel. Even with the pandemic, which has lowered retail traffic and prompted consumers to spend more time at home, sales are poised to jump 5% in 2020 compared to the double-digit increase previously predicted.
For smaller energy drink companies like Celsius, the huge size of the category offers a lucrative payday if they're able to grab even a small slice of the market. The category is currently dominated by Red Bull with 41.7% of dollar share at U.S. retail stores for the 52 weeks ended Oct. 4, followed by Monster at 31%, according to data from IRI, a market research firm. Meanwhile, upstart Bang has quickly captured just over 9% of the market.
"We're not that far off from being a billion dollar brand. At this stage of this company, we need to keep out foot on the gas and keep our foot on Celsius. We have a lot of work ahead of us."
CEO, Celsius Holdings
Euromonitor estimated Celsius had virtually no measurable brand share in 2018 when it posted sales of $52.6 million, but increased it to 0.2% the following year when sales jumped 43% to $75.1 million.
"Health and wellness is breaking into so many different categories," said Howard Dorman, a partner and practice leader for the food and beverage sector at Mazars. Celsius is "small enough to be nimble to react to the market."
Data released by Nielsen showed sales at Celsius remain robust, surging 61.5% in measured channels for the 52 weeks ended Sept. 5, giving it a 0.7% share. It outpaced growth in the broader energy drink category, which sat at 7.5%, during the same period. Its competitors posted mixed results, with Monster rising 4.8%, Red Bull up 10.1%, PepsiCo, including Rockstar, down 8.2% and Bang up 17.1%.
Expanding beyond the barbell crowd
Fitness-oriented drinks are viewed in the energy space as another way to expand the category. As consumers move away from beverages loaded with sugar and ingredients on the label they don't recognize, companies offering better-for-you products are among those that could be the biggest beneficiaries.
Celsius, Monster Energy's Reign and PepsiCo's Rockstar are some of the most prominent brands to take that one step further by incorporating into their drinks thermogenics to increase a person's metabolism to burn more fat and calories when they exercise.
Caleb Bryant, an associate director of food and drink at Mintel, said Celsius is emblematic of the broader push by energy drink makers to position themselves as not only a pick-me-up for lethargic consumers but as a go-to for exercise buffs attracted by its lack of lack of sugar and calories, as well as ingredients that provide some workout benefits. Celsius also stands out by tapping into unique flavor combinations for its sparkling and noncarbonated drinks, such as peach mango green tea, kiwi guava and Fuji apple pear.
"They're doing a lot of things right within the broader energy drink space. Now, others are kind of following that path," Bryant said. "The big question is, can [Celsius] appeal to those non-energy drink consumers, many of whom tend to have a fairly negative [perception] of energy drinks?"
While Celsius built its reputation initially as a drink for gym goers and fitness enthusiasts, its healthy reputation has helped it transcend beyond the barbells and bench press crowd to consumers lifting boxes of cereal and granola bars at prominent retailers.
Today, Celsius can be found on Amazon and in more than 74,000 brick-and-mortar locations, including Target, Walmart, CVS and 7-Eleven, up from 40,000 stores just two years ago. This expansion has proven especially valuable during the coronavirus by offsetting a drop in sales to gyms and fitness centers.
Fieldly said until 2019 there was "a lot of hesitation" among retailers to devote meaningful shelf space to the functional energy drink category because of uncertainty as to whether it would gain momentum or was merely a fad. At first, stores gave Celsius room to sell two or three flavors. Now, retailers are setting aside more space for performance energy drinks and "there's only a few brands they can put in there," he said.
During the company's second-quarter earnings in August, Fieldly said demand remains strong and its brand is "significantly outpacing the growth of our peers across an expansive number of industry channels.” E-commerce sales, which have thrived during the coronavirus outbreak across the food and beverage industries, are especially robust at Celsius, more than doubling from a year ago.
Big interest by big soda
As energy drink sales continue to reliably grow each year, soda titans Coca-Coca and PepsiCo have taken notice through new offerings of their own or by doling out billions to make an acquisition.
In January, Coca-Cola, which owns an 18.5% stake in Monster, launched its new Coca-Cola Energy line designed to appeal to cola drinkers rather energy drink consumers. PepsiCo spent $3.85 billion in March to buy Rockstar Energy, and then a month later announced a distribution deal with Bang. Keurig Dr Pepper entered the mix in 2019 with an investment and distribution deal with Adrenaline Shoc to appeal to consumers looking for less sugar and more natural ingredients.
Bang "represents a nice win for us and it really helps us fill out the energy portfolio as we move to a more assertive posture on this category," Hugh Johnson, PepsiCo's CFO, said during the company's first quarter earnings call in April.
Analysts said the emergence of the cola players in the energy drink space could be good for companies such as Celsius by bringing new consumers into the category through innovation and marketing.
"The main beverage players, they're taking the energy drink market quite seriously," Bryant said. "If you look at products like Coca-Cola Energy, that I think has the potential to bring new consumers into the market because it's the Coke brand that everyone loves, but it's an energy drink."
"The big question is, can they appeal to those non-energy drink consumers, many of whom tend fo have a fairly negative [perception] of energy drinks."
Associate director of food and drink, Mintel
Fieldly agreed, noting that after some initial concern at Celsius, the consensus is that Coke's presence will attract consumers to the category who will then explore what else is available. Shoppers will try different brands, but move to Celsius because of its better taste, exotic flavors and higher level of vitamins and nutrition, he said. Coca-Cola's presence also will put more pressure on energy drink companies to innovate.
"It's good for the category," Fieldly said. "Is it going to make it tough? Absolutely. It's more slots taken out of the door. ... but there's a lot more growth opportunity in the category."
'A formidable barrier'
While energy drinks have a dedicated base, Mintel estimated more than half of U.S. consumers are not purchasing the beverages in large part because they believe they contain too much sugar, caffeine or simply don't taste good.
This "presents a formidable barrier to trial," Mintel said in a report issued in May. "Despite loyalists that keep the category flourishing, conversion of non-users is extremely difficult, but necessary to sustain the sales trajectory for the long term."
Without mentioning brands such as Celsius by name, the report noted an energy drink that delivers on taste and cleaner formulation with lower caffeine and sugar could open the doors to attracting reluctant non-users to the category.
There are challenges that exist among existing users too. Mintel found even among energy drink consumers, the beverage is not their go-to drink when they need a boost, providing evidence there is still stiff competition from coffee and other caffeinated beverages. The market is further complicated by the fact that fewer than half of high-frequent users stock energy drinks at home and for medium- and low-frequency consumers energy drinks are impulsive, need-based purchases.
Nick Johnson, an analyst who covers Rockstar and Monster at Morningstar, said performance energy drinks, much like other subsets in the category such as those made from dairy or ones that are high in protein, are unlikely to ever command a dominant share to the point where they come to define the multi-billion dollar beverage segment.
But for energy drink manufacturers, expanding into performance drinks is a logical extension as they look to compete in as many categories and consumption occasions throughout the day. A consumer, for example, could grab an energy drink to wake them up in the morning or for an afternoon boost, while turning to another beverage before they work out. Johnson estimated performance could eventually command about 10% of the category.
"It's not going away. I don't think it's a fad," he said. "It's bringing new consumers into the category."
Big bang on a small budget
With an annual marketing budget that equates to what large CPGs spend during the course of a few weeks, Kyle Watson, Celsius's vice president of marketing, said the company has to find ways to stretch its dollars to promote its brand and connect with consumers. It has a large runway ahead for growth, having penetration in 1% of U.S. households, Fieldly said.
Before the pandemic, Celsius would do 50 brand events each quarter where it would sponsor gatherings such as tennis tournaments or marathons to enable people to sample the product and associate the energy drink with those experiences. During the Super Bowl in Miami in February where the average television ad costs $5.6 million, Celsius instead plastered its brand on a commuter rail train and went to parties and events attended by fans and players.
Beyond its own advertising, Celsius is highly dependent on its team of 500 brand ambassadors who distribute the products at area events and to people they know who might later purchase it on their next shopping trip. Watson said these individuals are not paid to promote the brand and do it because they like it, creating greater authenticity around the product with consumers.
"We have to get creative because we don't have the kind of money that the big brands have," Watson said.
During the pandemic, Celsius shifted its marketing dollars from in-person events to online. It sponsored free workouts on Instagram with the hashtag #SweatWithCelsius. It also has given away hundreds of cases of its beverage to first responders.
It has taken several years for Celsius to establish its reputation as a healthy, go-to offering. As Celsius moved beyond gyms and health clubs into mainstream retailers, the perception has trickled down from trainers and gym-goers into the average consumer interested in staying fit and giving themselves a boost when they work out.
"The cool crowd is drinking the product. My trainer is drinking the product, and you're likely to continue to drink the product. You see us at the gym. You see someone healthier, fitness-focused drinking the product, you're more likely to try that," Watson said. "That's what allows us to radiate out very cost effectively. And, yeah, that's taken for us years to build."
Analysts speculated Celsius' rapid growth and position in the functional energy drink space could bode well for a bigger player to buy the company, helping inject it with cash to compete while giving it a broader national distribution network to replace the piece-meal framework it currently has in place. But Fieldly insisted he isn't focused on a deal.
“My mandate from the board of directors is to drive profitable growth and build a company out on a global basis. Never did anyone talk about putting the company up for sale or anything like that or hire a banker to go pitch the company," Fieldly said. "It's bigger, there's like a massive opportunity here. You know, is everything for sale for the right price? Yeah, sure.”